Brazil Financial Compliance – From E-Invoices to Payroll

The trend of tracking taxes in real-time is progressing beyond business transactions in Brazil.  Here is a little history:

1. Nota Fiscal for Business Transactions since 2007
2. Nota Fiscal Consumer for end consumer transactions (i.e. Retail store) as a potential replacement for existing Cupom Fiscal started the pilot phase in 2013
3. eSocial – expectation of mandate for 2015

The first move by the SEFAZ was to introduce the consolidated IT environment for NFe (goods) & NFCe. For those that are not familiar with NFCe – this is the technology presented by some within the SEFAZ for Business to Consumer transactions. The technology could replace Cupom Fiscal which is the current ticketing system for digital receipts when you purchase something at a clothing store or restaurant.  There is still much discussion on the NFCe topic and each state will decide on the direction. The NFe 3.1 Schema was recently released and has many issues for companies –  which I highlihgted in earlier posts.

For many companies outside of the retail world or those that don’t deal directly with consumers, the NFCe will not be an issue.  The issue will be eSocial which is likely to be mandated for 2015 after initial 2014 mandates were moved.

As a business, you need to ensure you have properly budgeted for both the NFe version 3.1 upgrade and eSocial.

Here is a short overview of eSocial to give you an idea of the scope:

• eSocial is a project of the Brazilian federal government that will collect labor, social security, tax, and fiscal information related to the hiring and employment practices

• The employer will transmit all information referring to their labor force online. This information will be registered in a unique base and each of the governmental entities will have access to the information pertinent to their inspection scope.
  1. Federal Revenue Department (Receita Federal): Social security contribution and withholding tax
  2. Social Security Institute/Ministry of Social Welfare (INSS/MPS): Employment bonds and contribution wages
  3. Ministry of Labour and Employment (MTE): Labor rights and benefits

• There could be up to 45 individual xml files submitted per employee per month

• As per note from Federal Revenue (Receita Federal) in www1.receita.fazenda.gov.br/noticias/2012/julho/noticia-25072012.htm
  1. Labor Events: The labor events must be transmitted on time, i.e., as soon as they occur, in individual files for each event and they will feed a database named Registry of Labor Events (RET), which will represent the working history of the employee
     • Hiring, Contract Details, Warnings, Suspensions
     1. Payroll Events: The payroll file and all of the other social security contributions (cooperatives, service providers, rural, etc.) will be transmitted monthly and must be consistent with the Registry of Labor Events (RET)

When and if NFC and eSocial are fully implemented, the Brazilian government will have access to all significant taxes (Business VAT, Consumer Sales VAT, and Employee Payroll and Income Taxes).  And by access – I mean real-time access down to the Reais for all transactions within the country.