Brazil is a nation rich in culture, diversity and business opportunities, but it is also known for its bureaucratic challenges, especially when it comes to accounting.
When an enterprise considers starting a business in Brazil, it is essential to understand not only the country’s cultural nuances, but also the complex ways of local accounting.
Brazil is practically an incubator for business opportunities. With a diversified economy ranging from agriculture to technology, the South American country offers a favorable environment for foreign investors to explore new horizons.
However, when diving into the Brazilian business scene, it is crucial to recognize the challenges inherent in local accounting and bureaucracy. The complexity of the tax system, the variety of tax regimes and the frequent changes in regulations can present considerable obstacles, especially for those starting their business in the country.
Accounting in Brazil: an overview
According to the TMF Group, Brazil is the third most complex country in the world to do business. According to the Global Business Complexity Hub, it is before France and Greece only. The study covers 78 countries responsible for 92% of global GDP and 95% of foreign direct investment (FDI) flows.
Accounting in Brazil is a journey that requires technical knowledge, as well as a thorough understanding of local legislation, which tends to change quite frequently.
From choosing the right tax regime to navigating the process of starting a business, every step requires attention. Despite this, there is some optimistic news: along the last years the Brazilian government has worked to approve a number of measures aimed at simplifying accounting in Brazil, the main one was the approval of the New Tax Reform, for example.
In this article, we will explore the key aspects that make Brazilian accounting so challenging and, at the same time, discuss strategies for simplifying and tackling these challenges.
If you are contemplating starting or expanding your business in Brazil, embark on this journey with us to understand the complexities and opportunities that await in one of the world’s most promising economies.
What has been done to simplify accounting in Brazil?
This issue has been discussed in Brazil for decades and has now received greater attention from Brazilian parliamentarians.
Entrepreneurs and representatives from various sectors of the economy have longed for measures such as:
- Simplifying and modernizing legislation – Aiming to simplify procedures, consolidating laws and codes into a single form and providing greater predictability and legal certainty.
- The standardization of processes as a way of simplifying compliance with tax obligations.
- Reducing bureaucracy – Reducing and simplifying the processes of opening and regularizing companies.
The measure that most met these demands was the new tax reform approved by the Brazilian Senate and Congress. Let’s take a look at what the Brazilian economic scenario was like before the reform and what the expectations are after its implementation.
The Brazilian Tax System: Before and After the New Tax Reform
Before the reform:
In simplified terms, we can say that the Brazilian tax system was considered complex, costly and inefficient. There were numerous taxes, fees and contributions, which made it difficult for companies and citizens to understand and comply with their tax obligations. In addition, the tax burden was considered high, especially for companies, which discouraged investment and job creation.
Some of the main problems with the previous tax system:
- Excessive taxation: there were more than 60 different taxes in force, which made the system complex and difficult to understand.
- The total tax burden in Brazil was around 33% of GDP, one of the highest in the world.
- Lack of harmonization: there was a big difference in the way taxes were levied by the different federal entities (Union, states and municipalities).
- Inefficiency: The system was inefficient and generated a lot of bureaucracy for companies and citizens.
After the reform:
The tax reform simplified the Brazilian tax system, reducing the number of taxes and unifying the collection of some taxes. The tax burden was also reduced for some sectors of the economy.
Some of the main changes brought about by the reform:
- The creation of the IBS: The IBS (Goods and Services Tax) unified the collection of ICMS (state), ISS (municipal) and PIS/Cofins (federal) on goods and services.
- System Simplifycation: The tax system has been made simpler and easier to understand.
- Greater efficiency: The system aims to make tax collection more efficient and less bureaucratic.
Tax Reform’s expected benefits
The tax reform is expected to bring several benefits to the Brazilian economy, such as:
- Stimulating investment: Reducing the tax burden on companies should stimulate investment and job creation.
- Increased competitiveness: Simplifying the tax system should make Brazilian companies more competitive on the international market.
It’s still too early to assess the results of the tax reform, but the first signs are positive. The reform has simplified the tax system and this should stimulate investment and job creation, which will contribute to the growth of the Brazilian economy.
We can say that the tax reform was an important step towards a fairer, more efficient and competitive tax system, which will also bring benefits to foreigners who want to invest in Brazil.
What are the advantages of investing in Brazil?
Brazil offers several advantages for foreign investment and is consolidating its position as an attractive market for international companies.
Investing in Brazil includes several benefits, such as:
- Large and growing market:
- Brazil has the largest population in Latin America, with more than 210 million inhabitants, and an expanding middle class.
- The Brazilian economy is the largest in Latin America and the ninth largest in the world, with great potential for growth.
- The country has a diversified and constantly developing domestic market, with opportunities in various sectors.
- Abundant natural resources:
- Brazil is rich in natural resources, such as oil, natural gas, minerals, fertile land and fresh water.
- The country has great biodiversity, with potential for the development of innovative products and services.
- The abundance of natural resources offers opportunities for companies operating in sectors such as energy, mining, agribusiness and biotechnology.
- Qualified workforce:
- Brazil has a qualified and available workforce, with professionals with degrees in various fields.
- The country invests in education and professional training, with programs that qualify the workforce to meet market demands.
- The availability of skilled labor makes it easier for international companies to set up and operate in Brazil.
- Favorable Business Environment:
- The Brazilian government has implemented measures to improve the business environment in the country.
- Laws and regulations have been simplified to make it easier for companies to open and operate.
- The country offers tax incentives and other benefits to companies that invest in strategic sectors.
- Strategic Location:
- Brazil is located in a strategic position in Latin America, with access to important markets such as South America, Europe and Africa.
- The country has a developing logistics infrastructure, with ports, airports and highways that facilitate the flow of production.
- Brazil’s strategic location facilitates access to new markets and integration with other companies in the region.
What recommendations are there for foreign entrepreneurs?
Market research is recommended to identify the best investment opportunities in Brazil. In addition, seeking professional advice is another important step towards consolidating your business in the country.
It doesn’t matter if you want to open a CNPJ in Brazil (company taxpayer number), or outsource your services: it is advisable to seek advice from professionals specialized in accounting, tax and legal issues in order to understand and apply the country’s laws and regulations, establishing important strategic partnerships for entering the market and developing future investments.
Your company can even reduce the risks of investing in Brazil with specialized advice.
Europartner is the ideal partner for your business, as it has been operating in the Brazilian market for more than 15 years and has helped more than 200 companies create excellent business opportunities in the country.
Contact us now, our specialists will be glad to help you.