The Brazilian experience on the Simples Nacional: Micro - - PowerPoint PPT Presentation

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Ministério da Fazenda

The Brazilian experience on the “Simples Nacional”: Micro Entrepreneur, Micro and Small Businesses

Executive Secretariat of the Management Committee of “Simples Nacional” Silas Santiago Manila, July, 2018

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Ministério da Fazenda

SIMPLES - STATISTICS

Number of micro and small enterprises registered with Simples Nacional, 2007-2017 (thousands)

2.496 2.628 3.173 3.568 3.974 4.409 4.580 4.860 4.980 4.938 4.968 1.000 2.000 3.000 4.000 5.000 6.000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MSE

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Ministério da Fazenda

SIMPLES - STATISTICS

Registration of MEI, 2010-2017 (thousands)

70,3 3.436,5 7.738,6

0,0 1.000,0 2.000,0 3.000,0 4.000,0 5.000,0 6.000,0 7.000,0 8.000,0 9.000,0 jan/10 abr/10 jul/10

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jan/11 abr/11 jul/11

• ut/11

jan/12 abr/12 jul/12

• ut/12

jan/13 abr/13 jul/13

• ut/13

jan/14 abr/14 jul/14

• ut/14

jan/15 abr/15 jul/15

• ut/15

jan/16 abr/16 jul/16

• ut/16

jan/17 abr/17 jul/17

• ut/17

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Ministério da Fazenda

SIMPLES - STATISTICS

Total tax revenues under Simples Nacional, 2007-2017 (billions of BLR)

8,4 24,2 26,8 35,5 42,3 46,5 54,4 62,0 69,5 71,4 77,0

0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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Ministério da Fazenda

SIMPLES - STATISTICS

Formalization rate aged 16-59 years, 1992-2015 (%)

67,0%65,9%65,1%65,0%64,6%63,4%62,8%62,3%61,7%62,5%62,6%63,4%64,1%65,1%66,0%67,0% 70,6%71,3% 72,5%72,5%72,5%

40,0% 45,0% 50,0% 55,0% 60,0% 65,0% 70,0% 75,0% 80,0% 1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015

Protection Rate (%)

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SIMPLES - STATISTICS

77,0% 74,3% 72,9% 74,9% 79,2% 83,4% 25,0% 29,5% 32,6% 32,4% 35,3% 44,5% 45,7% 42,2% 35,3% 33,2% 33,0% 41,7% 69,9% 70,6% 63,7% 63,9% 63,8% 76,8% 67,0% 65,0% 62,3% 63,4% 67,0% 72,5% 20,0% 30,0% 40,0% 50,0% 60,0% 70,0% 80,0% 90,0%

1992 1996 2001 2005 2009 2015

Employees C.Family Workers Self-Employed Employers Total Social Insurance Protection Rates* by occupational category, for Workers Aged 16-59 years - 1992-2015 (%)

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Ministério da Fazenda

SIMPLES - STATISTICS

Trends in number of employees paying into social security, 1996-2016 (millions)

21,7 22,3 24,8 25,8 27,3 29,8 30,8 31,5 33,3 35,9 37,4 40,2 43,7 45,2 48,6 51,7 53,9 55,7 56,6 54,7 51,4 0,0 10,0 20,0 30,0 40,0 50,0 60,0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of Employees (millions)

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• Strong administrative

decentralization: 26 States, 1 FD and 5,564 Municipalities

• Multiple Tax Administrations:

Federal, State and Municipal

• Population: 204 million

inhabitants

• GDP – $ 2.05 trillion. Per

capita USD 11,727 (2017)

• Area of the territory: 8,5

million km²

BRAZIL

Context

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MANAGEMENT OF SME POLICIES TAX ORGANIZATION

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MANAGEMENT OF SME POLICIES NON-TAX ORGANIZATION

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MANAGEMENT OF SME POLICIES

VISION OF THE PROCESS UNDER THE ENTREPRENEURS 'PERSPECTIVE

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MEI is: An Individual Micro Entrepreneur A Self-Employed Business Person A natural person equated to the legal

entity (in Brazilian legislation)

A subset of the “Simples Nacional” What is the MEI?

