Wellington Calobrizi
Wellington Calobrizi
Partner at Kreston KBW Auditores

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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.

Tax reform in Brazil: Impact on businesses

March 13, 2024

Sector: Finance

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.

Critical aspects of tax reform

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.

Tax reform and small businesses: essential points

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.