Do You Want to Sell to Brazil? Brazil’s ‘Simples Nacional’ Regime Is Good News for Remote Vendors

I have written previously on the taxation and legal difficulties faced by non-Brazilian vendors wishing to sell into the burgeoning Brazilian market. Since the publication of Remote Selling in Brazil – A Practical Guide for Direct Mail and Web Merchants, nothing has changed in the great divide between domestic and foreign merchants; it remains the case that the only sensible way to collect local payments in Brazil is through the agency of a local incorporation. However, in recent years a new mini-company tax regime has been established to encourage the growth of smaller and home-based businesses and this is excellent news for everyone who is not based inside the country but wishes to sell there.

To be clear, the major obstacles to selling from outside Brazil remain. They are:

  • Severe taxes on the importation of products into Brazil
  • Virtual impossibility of collecting on credit and debit cards unless local acquiring is used, which necessitates use of a local company as the merchant
  • Restrictions on the exportation of money (profits or sales of proceeds) from Brazil
  • Fundamental necessity of collecting and remitting sales taxes
  • Requirement to use the national Boleto Bancario system of invoice collections, again available only to domestic companies

For decades it has been the case that the only effective way to remove the barriers to external trading into Brazil was to establish a local company and conduct business through it. That hasn’t changed, but the costs and taxes imposed on the local company have. Under the old regime:

  • The services of a Brazilian lawyer or accountant are required to set up the company, with fees from 25,000 Reais and up often quoted
  • Two local directors are required, often with high associated fees
  • A local registered office is required, again often coming at a high cost
  • Sales taxes start at the full local rate, typically about 18{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0} for all sales
  • A plethora of different taxes need to be paid at different times of year, creating significant work for the hired accountant
  • The monthly fees charged by local accountants to administer the tax and compliance aspects of the business often runs to thousands of Reais.

On the subject of sales taxes, it is important to understand that these are not added at the point of sale, as they are in the United States and Canada. They are included, like in much of Europe, but are NOT Value Added Taxes, so there is no credit for input taxes paid on supplies and services to the company. Although they are a sales tax, they are in effect a tax on the merchant as they are taken out of sales rather than being added to invoices.

What has changed is that the tax, reporting and administrative burden on domestic Brazilian companies has been significantly reduced in order to encourage growth of micro-enterprises (“microempresas” and “”Empresas de pequeno porte” or MEs and EPPs). Under the regime:

  • Only one local director is required[1]
  • The local registered office can be established at a domestic home[2]
  • Sales Taxes are significantly reduced depending on the volume of sales, and are remitted as a single combined rate. The calculation is national, without State to State variation, and the rate starts at a mere 6{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0} for low volumes. The highest rate, 17.42{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}, is invoked only if sales exceed 3.42 million Reais but are less than 3.6 million. The logical limit of sales for the new regime is thus BRL 3,600,000 per annum. Taxes are assessed and remitted monthly based on current sales levels, and an annual return is filed in March which will adjust for under or over payments based on the full year’s performance. It is important to understand that these tax rates are not progressive (for example 6{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0} on the first 180,000 Reais, 8.21{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0} on the next 180,000 Reais, and so on) but assessed at the rate applicable to the band in which the total annual sales fall. Thus a company which had sales of 3 million Reais for the year, for example, would pay tax on the full amount at the relatively high band rate of 16.98{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}.[3] The tax payment under Simples Nacional, referred to as PGDAS, covers all required federal taxes, one state tax and one municipal tax.
  • Typical set up fees for a micro-empresa, with no lawyer required, are 600-1000 Reais, or between 200 and 400 pounds sterling.
  • Having elected to join the Simples Nacional scheme, the company cannot opt out of it during the calendar year.

However, a couple of other rules do impose a higher burden than previously:

  • The company is required to demonstrate a capital value of 100 x the minimum wage for the area. This for Sao Paulo state would be 62,000 Reais (the minimum wage being 620 Reais per month). To avoid having to add to this every time the minimum wage is changed, I recommend the level be set at 70,000 Reais. There are many ways to accomplish this but I suggest that the simplest is to accumulate the proceeds of sales in Brazil until they reach this level then place them in a certificate of investment with the company’s bank. The money remains the company’s property and will earn interest, but upon enquiry from the tax office it will be easy to establish the required capitalization.
  • The company is required to disburse at least one minimum wage, which is presently 620 Reais per month. The good news is that this can be paid in lieu of a director’s fee and, if an appropriate individual is retained with use of their domestic address, can cover both that fee and the cost of an address for business registration.

It doesn’t take much work with a calculator to realize that the costs of establishing and running a company under the new regime are significantly less than those under the old. Coupled with this, early experience is that the bureaucracy surrounding the process is also significantly reduced, meaning that things are done more quickly and with less expense.

With a company established on the ground in Brazil and a single local representative, a CNPJ (corporate tax number) can be obtained, resulting in the ability to open a bank account, accept cheques, contract with the quasi-monopolistic Cielo corporation for card acquiring, and instruct the bank to issue Boletos for the merchant.

[1]However, one person can only be director of ONE ME or EPP

[2]However, only one company can be registered at a house, and it must be approved by the local council for business use

[3]The full table of tax rates for a vendor of services is as follows (based on gross annual sales):

Up to 180.000,00 – 6,00{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 180.000,01 to 360.000,00 – 8,21{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 360.000,01 to 540.000,00 – 10,26{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 540.000,01 to 720.000,00 – 11,31{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 720.000,01 to 900.000,00 – 11,40 {b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 900.000,01 to 1.080.000,00 – 12,42{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 1.080.000,01 to 1.260.000,00 – 12,54{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 1.260.000,01 to 1.440.000,00 – 12,68{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 1.440.000,01 to 1.620.000,00 – 13,55{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 1.620.000,01 to 1.800.000,00 – 13,68{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 1.800.000,01 to 1.980.000,00 – 14,93{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 1.980.000,01 to 2.160.000,00 – 15,06{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 2.160.000,01 to 2.340.000,00 – 15,20{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 2.340.000,01 to 2.520.000,00 – 15,35{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 2.520.000,01 to 2.700.000,00 – 15,48{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 2.700.000,01 to 2.880.000,00 – 16,85{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 2.880.000,01 to 3.060.000,00 – 16,98{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 3.060.000,01 to 3.240.000,00 – 17,13{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 3.240.000,01 to 3.420.000,00 – 17,27{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

From 3.420.000,01 to 3.600.000,00 – 17,42{b9b463d7d0adfdfaa6b371b07889fa6eb2ab4fb9ce04e9babd021713719539c0}

Pungky Dwiasmoro Hiswardhani

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