Basic Introduction to Accounting in Brazil for Those Interested in Starting a Business

This guide provides a detailed overview of accounting in Brazil for foreigners interested in starting a business. It covers the legal structure of companies, main taxes and contributions, accessory obligations, procedures for opening a company, tax regimes, financial statements, and a glossary of essential terms.

Starting a business in Brazil can be an excellent opportunity for foreigners looking to expand their operations or explore new markets. However, the Brazilian accounting system is complex and can be challenging for those unfamiliar with its intricacies. This guide aims to provide a detailed and comprehensive overview of how accounting works in Brazil, covering the main taxes, fiscal obligations, and necessary procedures for your company to operate legally and efficiently in the country.

Legal Structure of Companies in Brazil

Before diving into accounting specifics, it is crucial to understand the different legal forms a company can take in Brazil:

1. Sole Proprietorship (Empresário Individual): The simplest form of business incorporation, where the entrepreneur is the business itself and is personally liable for its obligations.
2. EIRELI (Individual Limited Liability Company): Allows for the separation of personal and business assets, with a minimum capital requirement of 100 minimum wages.
3. Limited Liability Company (Ltda.): The most common structure in Brazil, allowing the division of capital among two or more partners, with liability limited to their share contributions.
4. Corporation (S/A): Suitable for large companies, allows raising funds through the stock market, and can be publicly or privately held.
5. MEI (Individual Microentrepreneur): Aimed at individual entrepreneurs with limited annual revenue and fewer fiscal and accounting obligations.

Main Taxes and Contributions

The Brazilian tax system is known for its complexity and a high number of taxes. Below, we list and explain the main taxes and contributions that apply to companies in Brazil:

1. Corporate Income Tax (IRPJ):
   • Rate: 15% on real, presumed, or arbitrated profit.
   • Additional Tax: 10% on profit exceeding R$ 20,000 per month.
2. Social Contribution on Net Profit (CSLL):
   • Rate: 9% for most companies; 20% for financial institutions.
3. PIS and COFINS (Social Integration Program and Social Security Financing Contribution):
   • Cumulative Regime: Rates of 0.65% (PIS) and 3% (COFINS) on gross revenue.
   • Non-Cumulative Regime: Rates of 1.65% (PIS) and 7.6% (COFINS), with credit possibilities.
4. Excise Tax (IPI):
   • Rate: Variable according to the product’s fiscal classification (TIPI).
5. ICMS (State VAT):
   • Rate: Varies by state and type of goods or services, typically 7%, 12%, 17%, 18%, or 25%.
6. ISS (Municipal Service Tax):
   • Rate: Ranges from 2% to 5%, depending on the municipality and service provided.
7. Employer Social Security Contribution:
   • Rate: 20% on the payroll.

Accessory Obligations

In addition to taxes, Brazilian companies must comply with various accessory obligations, which are declarations and documents required by tax legislation to ensure the inspection and control of economic activities. Some of the main accessory obligations include:

1. DCTF (Declaration of Federal Tax Debits and Credits): Declares the taxes and contributions assessed by the company.
2. EFD-Contributions (Digital Fiscal Bookkeeping of Contributions on Revenue): Information on PIS and COFINS.
3. EFD-ICMS/IPI (Digital Fiscal Bookkeeping of ICMS and IPI): Information on ICMS and IPI.
4. DIRF (Withholding Income Tax Declaration): Declaration of IRRF withholdings.
5. SPED (Public Digital Bookkeeping System): Covers various modules, such as ECD (Digital Accounting Bookkeeping) and ECF (Digital Tax Bookkeeping).

Procedures to Open a Company in Brazil

1. Choose the Legal Structure: Decide which legal form is most suitable for the type of business.
2. Register with the Board of Trade: Register the company with the competent state body.
3. Obtain a CNPJ (National Register of Legal Entities): Register with the Federal Revenue Service.
4. State and Municipal Registration: For activities subject to ICMS and ISS, respectively.
5. Business License: Issued by the local city hall.
6. Specific Licenses: Depending on the industry, specific licenses may be required, such as sanitary or environmental permits.

