Kreston Partnership
April 11, 2024
April 11, 2024
Wellington Calobrizi, Partner at Kreston KBW Auditores, brings expertise in Direct Taxes and an experience in projects with major brands. As a partner at b2finance, he established their first office in Curitiba-PR, specializing in Audit, BPO, Tax Consulting, Valuation, and IT services. With a degree in Accounting Sciences from FECAP, Wellington is known for his entrepreneurial spirit and knowledge in tax consultancy.
March 13, 2024
Tax reform in Brazil a topic that had been stagnant for decades, is gaining momentum. As a thriving economy in Latin America, the pace at which regulation is now being brought into law is testing the business industry. Recently, new tax law was given approval in the Chamber of Deputies in July 2023 and then underwent Senate deliberation by October 2023.
Once a central focus of national discourse, this reform held the promise of transformative changes within the country’s tax sphere. During this upheaval, the pressing question emerged: How would small businesses fare with these changes, and were there potential advantages awaiting SMEs? To provide clarity, BWise analysed the tax reform for clients, highlighting its possible implications for the day-to-day operations of small businesses in Brazil.
The narrative surrounding tax reform in Brazil has spanned decades, culminating in a historic milestone with the approval of the text of PEC 45/19, a pivotal piece of legislation at the heart of the reform. Several vital considerations emerged as the proposal underwent scrutiny in the Federal Senate.
Firstly, the proposed unification of taxes under the Value Added Tax (VAT) system signified a monumental shift in the country’s tax structure. Federal taxes, including IPI (Tax on Industrialized Products), PIS (Social Integration and Formation of the Assets of Public Servants), and Cofins (Contribution to the
Financing of Social Security), were slated for restructuring. Simultaneously, state and municipal taxes faced an overhaul with introducing the Goods and Services Tax (IBS). This restructuring aimed to bring coherence and simplicity to the existing tax framework.
Additionally, the reform introduced a Selective Tax (IS) targeting products that impacted health or the environment, marking a commitment to sustainability and public health. The determination of tax rates was governed by a Complementary Law, adding a layer of legislative precision to the reform. Further deliberations included discussions on exemptions and cashback mechanisms, focusing on sectors and populations with lower purchasing power.
For small businesses that fall under the umbrella of Simples Nacional, with a
revenue ceiling of up to R$ 4.8 million, the impact of the tax reform was
less pronounced. These businesses could continue to leverage the benefits of the existing regime, albeit with a shift in the tax vocabulary. Nevertheless, several considerations were pertinent:
The reform aimed to streamline and simplify the tax structure, potentially reducing the number of taxes. Even for businesses under Simples Nacional, which already followed a simplified tax model, decreased tax costs could
be contingent on the proposed rate changes. The reform introduced an opportunity for Simple Nacional companies to use tax credits, a previously unavailable feature within the regime. This alteration could lead to a more dynamic financial landscape for these businesses.
Another benefit was the possibility for Simples Nacional companies to opt for the value-added tax (VAT), although not mandatory. The decision to embrace VAT could be beneficial depending on the company’s position within the broader business chain. While suppliers or entities heavily involved in inputs might have found VAT to have positive advantages, service providers might still have considered Simples Nacional a more attractive model.
Businesses were encouraged to seek specialised accounting advice to fully
understand how these tax updates impact doing business in Brazil. This was especially vital as tax planning, facilitated by online accounting models, became an accessible tool for small businesses to evaluate the feasibility of transitioning to the VAT proposed by the tax reform. BWise can offer strategic support, empowering small businesses to secure sustainable growth.
For more information on doing business in Brazil, click here.
Tatiana Andrade, Director at Kreston KBW Brazil, is a seasoned professional with expertise in advanced English, accounting, tax management, and consultancy. With a strong background in auditing, she excels in leading teams, supported by an MBA in human development for managers. Tatiana’s commitment to excellence ensures top-tier service delivery in the complex financial landscape.
Tatiana Andrade, Partner of Kreston KBW Auditores, shares that investing in Brazil will see economic growth, driven by market reform and ESG, attracting international and local business optimism.
Brazil’s economic activity expanded by 2.45% in 2023, surpassing initial forecasts that growth would be tepid in the face of high interest rates. At the beginning of last year, private economists estimated that the economy would grow by less than 1%, whereas current forecasts indicate an expansion of 2.9%, according to a weekly survey conducted by the Brazilian central bank.
This makes Brazil the most successful Latin American economy. With a new government focus on market and tax reform and a strong emphasis on ESG, local firms are predicting a boom year, as international clients flock to its shores.
