Then think tax regime and make the right choice! We can help.
October and November is the period of the year when most of Companies prepare the Budget for the next year. The key figures are of course Income and Expenses; but in Brazil you must also pay extra attention to taxes, and everybody knows that it’s quite difficult to take into consideration correctly all taxes applying to a company in Brazil.
Once the budget is done, you must assess and select the best Corporate Tax Regime for 2020. Since we are talking about a company controlled (totally or partially) by a foreign investor, then you must select one of these two regimes: REAL or PRESUMIDO. We describe both these regime here below:
This profit is the result of consolidated accounting entries – Income minus Expenses and Costs – called “Accounting result”. This Accounting result is then adjusted with required additions and deductions (non-deductible expenses and non-taxable incomes) to arrive at the net result before tax (the adjustments made to derive the net result before tax must be detailed in a separate document called “Lalur”, and kept available to the Brazilan tax authorities).
Major additions to the accounting result:
- Losses resulting from the change in value of the participation in subsidiaries (using the equity method),
- Diminution of the reserve of valuation,
- Nondeductible expenses,
- Nondeductible provisions (such as those on clients receivable),
- Gain resulting from the change in value of the participation in subsidiaries (using the equity method),
- Received dividends,
- Reversals of non-deductible provisions.
This REAL Corporate Tax can be calculated on a monthly or quarterly basis. For small and medium sized Companies, the quarterly method is preferred, since it does not create unnecessary new deadlines, i.e. the deadline is quarterly instead of monthly.
After having calculated the quarterly accounting result, the company will add gains on the disposal of assets, financial income and extraordinary income. Once these additions are made, it is possible to calculate the tax due. The tax is calculated by applying the rate of 15% to the basis of calculation. On top of this 15%, there is an additional 10%. This 10% is applied to the amount of quarterly taxable result exceeding 60K R$.
The following must be deducted from the basis of calculation:
- Tax benefits granted by the authorities,
- Corporate Tax (IRPJ and CSLL) paid or retained at the source on billings and already included in the calculation of net profit,
Payment is made in one time, before the end of the month following the end of the fiscal quarter. It may be paid – optionally – in three monthly installments, in which case an interest will be applied (interest rate “Selic”).
This is a simplified calculation of taxable income. The choice of the ESTIMATED method rather than the ACTUAL profit method is only possible for companies whose gross annual turnover does not exceed 78M R$. The estimated profit should be calculated at the end of each calendar quarter.
Method of calculation:
Companies subject to this method must determine an ESTIMATED result by applying a set of percentages to their gross turnover. These rates are:
- 8% for industrial and commercial enterprises,
- 32% for services,
- 1.6% for companies selling fuel and natural gas,
- 8% for medical services and industrial transport,
- 16% for other transport services,
- 16% for financial institutions.
For multi-business companies, it will be necessary to apply the respective percentages to each business. Once the estimated profit is calculated, the company will add to this result the gains from the disposal of assets, financial income and extraordinary income; then, it is possible to calculate the taxes due.
The corporate tax (IRPJ) is calculated by applying the rate of 15% to the basis computed (projected profit, gains on disposal of assets and other income). Besides this 15%, there is an additional 10% that applies on the following basis: quarter result minus 60K R$. I.e. if the quarterly result is below 60K, the additional is not due.
The second leg of the corporate tax (CSLL) is calculated by applying 9% to the basis computed.
Other comments on corporate tax regime
We remind that all companies can change the Corporate Tax Regime every year. Besides, the Tax Regime will impact the PIS and COFINS (rates and credits), therefore the calculation can be very tricky for some companies. It is also important to note that for Losses can be carried forward against future profits, without time limit; the Taxable Profit can be deducted with losses carried forward by up to 30%. The remaining credit is used for the next profitable years.
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