Tax Reform in Brazil

Kelly Muniz
March 31, 2022

Update: 12 September 2023 by Robson Satiro de Almeida

Tax Reform in Brazil: Simplification Statute Published

Recent developments in Brazil indicate changes on the horizon, as the country continues to move towards a tax reform for simplification of e-invoicing obligations.

A significant reform of ancillary tax obligations is underway aiming to create a unified system for issuing tax documents. The government has long anticipated and discussed this project, but it now shows promise of becoming a reality.

The Brazilian government published Complementary Law no. 199 (Lei Complementar no. 199) in August 2023, establishing the National Statute for the Simplification of Additional Tax Obligations (the Statute). The Statute derives from Draft Law Proposal no. 178/2021 and seeks to streamline ancillary tax obligations, including filing tax returns, keeping accounting records and issuing electronic invoices.

What will change in e-invoicing?

The Statute’s primary change provides the unification of rules for issuing electronic invoices and fulfilling other ancillary obligations. There are currently more than a thousand different electronic invoice formats throughout the country, driving up business maintenance costs and resulting in adversities in company budgets.

Specifically, the Statute establishes integrated action at the Federal, State and Municipal levels to reach the following:

  1. Unified issuance of electronic tax documents
  2. Use of e-invoicing data to calculate taxes and provide pre-filled tax returns
  3. Simplification of tax and contribution payments by consolidating collection documents
  4. Centralisation of tax records and their sharing in accordance with legal mandates

How will changes occur?

To achieve unified e-invoice issuance and integration of other ancillary obligations, the government will assess existing systems, legislation, special regimes, exemptions and electronic tax platforms. The next step is to standardise legislation and the respective systems used to fulfil such obligations.

As per the Statute, this integration effort aims to provide benefits such as:

  • Cost savings for taxpayers
  • Encouraging taxpayer adherence at all federative levels
  • Modernising systems and digitalising operations

The Statute also creates the National Committee for the Simplification of Ancillary Tax Obligations (CNSOA) to establish and improve the processes for simplifying tax obligations in line with a definition of a national standard process. However, the Union, States, Federal District and Municipalities may establish additional tax responsibilities related to their respective taxes, if they are aligned with the CNSOA provisions.

What’s next?

After formal composition of the National Committee, the Federal Executive Branch must adopt the necessary measures to allow it to carry out its activities as defined in the Statute. This is essential to start the official move towards national unification of e-invoicing processes and other ancillary obligations.

Additionally, the National Congress will still analyse and vote on certain points of the Statute that the President vetoed, which could result in further alignment or changes within the National Statute for the Simplification of Additional Tax Obligations.

Starting to prepare for eventual changes with e-invoicing in Brazil? Sovos can help.

 

Update: 21 March 2022 by Kelly Muniz

Brazil is, without doubt, one of the most challenging jurisdictions in the world when it comes to tax legislation. The intricate fiscal system that encompasses rules from 27 states and over 5000 municipalities has created a burden on companies, especially for cross-state and cross-municipality transactions.

Furthermore, taxpayers must carefully examine the numerous e-invoicing formats and requirements (and, sometimes, the lack of such). Therefore, hopes for tax reform in Brazil have existed for quite some time.

Simplifying e-invoicing compliance

In recent years, several legislative initiatives towards integrating indirect taxation mandates across the country have not met successful outcomes. Meanwhile, a feasible step into bringing forth such changes may be through the unification of rules on digital compliance with tax obligations, such as VAT e-invoicing and e-reporting.

In late 2021 a draft law proposal (Projeto de Lei Complementar n. 178/2021) was initiated by the private sector. Named the National Statute for the Simplification of Ancillary Fiscal Obligations, it has been welcomed this year by the House of Representatives. Its primary purpose is to introduce a significant reform within digital tax reporting obligations by creating a unified e-invoicing system.

By establishing national fiscal cooperation, the proposal intends to reduce costs with compliance, allow information sharing among tax authorities, and create an incentive for taxpayers’ conformity across all federal, state and municipal levels.

The principal agenda of the draft law proposal is to introduce:

  • A unified national standard for e-invoicing
  • A unified e-bookkeeping format, the Digital Fiscal Declaration (DFD)
  • A pre-filled tax return using e-invoice data
  • A unified fiscal registry file and information sharing system (RCU)

What this means for businesses

The most significant change is the introduction of the NFB-e (Nota Fiscal Brasil Eletronica), a national standard for e-invoicing. It entails the unification of the NF-e (Nota Fiscal Eletronica), NFS-e (Nota Fiscal de Servicos Eletronica) and NF-C (Nota Fiscal do Consumidor Eletronica) in one single document. This will cover Brazil’s VAT-like taxes, in this case, ICMS (VAT on products and certain services) and ISS (services VAT).

In practice, this means that instead of complying with numerous e-invoicing formats and mandates, according to the state and municipality of the transaction, one national digital standard will provide uniform country-wide compliance for e-invoicing. The NFB-e will cover invoicing of goods and services on state and municipal levels for B2G, B2B and B2C transactions.

The reform will drastically reduce the burden on taxpayers and expand the scope of e-invoicing to municipalities where such a mandate hasn’t been adopted yet.

It’s essential to add clearance requirements for e-invoicing in Brazil will be maintained, meaning that businesses will still need to comply with rules for real-time clearance of invoices with the tax authority.

What’s next?

The draft law proposal is still in early discussions and will follow to the Justice and Citizenship Constitutional Commission (CCJC) for approval and possible amendments before voting by Congress. Until then, compliance with e-invoicing rules across Brazil remains at its current challenging status.

Take Action

Need to ensure compliance with the latest Brazilian e-invoicing requirements? Speak to our team or download Trends Edition 13 to keep up to date with the latest regulatory news and updates.

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Author

Kelly Muniz

Kelly Muniz is a Junior Regulatory Counsel at Sovos. Based in Stockholm and originally from Brazil, Kelly earned a Bachelor’s degree in Law in her home country, where she worked as a licensed lawyer. She also holds a Master’s degree in EU Business Law from Lund University in Sweden.
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