“Particularly in the second half of 2023 and in the first two months of 2024, we saw a significant increase in the demand for foreign companies wanting some type of assistance to set up or increase their business volumes in Brazil,” said Tatiana Andrade, Partner of Kreston KBW Auditores. “This shows an excellent medium and long-term scenario. As an example, the search for new international clients in our office increased by around 40% compared to the same period of the previous year, a significant increase for our international area.”
Within Kreston KBW Auditores, Andrade has noticed that the services sector is the one with the most demand for consultancy skills, particularly technology and digital marketing.
The Brazilian tax system has long been complicated and frustrating, and while reform has been promised, it is still a long way away. In 2023, the Brazilian Congress approved a major tax reform that had been held up for voting for many years. However, the approved proposal will take around 10 years to be fully implemented and divides opinion among tax experts as to how much benefit it will bring to businesses.
Andrade believes that when reform does come, it will not bring much in the way of simplification and that the increase in the tax burden will go from the current 20% to approximately 28%. But that is good news for the local office.
“We have been fielding a lot of enquiries, from national and especially international clients, who are very eager to see how much this will impact their operations,” said Andrade.
The international market is an important one for Kreston KBW Auditores, as this is where it can add the most value. International clients count on complete assistance from the opening of the company and the geographic location strategy, to assistance with tax planning. The founding partners have extensive experience in the national and international market and all came from auditing multinationals, including the Big Four.
With a new left-wing government in power that is keen to work with foreign
investors, a maturing business environment and an aggressive push for corporate transparency to aid ESG reporting, Andrade is expecting 2024 to be a successful year.
“Our strategy is to grow by 20% in relation to revenue,” she said. “We have been strengthening our team with some major hires in 2023 and now we are feeling the effects of these new hires. An interesting moment for our office is the increase in demand for ESG, our partner in the sustainability area will have a great challenge ahead. We believe that the ESG area will grow by more than 100% compared to previous years.”
ESG is an important driver for Brazilian companies as they seek corporate transparency. It means skills such as auditing will become even more important, as auditors will be key to ensuring the quality of ESG information from audited companies to investors, stakeholders and regulators.
“In Brazil, companies listed on the stock exchange must disclose in their financial statements the effects of ESG on their operations,” said Andrade. “Although it is not mandatory for all Brazilian companies, many funds only invest in those who have a well-defined ESG policy, so companies, even if they are not obliged, have sought us out to help implement ESG in Brazil.”
Technology has had a huge impact on the way accountancy firms do business and the Brazilian office now sets aside a portion of revenue to be spent keeping abreast of new developments.
“A minimum of 3% of revenue must be for investment in technology and R&D,” said Andrade. “In previous years we have surpassed the 5% mark of our revenue, but I think that has had a direct result on our annual growth, which always exceeds two digits.”
As Brazil blossoms under a new government, there is no reason why new entrants to the market cannot ride this wave of optimism.
For more information on doing business in Brazil, click here.
Discussions about ESG strategies have been becoming increasingly common on a global scale, with ESG in Brazil actively developing its own initiatives. A complex and strategic move that is shifting dynamics in the global economy, the culture of environmental, social, and corporate governance brings a myriad of issues that warrant careful analysis.
On the legislative front, the House of Representatives in Brazil passed PL 2148/15, which proposes the regulation of the carbon market in the country and the establishment of the Brazilian System of Greenhouse Gas Emissions Trading (SBCE), which sets emission caps and establishes a market for the sale of credits. For now, we are waiting for the proposal to undergo analysis and approval by the Senate.
Besides establishing unprecedented regulations in Brazil, initiatives like this significantly influence the national business environment, not only concerning domestic aspects.
In this scenario, there is optimism for Brazil and for Latin America. According to information from the UNCTAD‘s World Investment Report 2023 – United
Nations Conference on Trade and Development – foreign direct investments in Latin America and the Caribbean increased by 51%, reaching $208 billion in 2022. In Brazil, the increase was 70% ($86 billion).
According to the report, international investments in SDG sectors and activities – which relate to the Sustainable Development Goals established by the UN – also increased in 2022, resulting in the growth of projects in infrastructure, energy, water, sanitation, agricultural systems, health, and education.
Firstly, PL No. 2,148/2015 establishes a limit for greenhouse gas emissions within the corporate scope. Thus, it proposes that companies surpassing pollution levels must offset their emissions by buying credits, while those falling short of emission caps receive quotas that are tradable in the market.
The purpose is to create incentives in a way that can curb emissions and consequently the climate impacts caused by companies.
In a second stage, the regulated market of offset credits and generation of credits based on the level of greenhouse gas emissions, linked to the SBCE, comes into play. The proposal suggests a system in which Brazilian emission quotas (CBE) and certificates for verified emission reduction or removal (CRVE) can be traded.
