International Tax Newsletter - February

Almost 4 million new businesses were opened in Brazil in 2021

The Brazilian Micro and Small Business Support Service (Sebrae) published that more than 3.9 million entrepreneurs formalized micro and small businesses or registered as individual microentrepreneurs (MEIs), which is a new record, representing in growth of 19,8% in comparison with 2020 and 53,9%with 2018.  

The main highlight was the opening of the legal entities of individual microentrepreneur (MEI), which accounted for 3.1 million businesses opened last year, 80% of the total. In 2018 and 2019, the category represented 75% of the businesses created.

The opening of MEIs has increased considerably and is a great tendency for this and the next years, especially with the growth of incentives that have helped so many people to regularize their business and open small businesses.

Tax reform is back on the agenda and will be voted on by the Senate Constitution and Justice Committee next week

The Senate Constitution and Justice Committee (CCJ) has set the vote on the tax reform (PEC 110/2019) for March 23^rd.

The reform back in discussion has the aim of unifying the collection of taxes in a Value Added Tax (VAT).

One federal, uniting PIS and Cofins (VAT Taxes) in the Contribution on Goods and Services (CBS), and another subnational, called IBS (Tax on Goods and Services), which would unify the ICMS, currently charged by the States, and the ISS, collected by the municipalities.

Administrative Tax Court Rules on Concept of "Imported Software" for Purposes of Application of Contributions on Gross Revenues

The Administrative Court for Federal Tax Appeals (CARF) has ruled through In Decision 3201-009.359 that revenues derived by Brazilian companies from the local distribution of software that was developed abroad must be subject to the contributions on gross revenue (i.e. PIS/COFINS) under the non-cumulative regime (i.e. at a rate significantly higher than the cumulative regime). In this respect, the CARF stated that software developed abroad can be considered as "imported software" for purposes of the application of the PIS/COFINS regime.

According to the decision, the expression "imported software" contained in paragraph 2 of article 10 of Law 10.833/2003 must be interpreted as referring to software that was developed abroad, regardless of whether it has been transferred to the Brazilian company via the Internet or through any physical support.

This decision is relevant for the software industry because it implies a significant increase in the tax burden of Brazilian companies that are engaged in the licensing or distribution to Brazilian customers of software that was developed abroad.

Commission of Economic Subjects (CAE) approves cryptocurrencies ruling

The approved project aims to recognize and regulate the cryptocurrency market in Brazil. It is a replacement that recommends the approval of Bill 3.825/2019 and provides guidelines for the provision of services related to virtual assets and for the operation of brokerages.

The main objective of the project is to prevent illegal practices, such as money laundering, foreign exchange evasion and other related crimes, for this it establishes some guidelines, such as:

• Brokerage firms' obligation to promote free enterprise and competition;
• enforcement of control and separation of customer resources;
• definition of good governance and risk management practices;
• ensure the security of information and the protection of personal data;
• protect and defend consumers and users and popular economies;
• ensuring the soundness and efficiency of operations.

In addition, the project intends to establish the Federal Revenue Service and the Executive Branch as responsible for defining which bodies should regulate and supervise the cryptocurrency business in Brazil, considering that these bodies will also be responsible for authorizing the operation of brokerages and defining which assets will be regulated, among others.

The project also provides for exemption from certain taxes owed by legal entities. The benefit must be valid until December 31, 2029 and applies to companies that purchase hardware and software for processing, mining and preserving virtual assets.

Finally, it is important to mention that despite being approved by CAE, the project will still have to go through several stages of approval before it can have legal and tax effects.

Brazilian Federal Revenue Publishes a new Normative Instruction on Income Tax Return 2022/2021

The new IN Nº 2.065/2022 brings news for the presentation of the individual income tax return (DIRPF) that accompany the advances in civil society. The changes involve the possibility of a pre-filled tax return on all platforms, payment of refunds and DARF via PIX, redesign of the program with a more intuitive website and an easier-to-use asset sheet.

Despite the technological innovations, the Revenue Services did not bring a relevant conceptual difference in the IN, still having as mandatory presentation for :

• Residents in Brazil who earn taxable income above R$28,559.70;
• Residents in Brazil who have earned exempt, non-taxable or exclusively taxed income above $40,000.00;
• Residents with capital gain transactions;
• Residents with possession or ownership of assets and rights in excess of $300,000.00;
• Residents with gross income from rural activities above taxable income above R$142,798.50;
• Individuals who became resident in Brazil in any month and as of December 31;
• Moreover, the RFB also did not innovate with regard to deductions, so it remains:
• deductions with dependents are limited to R$2,275.08 per dependent;
• education expenses have an individual annual limit of R$3,561.50;
• Simplified discount deduction limit of R$ 16,754.34

Additionally, close attention must be paid to the deadline for submitting tax obligations specially because 2022 is the first pandemic year in which there is no extension in the submission deadline.

• Mar/03: activation of income tax services with gov.br account;
• 07/Mar: availability of programs (PGD and APP) and beginning of reception;
• 15/Mar: availability of the pre-filled declaration; and
• Apr/29: last day to send the tax return