Changes to Simples Nacional: what are the (harmful) consequences for digital nomads?
Recently (April 2024), the Executive Branch sent Complementary Bill (PLP) No. 68/2024, which regulates the new Brazilian "VAT": the IBS (Tax on Goods and Services) and the CBS (Contribution on Goods and Services), instituted by the Tax Reform. These taxes will replace the ICMS and ISS.
The Tax Reform was enacted by the National Congress in December 2023 through Constitutional Amendment (EC) No. 132, bringing several changes to the Brazilian Tax System.
I'll talk more about the changes to other taxes in this article.
This article will focus on IBS and CBS, precisely because they will be incorporated into the Simples Nacional tax system, directly impacting many small entrepreneurs domiciled abroad, including digital nomads whose main source of income is a company covered by Simples Nacional.
Without further ado, let's get into the topics.
IBS/CBS and the transition period
The Tax Reform established a transition period for complete adherence to the new tax regime. In other words, during the transition period, two tax regimes will apply at the same time: the old and the new. The transition period will be 10 years.
Currently, Simples Nacional covers the following taxes:
a) ICMS;
b) ISS;
c) CSLL;
d) IRPJ;
e) COFINS;
f) PIS and;
j) CPP.
With the Tax Reform and the Regulation of IBS and CBS, during the transition period Simples Nacional will cover the following taxes:
a) ICMS;
b) ISS;
c) CSLL;
d) IRPJ;
e) CPP;
f) IBS;
j) CBS.
This change in taxation, according to PLP 68/2024, will be applied as early as 2027 - in just two years!
In other words, from 2027 ICMS, ISS, IBS and CBS will be charged together until at least 2032. With two regimes being applied at the same time, what will be the immediate consequence? An increase in the tax burden.
IBS/CBS rate set by the Executive Branch
The IBS/CBS rate envisaged by the Executive Branch is 26.5%.
The PIS + COFINS rate currently charged, which will be in force until IBS/CBS is regulated, is 3.65%. The ISS and ICMS rates vary according to municipality and state.
According to this PLP, the Union, states and municipalities will have the autonomy to set their base IBS/CBS rates, otherwise the general rule will apply.
As this bill has not yet been approved, it is not possible to say what the de facto IBS/CBS rate will be and how it will be incorporated into Simples Nacional. However, it is possible to see that Simples Nacional will be directly affected by any changes made to this bill and any subsequent bills.
In this author's opinion, in several activities, the minimum Simples Nacional tax rate could exceed 10% - it currently ranges from 4% to 8% depending on the activity carried out.
PLP 68/2024 itself states categorically in its article 19, paragraph 1, "c":
“Art. 19. Qualquer alteração na legislação federal que reduza ou eleve a arrecadação da CBS ou do IBS:
(..)
§ 1o Para fins do disposto no caput:
I - deverá ser considerada qualquer alteração na legislação federal que reduza ou eleve a arrecadação da CBS ou do IBS, contemplando, entre outros:
(..)
c) alterações no regime favorecido de tributação do Regime Especial Unificado de Arrecadação de Tributos e Contribuições devidos pelas Microempresas e Empresas de Pequeno Porte – Simples Nacional e do Microempreendedor Individual – MEI, de que trata a Lei Complementar no 123, de 14 de dezembro de 2006;”
EN:
"Art. 19. Any change in federal legislation that reduces or increases the collection of CBS or IBS:
(..)
§ Paragraph 1 For the purposes of the caput:
I - any change in federal legislation that reduces or increases the collection of CBS or IBS shall be considered, including, but not limited to:
(..)
c) changes in the favored taxation regime of the Special Unified Regime for the Collection of Taxes and Contributions owed by Micro and Small Companies - Simples Nacional and the Individual Microentrepreneur - MEI, referred to in Supplementary Law No. 123, of December 14, 2006;"
If the rate of 26.5% is confirmed, there will be an exponential increase in various sectors of our economy, including those that benefit from Simples Nacional, as is the case with many digital nomads.
This makes it essential to carry out a tax analysis to check the conditions for changing tax regimes.
If you are interested in hiring professional legal services related to Tax Analysis for a change in tax regime, we are a law firm specializing in the subject. To do so, please contact us via WhatsApp or by e-mail: thyanipuppio@gmail.com
Fiscal deficit of R$1.527 billion, tragedy in RS, and the consequent increase in the tax burden
According to the Ministry of Finance[1], in March 2024 Brazil had a primary deficit of R$1.527 billion.
According to data from the Central Bank[2], the Gross Debt of the General Government - which includes the Federal Government, INSS, state and municipal governments - in April 2024 was R$8.4 trillion (76% of the National GDP).
With the catastrophe that occurred in Rio Grande do Sul as a result of the large volume of rainfall at the end of April and beginning of May 2024, Federasul[3] announced that the estimated cost of rebuilding the state could vary between R$110 billion and R$176 billion.
As a result, Brazil is witnessing a number of changes to the tax system, especially with regard to tax increases.
We have recently seen the approval in Congress of the law that will remove the exemption for international purchases of up to US$50, the inclusion of aircraft and jets in the IPVA, an increase in the ITCMD, the creation of the Selective Tax, among others.
The reason is simple: the state does not produce wealth. If the state increases its debt and/or its spending, where will it get the money from? From tax payers.
Lack of spending cuts
Although they approved the Tax Reform with the discourse of reducing the tax burden, this discourse will not match reality, since it is not possible to talk about Tax Reform without cutting spending.
In order to effectively cut spending, it is necessary to carry out an Administrative Reform. This reform has not taken place and there is no indication that it will in the short to medium term.
Well, if spending remains and some taxes have been removed in the Tax Reform (as is the case with PIS/COFINS, ICMS and ISS), what happens? An increase in the tax burden.
No wonder 11 states raised their ICMS rates at the beginning of 2024[4].
Possible Solutions for Digital Nomads
Given this scenario, what would be the solution for digital nomads who are covered by Simples Nacional?
This will depend on each specific case, since it is necessary to analyze the economic and social situation of each individual.
Depending on the analysis, it may be possible to come up with several different solutions, such as:
a) Tax planning to switch from Simples Nacional to Lucro Presumido or Lucro Real;
b) Tax planning to reallocate resources abroad in a lawful manner, such as setting up offshore companies, investments abroad, among others.
The trend in Brazil over the next few years is an increase in the tax burden in general, so tax planning is essential to avoid tax evasion, double taxation and undue payment of taxes.
If you are interested in hiring professional legal services related to Tax Planning, we are a law firm specializing in the subject. To do so, please contact us via WhatsApp or by e-mail: thyanipuppio@gmail.com
[1] https://www.gov.br/fazenda/pt-br/assuntos/noticias/2024/abril/governo-central-registra-deficit-primario-de-r-1-527-bilhao-em-marco-de-2024
