The Brazilian experience on the “Simples Nacional”: Micro Entrepreneur, Micro and Small Businesses Executive Secretariat of the Management Committee of “Simples Nacional ” Silas Santiago Manila, July, 2018 Receita Federal Ministério da Fazenda
SIMPLES - STATISTICS Number of micro and small enterprises registered with Simples Nacional, 2007-2017 (thousands) MSE 6.000 4.980 4.968 4.938 4.860 5.000 4.580 4.409 3.974 4.000 3.568 3.173 3.000 2.628 2.496 2.000 1.000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Receita Federal Ministério da Fazenda
1.000,0 2.000,0 3.000,0 4.000,0 5.000,0 6.000,0 7.000,0 8.000,0 9.000,0 0,0 Registration of MEI, 2010-2017 (thousands) 70,3 jan/10 abr/10 Ministério da Fazenda jul/10 out/10 jan/11 abr/11 jul/11 out/11 jan/12 SIMPLES - STATISTICS abr/12 jul/12 out/12 jan/13 abr/13 jul/13 out/13 3.436,5 jan/14 abr/14 jul/14 out/14 jan/15 abr/15 jul/15 out/15 jan/16 Receita Federal abr/16 jul/16 out/16 jan/17 abr/17 jul/17 7.738,6 out/17
SIMPLES - STATISTICS Total tax revenues under Simples Nacional, 2007-2017 (billions of BLR) 90,0 77,0 80,0 71,4 69,5 70,0 62,0 60,0 54,4 46,5 50,0 42,3 35,5 40,0 26,8 30,0 24,2 20,0 8,4 10,0 0,0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Receita Federal Ministério da Fazenda
SIMPLES - STATISTICS Formalization rate aged 16-59 years, 1992-2015 (%) 80,0% Protection Rate (%) 75,0% 72,5%72,5%72,5% 70,6%71,3% 70,0% 67,0%65,9%65,1%65,0%64,6%63,4%62,8%62,3%61,7%62,5%62,6%63,4%64,1%65,1%66,0%67,0% 65,0% 60,0% 55,0% 50,0% 45,0% 40,0% 1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 Receita Federal Ministério da Fazenda
SIMPLES - STATISTICS Social Insurance Protection Rates* by occupational category, for Workers Aged 16-59 years - 1992-2015 (%) 90,0% 83,4% 79,2% 77,0% 80,0% 76,8% 74,9% 74,3% 72,9% 72,5% 69,9% 70,6% 70,0% 67,0% 67,0% 65,0% 63,9% 63,7% 63,8% 62,3% 60,0% 63,4% 50,0% 45,7% 44,5% 42,2% 40,0% 35,3% 35,3% 41,7% 33,2% 29,5% 30,0% 33,0% 32,4% 32,6% 25,0% 20,0% 1992 1996 2001 2005 2009 2015 Employees C.Family Workers Self-Employed Employers Total Receita Federal Ministério da Fazenda
SIMPLES - STATISTICS Trends in number of employees paying into social security, 1996-2016 (millions) 60,0 51,7 53,9 55,7 56,6 54,7 51,4 48,6 50,0 43,7 45,2 40,2 35,9 37,4 40,0 29,8 30,8 31,5 33,3 24,8 25,8 27,3 30,0 21,7 22,3 20,0 10,0 0,0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of Employees (millions) Receita Federal Ministério da Fazenda
Context BRAZIL - Strong administrative decentralization: 26 States, 1 FD and 5,564 Municipalities - Multiple Tax Administrations: Federal, State and Municipal - Population: 204 million inhabitants - GDP – $ 2.05 trillion. Per capita USD 11,727 (2017) - Area of the territory: 8,5 million km² Receita Federal Ministério da Fazenda
MANAGEMENT OF SME POLICIES TAX ORGANIZATION Receita Federal Ministério da Fazenda
MANAGEMENT OF SME POLICIES NON-TAX ORGANIZATION Receita Federal Ministério da Fazenda
MANAGEMENT OF SME POLICIES VISION OF THE PROCESS UNDER THE ENTREPRENEURS 'PERSPECTIVE Receita Federal Ministério da Fazenda
What is the MEI? � MEI is: � An Individual Micro Entrepreneur � A Self-Employed Business Person � A natural person equated to the legal entity (in Brazilian legislation) � A subset of the “Simples Nacional” Receita Federal Ministério da Fazenda
MEI – OBJECTIVES � Reduction of businesses informality � Personal and Corporate Citizenship � Work protection by the Social Security � Simplification of the registration, filing and payment � Developing tax awareness in the population Receita Federal Ministério da Fazenda
MEI – Conditions / Eligibility � Annual sales of up to BRL 81 mil (USD 20.8 mil) � Without branches � Cannot be partner or owner of other business � Perform only activities authorized by the Managing Committee of Simples Nacional � Have of up to one employee receiving minimum wage OCUPATIONS ALLOWED Receita Federal Ministério da Fazenda
MEI - MONETARY OBLIGATIONS � Lump-sum amount: � R$ 53 (USD 14.5), as follows: � R$ 47 of entrepreneur ’ s personal contribution for Social Security � R$ 1 for ICMS (state tax) � R$ 5 for ISS (municipal tax) � MEI is exempt from other federal taxes on general businesses. Receita Federal Ministério da Fazenda
