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Main differences in tax regimes

The tax regime refers to the type of taxation to which a company is subject, and defines the rules for taxation of profits and tax reporting obligations. Choosing an inappropriate regime can have serious consequences, such as impacting the company’s financial health. Therefore, it is an important decision to be made when opening a business.

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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.

In this option, the accounting department closes the trial balance every month and calculates the estimated income tax, that is, based on the gross revenue and the actual profit earned in the period, paying the lower amount. In December, when the fiscal year is closed, the company must calculate for the Taxable Income and pay the tax for this option.

Regardless of the tax regime chosen, it is necessary to have a direct tax and accounting department operating with maximum rigor. Being up to date with tax obligations is a guarantee of financial health for your company. Count on Pryor Global to help you mitigate risks and comply with Brazilian regulations.

 

Contact us and learn more about our services.

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