Tax Incentives for Brazilian Startups
With the aim of reducing the tax burden for new startup technology companies defined by law as denominated startups, the Brazilian Government created, back in 2012, a project of law to establish a special system called SisTENET for this sector.
The software sector is responsible for BRL 75 million, with 73 thousand companies in Brazil demanding attention in this sector. As of today, the SisTENET project has not been approved and is still being discussed at the deputies chamber. In this article you are going to learn the future law from its last amendment on April 15, 2015.
According to the new law, a startup is a legal entity engaged in the provision of services or provision of related goods to technology, especially software, hardware or internet activities.
Applying for SisTENET will give the startup, for a certain period, the benefit of the exemption of a few federal taxes. The benefit can be granted for a period of two years and after that the company would automatically be transferred to SIMPLES, the Integrated System for Payment of Taxes and Contributions of Micro and Small Businesses.
Being part of SisTENET implies the exemption of the following federal taxes when directly related to the company activities:
- Income Tax, IRPJ
- Import Tax, II
- Export Tax, IE
- Tax on Manufactured Products, IPI
To apply for SisTENET, the company must dedicate its activities to:
- Email services, hosting and development of websites and blogs
- Personal communication, social networks, search engines and advertising on the internet
- Distribution or creation of original software, in physical or digital media, for computers or other electronic devices, mobile or not
- Design engineering and development of parts for computer hardware, tablet, mobile phone and others devices
- Research activity, development or implementation of innovation with a business model based on the Internet and in telematic networks
In addition, to be part of SisTENET, the company must have a quarterly gross income of less than BRL 60,000 and a maximum of four employees. If the company achieves a higher revenue in a quarter, it must request to leave SisTENET within 30 days. If the startup does not do so, it must handle all the tax burdens which they were initially exempt from. A fine of BRL 500 is also applicable.
The revenue of the startup is reported from:
- Financing obtained from public or private companies
- Income from services offered by the company
- Donations
If a company is interested in benefiting from SisTENET they must register at Receita Federal, the Federal Revenue Service. It is the Federal Revenue Service responsibility to verify the compatibility of the applicant with the definitions stated by the law.
The benefits of SisTENET can be renewed for the same period in year two, if the startup still meets the the necessary requirements for participating. Otherwise, the company will be transferred to the SIMPLES with the reduction of 50% of taxes for a year.
In Brazil, no less than 40% of new companies go bankrupt before the second year of operating. For this reason it is important to have the approval of benefits like SisTENET.