Brazil has a unique complexity of tax regulations which set it apart from other countries, not just across the region but compared to the rest of the world.
It's a common mistake for a company doing business in other Latin American countries to assume that starting an operation in Brazil will follow a familiar process.
In fact, Brazil has a huge variety of different taxes, with a continuous flow of regulatory changes which average 51 new tax rules every working day.
Besides the national taxes issued by the Secretaria da Receita Federal do Brasil, most commonly referred to as Receita Federal (RFB), there are regional taxes imposed by 27 states, and 5570 different municipalities, each of which imposes its own taxes.
According to The World BankResearch, Brazil requires the most time out of 264 countries around the world to prepare, file, and pay (or withhold) three major types of taxes: the corporate income tax, the value added or sales tax, and labor taxes – 1958 hours (2017 statistics) compared with a world average of 240.14 hours.
If you're a company operating in Brazil, you need to know which taxes and regulatory changes apply to you at any given moment.
A key change now is digitalisation of the presentation of information and reports to the tax authorities. In keeping with the growing worldwide trend for transparency and compliance, all companies operating in Brazil must submit their tax forms electronically via a digital system known as SPED - Sistema Público de Escrituração Digital. It integrates tax administration for the federal, state, and municipal requirements.
The original digital process covered tax and employment regulations, but as digitalisation evolved, it became clear that the two aspects needed a separate electronic approach. One system covers tax, another account covering commercial operations, clients, suppliers, inventory etc and the separate 'social' system covers hiring, firing, promotions, payroll taxes etc. Both systems share the same objective – to enable real-time monitoring to ensure transparency and openness.
As the authorities are now receiving all information electronically, it makes it easier for them to identify an issue, a mistake and non-compliance. Continuous audits trigger regulatory questions which may, in turn, lead to a tax inspection. The penalties for non-compliance can be severe, with fines ranging from 20% to 220% of the tax amounts concerned, and possible imprisonment for company managers.
The Internal Revenue Service has specialist teams constantly monitoring the biggest tax payers, which account for 61% of the Federal taxes, on a day-by-day basis, to make sure they are compliant, open, and honest.
Companies can choose to try to navigate Brazil's complex tax environment themselves through an in-house facility, but it is more cost-effective to outsource tax management to a specialist organisation such as TMF Group.
To decide whether specialist support might benefit your company, consider the analogy of someone wanted to get fit. He or she can either join a specialist gym, which has all the necessary equipment and expert instructors, or the individual can buy all the equipment to install at home, try to learn how to use it and get fit without guidance. It's more cost-effective and more likely to achieve the desired result faster, to join the gym and consult the professionals who have state-of-the art equipment.
Relate the analogy to professional taxation services, and it's more cost-effective to turn to a specialist provider, one which has an expert team of professionals well-versed in the ever-changing Brazilian tax environment.
TMF Group has been operating in Brazil for 12 years and has a dedicated taxation team which includes indirect and direct tax experts, analysts, and managers, who are constantly evaluating each day's regulatory changes to assess which apply to which client and advising them accordingly. Working pro-actively, the team advises clients in advance of upcoming legislative changes and their likely impact, so the tax calculation and payments can be done in accordance with the tax legislation in force and filing deadlines are met with accurate and timely reports.
With three offices in Brazil - two in São Paulo and one in Rio de Janeiro - TMF Brazil employs over 700 professionals supporting more than 400 clients from a wide variety of business and industrial sectors.
With the Brazilian economy still one of the world's most dynamic and fastest-growing, Brazil is a good opportunity for investment. A population of more than 200 million and increasing consumer spend makes for a vibrant market. If you're thinking of investing in Brazil and need expert help in navigating one of the world's most complex tax environments, TMF Group has the expertise and experience to support your business plans. Contact us to learn more.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.