Taxation and bureaucracy have been historically challenging for investors in Brazil, but the Brazilian government is making active efforts to facilitate the start up of businesses and compliance with the taxation system. Published on April 30, the new Executive Order “Declaration of Economic Freedom” (MP 881/2019) simplifies registration of small and medium sized enterprises (SME’s). The release of a reporting system – eSocial– has also sought to simplify the reporting of taxes for businesses.
Brazil has a population of 209.3 million people, with 75% earning US$ 1000/month. The World Bank “Ease of Doing Business” report ranked Brazil 109 against 190 countries. That is an improvement from the July/2018 report when Brazil was ranking 125th. It is increasingly more evident that now is a ripe time to be doing business in Brazil. However, there are still looming pitfalls that investors must be aware of.
High taxes have been maintained for Brazilian businesses for many years. Instead of changing that base rate, Brazil has employed a web of many specific tax exemptions. For instance, the tax exemption for importing/exporting unique equipment has drastically improved Rio’s primary business prospects of oil mining and exporting. Keeping updated on these changing and specific tax exemptions is extremely beneficial, and a broad overview can be found here.
Brazil’s complicated bureaucracy is slowly being untangled. Whereas in the past small businesses had the same 11 processes to be approved as larger businesses, now thegovernment isfocused on limiting startup registrationobstacles so “startups won’t need licenses”. Soon, provisional measures will be rolled out to start this process and, given the leaps and bounds made in the last year, the face of Brazilian businesses may be changed within another year, for the better.
Considering the attempts of the Brazilian government to overhaul business registration and supplement taxation, Brazil is rapidly gaining industry traction. The “Declaration of Economic Freedom” has yet to be approved by the Congress, but it represents an important step for potential investors. If you are considering growing within Sao Paulo’s financial services or Rio’s oil industries, you will have to act fast to be prepared for a near-future influx of businesses in order to secure stable business relations.