Tax Changes for Small Businesses in Brazil

By Helen Trouten Torres, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Brazil’s Federal program of tax incentives for micro and small businesses, Simples Nacional or Super Simples, is close to raising its threshold to increases the number of participants. The plans were launched last week by President Dilma Rousseff and are expected to be passed quickly through congress. The Super Simples system involves monthly tax and social security payments being collected through a single document thus reducing bureaucracy in order to simplify the process for businesses, hence the name.

Rousseff said the project is important to increase the competitiveness of Brazilian companies by minimizing the tax burden in order to stimulate growth faced with an adverse scenario in the international economy. This is because the crisis has created, according to the president at the press conference last week, a “sea of products looking for markets.”

The project proposes to reach 8 million businesses, an increase of 50 percent, by raising the ceiling permitted of annual gross revenue of micro-businesses from the current R$240,000 to R$360,000. The roof of the annual revenue for small businesses rose to R$3.6 million. The expansion of gross income allowed for the individual entrepreneur, called MEI, will increase from R$36,000 to R$60,000.

A foreign small business owner in Rio, wishing to remain anonymous, describes: “I got the MEI because it seemed like the easiest way to get started, and it has been, but definitely the income limit is tight for living in Rio. I knew I would need to make a change at some point, but raising the limit to R$60,000 means I can use it for another year or so as I grow my business.”

Besides this, companies in debt will now be able to repay their debt in installments of up to 60 months, a move that will benefit about 500,000 companies. An added incentive for export was also included. Beyond the limit of R$360,000 for the domestic market, micro-businesses will have an additional R$360,000 for export. According to a statement at the launch by Finance Minister Guido Mantega, Brazil’s tax waiver will total R$4.84 billion with the measures.

After the release of Brazil Maior, which brings a series of stimuli to the competitiveness of Brazilian industry such as exonerations of taxes, decreased taxes on construction materials and machinery and equipment for production, Rousseff said the new plan is a first step and that the government will take further measures to stimulate production.

Many advantages are available to those who opt for Super Simple, as well as lower taxes, it also brings simplicity in the tax laws, social security and labor laws, simplifying the payment of various taxes covered by the system through a single guide.

Currently, more than 3.7 million businesses are framed within the Super Simple system, with São Paulo having the greatest number of nearly 1.1 million.

The government proposed reducing the tax rate for annual sales. For example, small companies with trade revenues between R$120,000 and R$180,000, taxes will be 4 percent, instead of the 5.47 percent which is currently charged. Another change is for industries with annual revenue of between R$1.68 million and R$1.8 million, that portion of tax drops from 10.82 percent to 9.62 percent.

Stimulation of jobs creation is also an important factor in the plan. According to the Federation of Industries, in 2007, the year the original Super Simple law first came into force, these companies created 7.2 million jobs. In 2010, according to the Ministry of Finance, the number was 9.3 million workers, an increase of 29 percent.