When a company is set up, it can basically fit into one of three main tax systems: Simplified Taxation System, Assumed Profit, and Taxable Income. There are several criteria to determine the most appropriate tax system for each situation. To reach this decision, the tax authorities are based mainly on the company’s income and activity.

Simplified Taxation System

Simplified Taxation System was created to simplify the payment of taxes for Micro Companies (ME) and Small Businesses (EPP). To fit this requirement, as to the legal nature, the company must be a corporation, a simple company, a limited liability individual company, or an individual entrepreneur, and have annual revenues of up to R$4.8 million.

Through a single payment slip, it is possible to collect numerous taxes monthly, such as:

• Corporate Income Tax (IRPJ);
• Industrialized Products Tax (IPI);
• Social Contribution on Net Profit (CSLL);
• Contribution to Social Security Financing (Cofins);
• Contribution to PIS/Pasep;
• Social Security Contribution (CPP);
• Tax on Operations Related to the Circulation of Merchandise and on Interstate and Intercity ● Transport and Communication Services (ICMS);
• Tax on Services of Any Nature (ISS).

Assumed Profit

A company that opts for the Assumed Profit taxation system needs to keep proper bookkeeping that complies with Brazilian accounting standards. This form of taxation is simplified, because in the Presumed Profit its calculation basis is determined by applying a percentage on the monthly gross revenue, which can vary from 1.6% to 32%, depending on the activity performed.

Companies whose total revenue in the previous calendar year was equal to or less than R$78,000,000.00 can opt for the Assumed Profit. Some companies, such as those in the banking sector, cannot opt for this regime, even though they fulfill the requirement related to the maximum total revenue limit.

Taxable Income

The Taxable Income refers to the net profit for the fiscal year adjusted by the additions, exclusions, or compensations prescribed or authorized by legislation. Any company can opt for this regime, and it becomes mandatory when the company has annual revenues exceeding R$78,000,000.00, but it is worth pointing out that it imposes more accounting requirements than the others. It is necessary to keep rigorous accounting to determine the actual profit accurately and thus calculate the tax due.

Companies can calculate the Taxable Income based on the quarterly actual profit in quarterly calculation periods ending on March 31, June 30, September 30, and December 31 of each calendar year, or on the annual actual profit with a reduction or suspension trial balance.