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

Transcription

1 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

2 SIMPLES - STATISTICS Number of micro and small enterprises registered with Simples Nacional, (thousands) MSE

3 9.000, , , , , , , , ,0 0,0 SIMPLES - STATISTICS Registration of MEI, (thousands) 3.436,5 70, ,6 jan/10 abr/10 jul/10 out/10 jan/11 abr/11 jul/11 out/11 jan/12 abr/12 jul/12 out/12 jan/13 abr/13 jul/13 out/13 jan/14 abr/14 jul/14 out/14 jan/15 abr/15 jul/15 out/15 jan/16 abr/16 jul/16 out/16 jan/17 abr/17 jul/17 out/17

4 SIMPLES - STATISTICS Total tax revenues under Simples Nacional, (billions of BLR) 90,0 80,0 70,0 60,0 54,4 62,0 69,5 71,4 77,0 50,0 40,0 35,5 42,3 46,5 30,0 24,2 26,8 20,0 10,0 0,0 8,

5 SIMPLES - STATISTICS Formalization rate aged years, (%) 80,0% 75,0% 70,0% 65,0% Protection Rate (%) 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% 60,0% 55,0% 50,0% 45,0% 40,0%

6 SIMPLES - STATISTICS Social Insurance Protection Rates* by occupational category, for Workers Aged years (%) 90,0% 80,0% 70,0% 77,0% 74,3% 69,9% 70,6% 67,0% 65,0% 72,9% 74,9% 63,7% 63,9% 79,2% 67,0% 83,4% 76,8% 72,5% 60,0% 62,3% 63,4% 63,8% 50,0% 45,7% 42,2% 44,5% 40,0% 30,0% 25,0% 29,5% 35,3% 33,2% 32,6% 32,4% 35,3% 33,0% 41,7% 20,0% Employees Self-Employed Total C.Family Workers Employers

7 SIMPLES - STATISTICS Trends in number of employees paying into social security, (millions) 60,0 50,0 40,0 30,0 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 20,0 10,0 0, Number of Employees (millions)

8 Context BRAZIL - 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

9 MANAGEMENT OF SME POLICIES TAX ORGANIZATION

10 MANAGEMENT OF SME POLICIES NON-TAX ORGANIZATION

11 MANAGEMENT OF SME POLICIES VISION OF THE PROCESS UNDER THE ENTREPRENEURS 'PERSPECTIVE

12 What is the MEI? 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

13 MEI OBJECTIVES 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

14 MEI Conditions / Eligibility 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 OCUPATIONS ALLOWED

15 MEI - MONETARY OBLIGATIONS 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.

16 MEI - MONETARY OBLIGATIONS 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.

17 MEI FILING OBLIGATIONS 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? SALES SUMMARY

18 MEI BENEFITS 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.

19 MEI: STRENGTHS 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

20 MEI - WEAKNESSES The monthly lump-sum tax is too low Large difference in taxes between the MEI and normal scheme of 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.

21 What is the SIMPLES 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

22 SIMPLES OBJECTIVES Reduction of businesses informality Job Creation and Maintenance Regional/local economic development Simplification of the registration, filing and payment Simplification of the controls of the tax administrations

23 SIMPLES Conditions / Eligibility 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 of some specific sectors, such as financial activities, production and wholesale trade of cigarettes and firearms, the electric power production chain, sell or assign labor (outsourcing companies), etc.

24 SIMPLES MONETARY OBLIGATIONS Pay a Monthly Gross Sales Tax, with a Variable Rates Withhold PIT (Personal Income Tax) and Personal Social Contribution, from owners, partners, temporary workers (self-employed) and employees

25 SIMPLES: MONETARY OBLIGATIONS 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

26 SIMPLES: MONETARY OBLIGATIONS CLASS ACTIVITIES effective rates I Commerce 4,00% to 15,11% II Manufacturi ng 4,50% to 18,95% III General Servi ces 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) [2] In the Class IV, the employer's contribution to social security is paid out of the scheme. [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.

27 SIMPLES: FILING OBLIGATIONS 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

28 SIMPLES BENEFITS Easy Payment, with a significant reduction in the tax burden Easy Filling due to simplified cash accounting requirements Social Security Coverage for owners and company partners Workers in the small enterprises benefit from the same social security rights & advantages and other work rights

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

30 SIMPLES - WEAKNESSES The Simples threshold is too high The level of tax expenditures is also very high Companies illegally evade sales, or disaggregated their activities to be run by separate legal entities, aiming to remain in the tax scheme. (Peter Pan Syndrome) (Tax Dwarfism)

31 SIMPLES HISTORY AND MANAGEMENT 1988: New Federal Constitution Benefits for the Brazilian MSEs 1996: 1 st Law (9.317) Simples Federal (1997) State Laws ICMS (VAT) Simples nd Law (9.841) Statute of MSEs 2003 Constitutional Amendment 42 It provides for the creation of the Simples Nacional

32 SIMPLES HISTORY AND MANAGEMENT 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 Complementary Law 128: Creation of the MEI, starting in Threshold: BRL 36,000

33 SIMPLES HISTORY AND MANAGEMENT 2011 Complementary Law 139, starting in 2012: SN Threshold: BRL 3,600,000 MEI Threshold: BRL 60, Complementary Law 155, starting in 2018 SN Threshold: BRL 4,800,000 MEI Threshold: BRL 81,000

34 Thank you!!! Executive Secretariat of the Management Committee of Simples Nacional