In this article, we will explain the differences between these two taxation arrangements determined by the Brazilian corporate legislation.
Some Brazilian taxes, such as the Corporate Income Tax (IRPJ) and the CSLL are charged on the companies’ incomes. In order to determine the calculation basis for the payment of those taxes the Brazilian Law imposes three taxation arrangements, to be chosen by the companies:
- Lucro Real
- Lucro Presumido
- Simples Federal
But what is the best taxation arrangement? The decision involves many factors, such as the company’s revenue and legal form, its line of work, expenses, among others. Companies are to choose their taxation arrangement by the beginning of each year and are not allowed to change it during this period.
Lucro Real (Actual Profit)
Under this system, the taxes’ calculation basis will be determined over the companies’ net profit ascertained (revenue minus certified expenses) and must proved with invoices and contracts.
The Lucro Real system is indicated to companies with an uncertain profitability or a very variable profit during the year. That is because the companies will only pay their taxes if they really had profits. If they had losses, they are allowed to not pay their taxes throughout the year and negotiate the debts afterwards. Contributors can also chose to establish their profits on an annually or quarterly basis and can have some credits for PIS and Cofins taxes discounted over some raw materials and inputs.
The Lucro Real arrangement can be chosen by all companies, but for the ones with annual profit of over BRL 48.000.000 is the only eligible system.
Lucro Presumido (Presumed Profit)
As the name indicates, under this system, the taxes are levied on a presumed profit, pre-established by the Brazilian tax legislation. The calculation basis is determined according to the following fixed coefficients:
12% of the gross revenue when it comes to commercial and industrial activities as well as hospital and transportation services.
32% of the gross revenue for services in general; business brokerage; administration, hiring out or transfer of movable or immovable assets and rights of whatever nature.
In the Lucro Presumido system, does not really matter how much the company have actually profited. To compose the calculation basis for the taxes, the fixed percentages above will always be used, what makes it easier to determine.
Overall, this system tends to be the best alternative for companies with a guaranteed annual profit higher than the percentages established by the Federal Revenue. In this option, CSLL is calculated only on a quarterly basis.
Reminding that for companies with annual billing revenue in excess of BRL 240.000.000, the Lucro Real system is mandatory.
The Simples Nacional or Supersimples is a special arrangement destined for micro and small sized companies with monthly revenue of up to BRL 60.000.
Established in 2007, Simples is a Unified Tax Collection System. Its main feature is the possibility paying taxes and contributions within federal, state and municipality scope upon a unique collection. Those taxes and contributions are: IRPJ, CSLL, PIS, Cofins, ICMS, IPI, ISS, and CPP.
By choosing the Simples Nacional system, companies will not only diminish its time dealing with bureaucracy, but also have less expenses with administrative personnel.