Brazilian Corporate Tax: SIMPLES

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Conditions:

This method is an option for small and medium-sized enterprises. It is easy to apply and the tax rates are relatively low.

Many conditions must be satisfied to be authorized to opt for this method, the main one being having a maximum of 3.6M R$ (2014 threshold) in total gross sales during the year.

In addition, there are restrictions. A company cannot opt for the SIMPLES in the following situations:

  • If there are one or more legal entities among its partners,
  • If the company itself controls another corporation,
  • If a partner is resident abroad,
  • If a partner has shares in another company opting for SIMPLES, regardless of the percentage of its holdings, unless the total turnover of the two companies does not exceed the statutory threshold of 3.6 M R$,
  • If a partner has 10% or more shares in a company opting for REAL or FORCAST scheme,
  • If the activity of the company is consulting, intellectual services, technical, scientific, sporting, artistic, regulated or unregulated (Complementary Law No. 139 of 2011).

Taxation:

The legal person subject to this method declares and pays monthly, with a single document, all taxes due (whatever there are, relevant to Federation, to Federated States, or to Municipalities).

It means that the following taxes will be paid through a single document:

  • Income Tax – IRPJ,
  • Tax on Industrialized Products – IPI,
  • Social Contribution on Net Income – CSLL,
  • Contribution to Social Security Financing – COFINS,
  • Contribution to PIS / Pasep,
  • Tax on Commerce and some services – ICMS,
  • Tax Services of any kind – ISS.

Method of calculation:

The companies opting for the SIMPLE method must apply different rates depending on whether they are industrial, commercial, or service.

The rate depends on the turnover made over the last 12 months. There are 5 tables: one for industry, one for trade, three for different types of services. We reproduce below the table IV.

Summary of tax rates on sales by sector:

  • Trade: 4% to 11.61%,
  • Industry: 4.5% to 12.11%,
  • Service: 4.5% to 27.90%.

Example of an industrial company:

The INDU company had a gross turnover of 100,000 R$ during the month of July and wants to calculate – early August – the amount of tax due.INDU realized over the last 12 months (rolling) gross sales of 1.2M R$. The table below shows the rates applicable for this turnover is 8.86%.

This rate will be applied to the July turnover:

8.86% * 100,000 = 8,860 R$

The amount of 8,860 R$ covers IRPJ, CSLL, PIS, COFINS, ICMS and IPI.

Extract from Table II – Industry:

Extract from Table 2 - Industry

Be aware! Your tax scheme does impact your clients! In the case above, the customer will pay these small amounts of IPI and ICMS through the invoice (IPI and ICMS are recoverable taxes such as well-known VAT).

If a client wants to purchase a standard product at a price of 100R$, and if he has the choice between two suppliers, one opting for the SIMPLE regime, and the other opting for the REAL or PRESUMIDO, his choice will impact directly the amount IPI and ICMS credit!

In some cases, it happened that a company changed its tax scheme in order to allow tax credit to clients; and therefore be more competitive!

“Simple” Table II- Industry

Table 2 - Industry

Conclusion:

Due to numerous constraints, this SIMPLE scheme is obviously unattractive for an International company. On the other hand, it is interesting for entrepreneurs!

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