Simples Nacional vs. Lucro Presumido: what is the tax regime for Brazilian companies with digital nomad partners domiciled abroad?
There are a range of digital nomads spread around the world. After the COVID-19 pandemic, there was an increase in remote working and, consequently, an increase in digital nomadism as a lifestyle. Many of brazilian nomads are self-employed and have a small business in Brazil to provide their services.
However, what many of them don't know is that this tax benefit granted to micro-enterprises and small businesses cannot be used by companies that have partners domiciled abroad.
In other words, it doesn't matter if the turnover is in accordance with the legislation to be classified as an small business, if only one of the partners is domiciled abroad, they won't be able to use the Simples Nacional tax regime.
To better understand the issue, it is necessary to explain it in more detail.
What is Simples Nacional?
Simples Nacional is a simplified taxation system created with the aim of making it easier and simpler for micro-enterprises and small companies to pay income tax.
Because it is a simplified taxation system, it ends up stimulating the national economy and means that many self-employed people can have their activities regularized, which used to be extremely difficult because of the bureaucracy and high costs.
Currently, micro and small businesses are regulated by Complementary Law 123/2006, as well as the Simples Nacional regime.
Digital Nomads with tax residency abroad cannot benefit from Simples Nacional
Art. 30, §3, item IV of Complementary Law No. 123/2006 prohibits companies with partners domiciled abroad from being included in Simples Nacional:
"Art. 30. Exclusion from Simples Nacional, upon communication from micro or small companies, will take place:
(...)
§ Paragraph 3. The change of data in the CNPJ, informed by the ME or EPP to the Federal Revenue Office of Brazil, will be equivalent to the mandatory communication of exclusion from Simples Nacional in the following cases:
(...)
IV - inclusion of a partner domiciled abroad;"
Digital nomads, as much as they travel constantly, need to have a Tax Residence somewhere, usually in the place where they carry out their vital economic activities.
If they change their Tax Residence, the tax authority will automatically summon the company to change its tax regime to presumed profit.
What tax regimes are available to Digital Nomads domiciled abroad?
The remaining tax regimes are: presumed profit and real profit. When it is announced that one of the partners has moved abroad, the regime is automatically changed to presumed profit.
Presumed profit is the tax regime which, as its name implies, assumes a percentage of profit for a given company in a given period, according to the economic activity carried out. This percentage can vary from 8% to 32% depending on the type of activity the company carries out.
Real profit is the tax regime that calculates the net profit that a company has obtained from the income and expenses obtained during a given period. The percentage charged is up to 15%.
The importance of submitting the Final Exit Declaration
In order to be considered a non-tax resident in Brazil, it is essential to submit the Definitive Exit Declaration to the Federal Revenue Service.
If the declaration is not filed, the taxpayer will maintain their status as a Tax Resident in Brazil with all the obligations that this entails, such as the obligation to file an annual income tax return.
If the Federal Revenue Service, through online mechanisms for interaction and cooperation with the tax authorities of other countries, detects a change of domicile without the submission of the Definitive Exit Declaration, in addition to the small business having its tax regime automatically changed, the Brazilian tax authorities may charge taxes retroactively to the date of departure from Brazil plus interest and monetary correction, and the taxpayer may be criminally liable for tax evasion.
We therefore advise you to carry out tax planning before moving abroad or, if you are already domiciled abroad, to seek regularization as soon as possible through tax planning according to your needs.
If you are interested in hiring professional legal services related to tax planning in Brazil, we are a law firm specializing in the subject. To do so, please contact us by e-mail: thyanipuppio@gmail.com, or by WhatsApp.