Regarding regulation, studies already indicate that it could lead to positive economic shifts: according to research from Banco BV (BV Bank), the regulated carbon market could generate R$ 48 billion annually for the country.
In addition to encouraging new practices in business operations, the implementation of a market guided by an ESG vision brings forth debates and initiatives in the tax aspect of organisations as well. In recent years, there has been discussion about the adoption of carbon taxes in Brazil and their potential consequences in terms of economic, financial, and social aspects.
However, a point that is not always recalled and brings with it particular challenges involves transfer pricing within the context of globalised markets or even in the transfer of goods and services between companies of the same group but headquartered in different countries.
On top of the requirement that the arbitrated price complies with RFB regulations in the case of Brazilian companies–responding to the pillars of corporate and tax governance–the new adoption of ESG indicators influences the macroeconomic dynamics between countries/multinationals themselves.
Therefore, the challenging aspects related to transfer pricing from an ESG perspective encompass everything from the costs of the value chain to a more detailed analysis of a company’s risks and its transfer assets concerning sustainable practices from an organisational standpoint.
Finally, in Brazil, the investment sector is one of the drivers of ESG practices in the market. Recent studies indicate, for example, that investors in Brazil also base their decisions on ESG disclosures from companies.
Thus, paying attention to the new economic paradigms that are moving towards sustainability has become imperative for companies, not just in terms of rhetoric, but especially to remain attractive and competitive in markets where sustainability is no longer a distant goal.
For more information on doing business in Brazil, click here.
June 1, 2023
February 28, 2023
September 30, 2021
July 2, 2021
SENER is a private engineering and technology group founded in 1956. It seeks to offer its clients the most advanced technological solutions and enjoys international recognition for its commitment to innovation, its quality and for its independence.
SENER has nearly 2,500 professionals across its centers in Algeria, Argentina, Brazil, South Korea, Canada, Colombia, Chile, China, the United Arab Emirates, Spain, the United States, Morocco, Mexico, Poland, Portugal, the United Kingdom and South Africa. It accomplishes Aerospace and Engineering and Construction activities and has industrial holdings in companies working in the field of Energy and Environment.
In 2013, SENER Group created SENER (Shanghai) Systems Company Limited to provide high quality services to Chinese clients. SENER (Shanghai) needed finance & tax consultation, accounting and personnel services to support its development. It engaged Brighture to provide these services in 2016.
Brighture provides SENER with their management accounts, tax compliance and reporting, as well as tax advisory and planning services to help mitigate tax liabilities.
“We are very focused on ensuring that we understand our client’s needs so we can be responsive and proactive with advice and solutions. Our job is to help improve our clients’ efficiency and ensure we help grow their business.“
“With respect of opinion of Brighture service, we are more than satisfactory with the service provided by Brighture. We have very easy communication with Brighture. All the reports prepared by Brighture are well organized, sent in time. The data are all correct, etc. In one word, we are very happy working with Brighture.”
Mr.Guangwu Liu
GM at SENER (Shanghai) Systems Company Limited
The company has more than 60 years of experience in the development and production of automotive components. It has affiliated companies in Italy, USA, Mexico, Brazil, China and India, and sells products to more than 70 countries. Its markets include industrial vehicles, buses, trains, agriculture and construction machinery, boats, motorcycles and cars.
The group was expanding its operations in Brazil, China, India, Mexico and was seeking local firms to ensure compliance with local laws and to audit the subsidiary financial statements for consolidation purposes.
DOGA Group’s management team was unhappy with the performance of the local accounting firms they were using at the time. They discussed their needs with Kreston Spanish member firm Kreston Iberaudit which the company already used for other services. Kreston Iberaudit explained the advantages of using the Kreston Global network, and DOGA subsequently began working with Kreston Partnership in Brazil. They were so pleased with its work that they appointed Kreston Global member firms in India and Mexico (Kreston Rangamani & Kreston BSG) to carry out similar work.
Montse Martin, the company’s Finance Director, said: “DOGA Group has engaged the services of Kreston’s Partners in Spain, Brazil and China for Audit, Tax and Transfer Pricing matters for several years. As a result of this mutually beneficial relationship, we are now turning to Kreston firms in India and Mexico to assist our international subsidiaries.
“To date, we have been extremely impressed with the dedication of the Kreston Partners and their ability to provide a personalised service throughout, tailored to the requirements of each of our affiliates.”
“The cohesion between members across the network is one of Kreston’s greatest strengths and we look forward to their continued support”.
Elena Ramírez Marín, lead client partner for DOGA Group at Kreston Iberaudit, commented:
“It has been very gratifying to help our friends at DOGA expand their international operations. The work has also highlighted the tremendous benefits the Kreston Global network gives to both clients and member firms.”
June 10, 2021