Brazil has a unique complexity of tax regulations that sets it apart from other countries, not just across the region, but compared to the rest of the world.

It is a common mistake for a company operating in other Latin American countries to assume that starting an operation in Brazil will follow a familiar process.

This is because Brazil has a huge variety of taxes, with regulatory changes happening at an accelerated rate.

In addition to the national taxes issued by the IRS, there are regional taxes in 27 different states and 5570 municipalities, each of which imposes its own taxes.

So, if you are a company and want to operate in Brazil, you need to know which taxes and regulatory changes apply to you.

Tax complexity and the relationship between tax authorities and taxpayers

Political scientist Margareth Levi explains what drives taxpayers to voluntarily pay their tax obligations.

This voluntary compliance is still low in Brazil and the reason is due to the distrust on the part of taxpayers about whether the government actually spends tax money well.

With this low compliance, the Revenue creates several forms of inspection to prevent tax evasion, which ends up being very costly.

Another important point is that the tax incentive system aims to increase collection and not reduce compliance costs.

The complexity emanates from the design of tax laws

As a colonial remnant, tax laws, from the political constitution to the minor resolutions of farm activities, are often guided by what the writer, Fernando Rezende, called the “commodity principle”.

In other words, the tax authorities always seek the arrangement that ensures the maximum collection and the minimum of work, without concern for the costs for the taxpayer and the responsible entrepreneur.

World’s most complicated tax system

In Brazil, the government usually creates ways to increase revenue, but, at the same time, they are vulnerable to some sectors, which end up paying less taxes.

The result is often a tax mess, full of distortions, special cases, exemptions.

According to an international ranking, the Tax Complexity Project, developed by two German universities, the LMU, in Munich, and in Paderborn, measures the tax complexity faced by multinationals in each country.

That is, as companies operating in different countries end up dealing with different tax systems. And the result of that research was alarming:

the most complex

1 Brazil 0.53

2 Colombia 0.52

3 Egypt 0.51

4 Zimbabwe 0.49

5 Indonesia 0.48

In addition, in 2019, the Brazilian Institute of Planning and Taxation, now extinct, pointed to the Brazilian tax system as the most complex in the world. And also the most expensive.

 Taxes in Brazil

Total 60

Tax burden 32%

Bureaucracy cost 150 billion

It is a complicated matter to manage any business in Brazil and at these times it is necessary to have a reliable and reliable accounting firm.