MEI - MONETARY OBLIGATIONS � If the MEI hires an employee: 8% of the employer's social security contribution (The normal rate of this contribution is 20%.) � In addition, have to withhold from his/her employee the Social Security Contribution � In Brazil, there are micro and small entrepreneurs, but there are no “micro and small employees". Everyone has the same rights. Receita Federal Ministério da Fazenda
MEI – FILING OBLIGATIONS � Buy goods and services only with invoices � Issue invoices in the sales for corporate entities � File monthly a “Sales Summary”, which must be maintained with him � File annually the tax declaration with only three questions: � What was the total sales? � Of this total sale, how much was the sale of products? � Did you hire the employee you were entitled to? SALES SUMMARY Receita Federal Ministério da Fazenda
MEI – BENEFITS � The Social Protection: � The MEI has right to the Basic public pension for age; Invalidity & survivor benefits; incapacity for work & maternity benefits; and Family allowance (imprisonment). � Registering as MEI means being formal. Being in the formal way means having access to various public policies designed for the MEI, like as: � sell to the government, open bank accounts, get loans with favored interest, have access to Social Security, etc. Receita Federal Ministério da Fazenda
MEI: STRENGTHS � Easy Registration � Easy and predictable Payment (as entrepreneur pays a lump sum amount) � Easy Filling � Social Security Coverage � High level of reduction of businesses informality � Attractive: Registering as MEI means being formal Receita Federal Ministério da Fazenda
MEI - WEAKNESSES � The monthly lump-sum tax is too low � Large difference in taxes between the MEI and normal scheme of “Simples Nacional” which reduces the transition from MEI to Simples. � Existence of taxpayers who are illegally inside the tax scheme (either higher income people or former workers who register as a MEI and continue to work under disguised employment relationship) � Disclaimer of issuing invoices to the final consumer is a factor contrary to the tax culture. � The percentage of arrears is very high - about 55% of total MEI. Receita Federal Ministério da Fazenda
What is the “SIMPLES” � “Simples Nacional” is a tax scheme for micro and small businesses in Brazil, unifying the collection of federal, state and municipal taxes: � Federal taxes: � “IRPJ” – Corporate Income Tax (CIT) � “CSLL” – Social Contribution on Net Profit � “IPI” – Tax on Manufactured Goods � “COFINS” – Contribution for Social Security � “PIS/PASEP” – Contribution for Social Integration Program � “CPP” – Employers Tax Contribution for Social Security � State tax: “ICMS” – Value Added Tax (VAT), levied on goods and Inter Municipal Transportation and Communication Services � Municipal tax: “ISS” – General Services Tax Receita Federal Ministério da Fazenda
SIMPLES – OBJECTIVES � Reduction of businesses informality � Job Creation and Maintenance � Regional/local economic development � Simplification of the registration, filing and payment � Simplification of the controls of the tax administrations Receita Federal Ministério da Fazenda
SIMPLES – Conditions / Eligibility � THRESHOLD: BRL 4,800,000 (USD 1,230,769) in the domestic market, plus BRL 4,800,000 for exports. � Commercial and non-commercial entities (except S/A) � Individual Limited Liability Business (EIRELI) � Individual Businessman (equated to legal entity) � Activities allowed: commercial, industrial and service companies, with the exception of some specific sectors, such as financial activities, production and wholesale trade of cigarettes and firearms, the electric power production chain, sell or assign labor (outsourcing companies), etc. Receita Federal Ministério da Fazenda
SIMPLES – MONETARY OBLIGATIONS � Pay a Monthly Gross Sales Tax, with a Variable Rates � Withhold PIT (Personal Income Tax) and Personal Social Contribution, from owners, partners, temporary workers (self-employed) and employees Receita Federal Ministério da Fazenda
SIMPLES: MONETARY OBLIGATIONS TAX BASE AND RATES � The calculation basis is represented by the total sales in the month. � The rate is calculated based on the last 12 months' sales (to minimize the effects of seasonality). � For tax purposes, the taxpayers are divided into five groups in the scheme Receita Federal Ministério da Fazenda
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