Tax Regimes

Companies in Brazil can opt for different tax regimes, each with its characteristics and advantages:

1. Real Profit (Lucro Real): Companies must determine the taxable profit through accounting records, required to record all accounting acts and facts.
2. Presumed Profit (Lucro Presumido): The IRPJ and CSLL tax base is determined by applying a percentage to gross revenue, varying according to the activity.
3. Simples Nacional: Simplified regime for micro and small enterprises, unifying various taxes into a single payment guide.

Accounting and Financial Statements

In Brazil, companies must follow the accounting standards issued by the Federal Accounting Council (CFC) and the Accounting Pronouncements Committee (CPC), aligned with International Financial Reporting Standards (IFRS). The main financial statements include:

1. Balance Sheet: Presents the company’s financial position, divided into assets, liabilities, and equity.
2. Income Statement (DRE): Shows the company’s economic performance, detailing revenues, costs, and expenses.
3. Cash Flow Statement (DFC): Shows cash inflows and outflows, separated by operating, investing, and financing activities.
4. Statement of Changes in Equity (DMPL): Details changes in equity over the period.
5. Notes to the Financial Statements: Complement the financial statements with additional information and explanations.

Conclusion

Starting a business in Brazil requires a deep understanding of the country’s accounting and tax system. This guide aims to provide a solid foundation for foreigners wishing to undertake in Brazil, detailing the main taxes, obligations, and necessary procedures. It is advisable to seek guidance from qualified accounting professionals to ensure compliance with legal obligations and maximize available tax benefits.

Appendix: Glossary of Accounting and Tax Terms

• Rate (Alíquota): Percentage or fixed amount applied to the tax base to determine the tax amount.
• Tax Base (Base de Cálculo): Value on which the rate is applied to calculate the tax amount.
• Tax Credit (Crédito Tributário): Amount the company can deduct from the tax payable.
• Tax Debt (Débito Tributário): Amount owed by the company to the tax authorities.
• Real Profit (Lucro Real): Tax regime determining taxable profit based on accounting records.
• Presumed Profit (Lucro Presumido): Tax regime determining taxable profit based on percentages applied to gross revenue.
• Simples Nacional: Simplified tax regime for micro and small enterprises.
• Fiscal Year (Exercício Fiscal): The 12-month period used for accounting purposes and preparing financial statements.
• General Ledger (Livro Razão): Comprehensive record of all financial transactions made by a company.
• Trial Balance (Balanço de Verificação): A bookkeeping worksheet in which the balance of all ledgers are compiled into debit and credit columns to ensure they are equal.
• Accrual Basis (Regime de Competência): Accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.
• Cash Basis (Regime de Caixa): Accounting method where revenue and expenses are recorded only when the cash is received or paid.
• Depreciation (Depreciação): Allocation of the cost of a tangible asset over its useful life.
• Amortization (Amortização): Gradual reduction of an intangible asset’s value over time.
• Provision (Provisão): An amount set aside in the accounts to cover a future liability.
• Contingent Liability (Passivo Contingente): A potential liability that may occur depending on the outcome of an uncertain future event.
• Equity (Patrimônio Líquido): The residual interest in the assets of the entity after deducting liabilities.
• Goodwill (Goodwill): An intangible asset that arises when a buyer acquires an existing business.
• Inventory (Estoques): Raw materials, work-in-progress, and finished goods that a company holds for sale in the ordinary course of business.
• Receivables (Contas a Receber): Money owed to a company by its customers for goods or services delivered.
• Payables (Contas a Pagar): Money a company owes to suppliers for goods and services purchased on credit.
• Capital Expenditure (CAPEX) (Despesas de Capital): Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment.
• Operating Expenditure (OPEX) (Despesas Operacionais): The ongoing cost for running a product, business, or system.

Bibliographic References

For an even deeper understanding, it is recommended to consult the following works and sources:

1. Brazilian Accounting Standards (NBC) – Federal Accounting Council.
2. Tax Procedures Manuals – Federal Revenue of Brazil.
3. Brazilian Tax Legislation – Law No. 5.172/1966 (National Tax Code) and its amendments.
4. IFRS – International Financial Reporting Standards – Accounting Pronouncements Committee (CPC).

This guide serves as a comprehensive starting point for foreigners who wish to