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Receita FederalMinistério 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


SIMPLES - STATISTICS

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

2.4962.628

3.173

3.568

3.974

4.4094.580

4.8604.980 4.938 4.968

0

1.000

2.000

3.000

4.000

5.000

6.000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

MSE

Re

ce

ita

Fe

de

ra

lM

inistério da Fazenda S

IMP

LES

-S

TATIS

TIC

S

Registration of M

EI, 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

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



Total tax revenues under Simples Nacional, 2007-201 7 (billions of BLR)

8,4

24,226,8

35,5

42,346,5

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



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 (%)



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 WorkersSelf-Employed EmployersTotal

Social Insurance Protection Rates* by occupational category, for Workers Aged 16-59 years - 1992-2015 (%)



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

21,7 22,324,8 25,8

27,329,8 30,8 31,5

33,335,9

37,440,2

43,745,2

48,651,7

53,955,7 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)


- 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


MANAGEMENT OF SME POLICIES

TAX ORGANIZATION



NON-TAX ORGANIZATION



VISION OF THE PROCESS UNDER THE ENTREPRENEURS 'PERSPECTIVE


�MEI is:

� An Individual Micro Entrepreneur

� A Self-Employed Business Person

� A natural person equated to the legalentity (in Brazilian legislation)

� A subset of the “Simples Nacional”

What is the MEI?


�Reduction of businesses informality

�Personal and Corporate Citizenship

�Work protection by the Social Security

�Simplification of the registration, filing andpayment

�Developing tax awareness in the population

MEI – OBJECTIVES


� 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 ManagingCommittee of Simples Nacional

� Have of up to one employee receiving minimumwage

MEI – Conditions / Eligibility

OCUPATIONS

ALLOWED


�Lump-sum amount:

� R$ 53 (USD 14.5), as follows:

�R$ 47 of entrepreneur ’s personal contributionfor Social Security

�R$ 1 for ICMS (state tax)

�R$ 5 for ISS (municipal tax)

�MEI is exempt from other federal taxes on generalbusinesses.

MEI - MONETARY OBLIGATIONS


�If the MEI hires an employee: 8% of the employer's socialsecurity contribution (The normal rate of this contributio n is20%.)

� In addition, have to withhold from his/her employee theSocial Security Contribution

�In Brazil, there are micro and small entrepreneurs, but ther eare no “micro and small employees". Everyone has the samerights.

MEI - MONETARY OBLIGATIONS


� Buy goods and services only with invoices

� Issue invoices in the sales for corporate entities

� File monthly a “Sales Summary”, which must bemaintained with him

� File annually the tax declaration with only threequestions:

� What was the total sales?

� Of this total sale, how much was the sale ofproducts?

� Did you hire the employee you were entitled to?

MEI – FILING OBLIGATIONS

SALES SUMMARY


� The Social Protection:

� The MEI has right to the Basic public pension forage; Invalidity & survivor benefits; incapacity forwork & maternity benefits; and Family allowance(imprisonment).

� Registering as MEI means being formal. Being in theformal way means having access to various publicpolicies designed for the MEI, like as:

� sell to the government, open bank accounts, getloans with favored interest, have access to SocialSecurity, etc.

MEI – BENEFITS


� Easy Registration

� Easy and predictable Payment (as entrepreneurpays 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


� The monthly lump-sum tax is too low

� Large difference in taxes between the MEI and normalscheme of “Simples Nacional” which reduces thetransition from MEI to Simples.

� Existence of taxpayers who are illegally inside the taxscheme (either higher income people or former workerswho register as a MEI and continue to work underdisguised employment relationship)

� Disclaimer of issuing invoices to the final consumer is afactor contrary to the tax culture.

� The percentage of arrears is very high - about 55% oftotal MEI.

MEI - WEAKNESSES


� “Simples Nacional” is a tax scheme for micro and smallbusinesses in Brazil, unifying the collection of federal, s tateand 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 ongoods and Inter Municipal Transportation andCommunication Services

� Municipal tax: “ISS” – General Services Tax

What is the “SIMPLES”


�Reduction of businesses informality

�Job Creation and Maintenance

�Regional/local economic development

�Simplification of the registration, filing andpayment

�Simplification of the controls of the taxadministrations

SIMPLES – OBJECTIVES


� THRESHOLD: BRL 4,800,000 (USD 1,230,769) in thedomestic 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 specificsectors, such as financial activities, production andwholesale trade of cigarettes and firearms, the electricpower production chain, sell or assign labor(outsourcing companies), etc.

SIMPLES – Conditions / Eligibility


� Pay a Monthly Gross Sales Tax, with a VariableRates

� Withhold PIT (Personal Income Tax) and PersonalSocial Contribution, from owners, partners,temporary workers (self-employed) andemployees

SIMPLES – MONETARY OBLIGATIONS


TAX BASE AND RATES

� The calculation basis is represented by the total salesin 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 fivegroups in the scheme

SIMPLES: MONETARY OBLIGATIONS


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.


� Monthly Tax Declaration

�It is made simultaneously with the calculation oftaxes (PGDAS-D)

� Annual Tax Declaration (socioeconomic information)

�It is made simultaneously with the calculation oftaxes of March (PGDAS-D)

� Electronic Invoices (in the sales and purchases)

� Cash Accounting

SIMPLES: FILING OBLIGATIONS


� Easy Payment, with a significant reduction in the taxburden

� Easy Filling due to simplified cash accountingrequirements

� Social Security Coverage for owners and companypartners

� Workers in the small enterprises benefit from the samesocial security rights & advantages and other workrights

SIMPLES – BENEFITS


� 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

SIMPLES: STRENGTHS


�The Simples threshold is too high

�The level of tax expenditures is also very high

�Companies illegally evade sales, ordisaggregated their activities to be run byseparate legal entities, aiming to remain in thetax scheme. (Peter Pan Syndrome) (TaxDwarfism)

SIMPLES - WEAKNESSES


� 1988: New Federal Constitution – Benefits forthe 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 of the SimplesNacional

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 thataffected, in one way or another, the microenterprise or thesmall business, replacing the SMEs Statute, such asregistration, government purchases, bank loans,innovation, etc.

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



� 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



Thank you!!!

Executive Secretariat of the Management

Committee of “Simples Nacional”

[email protected]

[email protected]

+556134125976

+5561984415558

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