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Reduction of businesses informality Personal and Corporate Citizenship Work protection by the Social Security Simplification of the registration, filing and

payment

Developing tax awareness in the population

MEI – OBJECTIVES

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Annual sales of up to BRL 81 mil (USD 20.8 mil) Without branches Cannot be partner or owner of other business Perform only activities authorized by the Managing

Committee of Simples Nacional

Have of up to one employee receiving minimum

wage MEI – Conditions / Eligibility

OCUPATIONS ALLOWED

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Lump-sum amount: R$ 53 (USD 14.5), as follows: R$ 47 of entrepreneur’s personal contribution

for Social Security

R$ 1 for ICMS (state tax) R$ 5 for ISS (municipal tax) MEI is exempt from other federal taxes on general

businesses.

MEI - MONETARY OBLIGATIONS

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If the MEI hires an employee: 8% of the employer's social

security contribution (The normal rate of this contribution is 20%.)

In addition, have to withhold from his/her employee the

Social Security Contribution

In Brazil, there are micro and small entrepreneurs, but there

are no “micro and small employees". Everyone has the same rights.

MEI - MONETARY OBLIGATIONS

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Buy goods and services only with invoices Issue invoices in the sales for corporate entities File monthly a “Sales Summary”, which must be

maintained with him

File annually the tax declaration with only three

questions:

What was the total sales? Of this total sale, how much was the sale of

products?

Did you hire the employee you were entitled to?

MEI – FILING OBLIGATIONS

SALES SUMMARY

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The Social Protection: The MEI has right to the Basic public pension for

age; Invalidity & survivor benefits; incapacity for work & maternity benefits; and Family allowance (imprisonment).

Registering as MEI means being formal. Being in the

formal way means having access to various public policies designed for the MEI, like as:

sell to the government, open bank accounts, get

loans with favored interest, have access to Social Security, etc.

MEI – BENEFITS

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• Easy Registration
• Easy and predictable Payment (as entrepreneur

pays a lump sum amount)

• Easy Filling
• Social Security Coverage
• High level of reduction of businesses informality
• Attractive: Registering as MEI means being formal

MEI: STRENGTHS

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• The monthly lump-sum tax is too low
• Large difference in taxes between the MEI and normal

scheme

• f

“Simples Nacional” which reduces the transition from MEI to Simples.

• Existence of taxpayers who are illegally inside the tax

scheme (either higher income people or former workers who register as a MEI and continue to work under disguised employment relationship)

• Disclaimer of issuing invoices to the final consumer is a

factor contrary to the tax culture.

• The percentage of arrears is very high - about 55% of

total MEI.

MEI - WEAKNESSES

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• “Simples Nacional” is a tax scheme for micro and small

businesses in Brazil, unifying the collection of federal, state and municipal taxes:

Federal taxes: “IRPJ” – Corporate Income Tax (CIT) “CSLL” – Social Contribution on Net Profit “IPI” – Tax on Manufactured Goods “COFINS” – Contribution for Social Security “PIS/PASEP”

– Contribution for Social Integration Program

“CPP”

– Employers Tax Contribution for Social Security

State tax: “ICMS” – Value Added Tax (VAT), levied on

goods and Inter Municipal Transportation and Communication Services

Municipal tax: “ISS” – General Services Tax

What is the “SIMPLES”

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Ministério da Fazenda

Reduction of businesses informality Job Creation and Maintenance Regional/local economic development Simplification of the registration, filing and

payment

Simplification

• f

the controls

• f

the tax administrations SIMPLES – OBJECTIVES

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Ministério da Fazenda

THRESHOLD: BRL 4,800,000 (USD 1,230,769) in the

domestic market, plus BRL 4,800,000 for exports.

Commercial and non-commercial entities (except S/A) Individual Limited Liability Business (EIRELI) Individual Businessman (equated to legal entity) Activities allowed: commercial, industrial and service

companies, with the exception

• f

some specific sectors, such as financial activities, production and wholesale trade of cigarettes and firearms, the electric power production chain, sell

• r

assign labor (outsourcing companies), etc.

