Brazil’s tax reforms: what agencies need to know

Brazil tax reforms

11th August 2020

There are certainly many reasons to visit Brazil for both work or pleasure (once lockdown restrictions are lifted of course). If you’re seeking a move to warmer climates and want to experience a musical culture like no other, it’s certainly a destination to consider. However, for recruiters placing contractors in the country, it’s important to know that Brazil’s tax compliance landscape is complex, and, according to recent news, is set to become increasingly intricate.

Latest on Brazil’s tax reforms

Reports at the end of July revealed that the country’s Economy Minister, Paulo Guedes, is continuing to take a strong stance on reforming Brazil’s tax regime through a number of developments that were initially reported at the beginning of the month. Since taking up this position, Guedes has firmly focused his agenda on simplifying the country’s tax system to not only make it easier for businesses and citizens, but to also support authorities identify non-compliance quickly and recover the necessary funds. He’s also firmly argued that lowering taxes will help boost Brazil’s economy, and aims to reduce the tax burden from 33% of gross domestic product, to 20%.

As part of his proposals to clampdown on evasion and non-compliance, Guedes has already revealed plans to combine two federal consumption taxes into a single value added tax which will be set at 12%, which will simplify much of the reporting required in the country. While the full details of the next steps are yet to be unveiled, it has been revealed that this will focus on income and payroll taxes in particular.

Speaking at a press conference, Guedes’s told reporters:

“We are very confident on this wide-ranging reform. The first stage was VAT, and selective taxes, income tax and payroll tax will follow. We are very pleased with the first steps we are taking.”

However, the Economy Minister has also been quick to reassure citizens that tax increases are not on the cards, despite the government desperately trying to plug the budget deficit that has been brought on by Covid-19. In his July statement, Guedes commented: “We will not raise taxes. If you create a wider base, and tax a little here, you can reduce income tax.”

A complex landscape

While it’s certainly clear that the country’s Economy Minister is keen to simplify Brazil’s tax system, the sheer complexity of the destination’s compliance landscape means that any recruitment business operating here or placing contractors in the location will face a real administrative headache. As a case in point, as we reported in one of our blogs, the government’s plans last year to crack down on digital currency through a cryptocurrency tax law had the potential to further complicate tax regulations in Brazil.

And, more recently, it was revealed that Covid-19 has arguably sped up the use of digital tax portals in the country which has led to firms having to adapt to a move online, and technology will certainly continue to be utilised post-coronavirus as the benefits in many cases outweigh the cons. However, while this move has the potential to make tax reporting and monitoring easier for some, it also increases the chances of those operating non-compliantly being caught out.

In many instances, digital tools make the process of tracking and monitoring the transactions of individuals and businesses much easier. For authorities looking to reclaim much need funds during a time of crisis, having the software to make this easier will certainly prove useful.

Of course, for an agency looking to tap into the contract recruitment space in Brazil, partnering with an expert in global contractor management solutions will certainly help ensure your business remains risk free, no matter what changes are made through future tax reforms.

Border closures remain a challenge

Of course, beyond the complexity of Brazil’s tax regulations, the ongoing pandemic is creating a significant barrier for many staffing companies that have previously tapped into the opportunities in the country or are looking to do so now. While things are certainly changing quickly, at the time of writing, part of the government’s four-month travel ban had come to an end, though some restrictions remain in place, which is understandable given the country’s growing Covid cases.

Brazil originally closed its air borders on 30th March as the virus took hold. However, as of the end of July, the government had issued a decree that reopened the country to foreign visitors arriving by plane. The ban on those arriving by land or sea, however, has been extended by another 30 days in a bid to control the spread of the virus while also attempting to bolster the local economy to reduce the impact Covid-19 is having on funds.

Reducing the risk for your recruitment agency

Clearly Brazil’s tax landscape is set to experience further reforms in the near future and for recruitment businesses placing contractors in this destination, staying ahead of these changes will be crucial to reducing the risks for your business.

But Brazil is not alone in adapting regulations to better clampdown on tax evasion and non-compliance. As regular readers of our blog will know, authorities worldwide are not only implementing reforms to close loopholes and better monitor transactions, but are also working together to prevent global fraud. We’ve seen international government’s sign up to the Automatic Exchange of Information through the Common Reporting Standards. In fact, over 100 global authorities have signed up to this, with more on the cards to join this movement.

And Covid-19 looks set to further complicate the world of international compliance. With more contractors able to work remotely from their country of residence, ensuring your placements remain on the right side of the law in both their home country and the destination the work is being delivered for adds a new level of complexity that could catch businesses out.

That’s why now, more than ever, it’s vital that recruitment businesses operating overseas seek expert guidance to prevent their consultants or contractors falling foul of the law. Why not contact the 6CATS International team today to find out how they can help your firm.

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