A study by the Getúlio Vargas Foundation (FGV) indicates that the method adopted by Brazil to combat irregularities by increasing regulations and fines results in an even more complex tax system. If Brazil used the average level of tax complexity of countries like Mexico, Colombia, and South Africa, the Brazilian Gross Domestic Product (GDP) could reach 6.2%.
Moreover, the research revealed that international experience proves that the adoption of stricter penalties is not the most effective strategy to promote tax compliance. Studies and organizations such as the Organization for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF) recommend more efficient approaches, such as a collaborative attitude, process simplification, and positive incentives.
In this context, the research conducted by FGV proposes five actions that Brazil should take, the first of which is to “simplify the tax system to prevent legal uncertainty and unintentional errors and increase the efficiency of the economy.”
The Brazilian tax scenario presents considerable complexity, with many rules, regulations, and tax obligations. This multiplicity creates a challenging environment for both companies and individuals. The presence of bureaucracy and lack of clarity in tax rules often creates legal uncertainty, making tax compliance difficult and increasing the risk of making involuntary mistakes.
In addition, the high tax burden and constantly changing legislation are factors that add to the complexity of the system, making it even more difficult to understand.
If it is complicated for Brazilians, imagine for foreigners who want to establish business in the country.
It is essential that they understand Brazil’s tax laws, including applicable taxes, tax obligations, and payment deadlines. In addition, they must meet registration requirements to operate legally in the country, such as registering with government agencies and obtaining tax identification numbers, like the Corporate Tax Number (CNPJ).
Keeping accurate accounting is key, with correct and up-to-date accounting records, ensuring the correct classification and documentation of financial transactions for accurate tax reporting. Complying with all tax obligations, such as paying taxes and filing tax returns, is important to avoid penalties and fines.
Foreign investors face significant challenges in adjusting to Brazilian tax legislation. The complexity of the system and the bureaucracy require specialized resources such as tax consultants and accountants to ensure compliance and avoid penalties. Professionals with local knowledge can help interpret tax laws, identify tax benefits and optimize tax structure.
Pryor Global is the partner your business can count on. We support our clients in ensuring compliance with various market regulations. Come and see all our BackOffice solutions. Contact us now!
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