SIMPLES – Conditions / Eligibility

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Pay a Monthly Gross Sales Tax, with a Variable

Rates

Withhold PIT (Personal Income Tax) and Personal

Social Contribution, from

• wners,

partners, temporary workers (self-employed) and employees SIMPLES – MONETARY OBLIGATIONS

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Ministério da Fazenda

TAX BASE AND RATES

The calculation basis is represented by the total sales

in the month.

The rate is calculated based on the last 12 months'

sales (to minimize the effects of seasonality).

For tax purposes, the taxpayers are divided into five

groups in the scheme

SIMPLES: MONETARY OBLIGATIONS

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Ministério da Fazenda

SIMPLES: MONETARY OBLIGATIONS

CLASS ACTIVITIES effective rates I Commerce 4,00% to 15,11% II Manufacturing 4,50% to 18,95% III General Services 6,00% to 24,50% IV

Intensive Labor Services[1] 4,50% to 20,75%[2]

V

Intellectual Services[3] 15,5% to 24,25%[4] [1] Building, Cleaning, Attorney Services and Surveillance. (attorney services are out of place in this class) [3] Physicians, Engineers, Consultants, etc. [4] If the ratio between payroll and turnover is equal to or greater than 28%, the entities in the Class V shall pay the same rates of the Class III. [2] In the Class IV, the employer's contribution to social security is paid out of the scheme.

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Monthly Tax Declaration It is made simultaneously with the calculation of

taxes (PGDAS-D)

Annual Tax Declaration (socioeconomic information) It is made simultaneously with the calculation of

taxes of March (PGDAS-D)

Electronic Invoices (in the sales and purchases) Cash Accounting

SIMPLES: FILING OBLIGATIONS

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Easy Payment, with a significant reduction in the tax

burden

Easy

Filling due to simplified cash accounting requirements

Social

Security Coverage for

• wners

and company partners

Workers in the small enterprises benefit from the same

social security rights & advantages and other work rights

SIMPLES – BENEFITS

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Easy Registration Easy Payment The SN Tax revenues have been constant and rose significantly Easy Filing due to simplified cash accounting requirements Social Security Coverage for owners, partners and employees High level

• f

hiring and maintenance

• f

formal employees High level of reduction of business informality The shared management of the tax scheme between the RFB, States and Municipalities SIMPLES: STRENGTHS

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The Simples threshold is too high The level of tax expenditures is also very high Companies illegally evade sales,

• r

disaggregated their activities to be run by separate legal entities, aiming to remain in the tax scheme. (Peter Pan Syndrome) (Tax Dwarfism)

SIMPLES - WEAKNESSES

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1988: New Federal Constitution – Benefits for the Brazilian MSEs 1996: 1st Law (9.317) – Simples Federal (1997) 1997-1998 – State Laws – ICMS (VAT) Simples 1999 – 2nd Law (9.841) – Statute of MSEs 2003 – Constitutional Amendment 42 – It provides for the creation

• f

the Simples Nacional

SIMPLES – HISTORY AND MANAGEMENT

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2006 – Complementary Law 123, starting in 2007

Creation of Simples Nacional (Threshold BRL 2,400,000), replacing the Simples Federal and State ICMS (VAT) Simples It included in the Complementary Law all matters that affected, in one way or another, the microenterprise or the small business, replacing the SMEs Statute, such as registration, government purchases, bank loans, innovation, etc.

2008 – Complementary Law 128: Creation of the MEI, starting in 2009. Threshold: BRL 36,000

SIMPLES – HISTORY AND MANAGEMENT

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2011 – Complementary Law 139, starting in 2012: SN Threshold: BRL 3,600,000 MEI Threshold: BRL 60,000 2016 – Complementary Law 155, starting in 2018 SN Threshold: BRL 4,800,000 MEI Threshold: BRL 81,000

SIMPLES – HISTORY AND MANAGEMENT

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Thank you!!! Executive Secretariat of the Management Committee of “Simples Nacional” silas.santiago@rfb.gov.br silassantiago1@gmail.com +556134125976 +5561984415558