Brazil is ranked third in the world in terms of business complexity, according to the latest report from the TMF Group. According to financial experts, the main culprits are its different tax systems, labor laws, and instability. Nevertheless, the report says that “Brazil is likely to remain economically attractive,” due in large part to its sheer size: it has 210 million inhabitants, and a GDP of more than USD 2 trillion.

“There are so many tax levels that there are conflicts on who taxes what,” says Rodrigo Zambon, the director of the TMF Group in Brazil. Indeed, there are different tax brackets depending on the type of product, the type of client, and of course, tax legislation at the municipal, state and federal level.

This system creates fiscal wars between states which race to offer and receive financial benefits, and it can be counterproductive for the country as a whole.</span></p> <p><span style="font-weight: 400;">Adding to that, Brazilian governments at every level of jurisdiction are known for changing their laws. “Because of unclear legislation, governments generate different rules at a much higher frequency than in other countries, and so they break the rules of stability,” explains Mr.Zambon. As a consequence, it can be difficult and outright discouraging to follow the frequent evolution of legislation. “You need to become ‘seasoned’ when it comes to the best way to execute business in Brazil. Part of that is trial and error,” he writes in the report.</span></p> <div class="flourish-embed" data-src="visualisation/453392"></div> <p><script src="https://public.flourish.studio/resources/embed.js"></script></p> <div class="flourish-embed" data-src="visualisation/453393"></div> <p><script src="https://public.flourish.studio/resources/embed.js"></script></p> <p><span style="font-weight: 400;">For example, selling a product from Minas Gerais to Rio Grande do Norte will incur State Goods and Services Tax (<a href="https://blog.sage.com.br/tabela-icms-2019-atualizada/">ICMS</a>) of 7 percent. However, if the sale was made in the other direction, the product would be taxed 12 percent. It’s not surprising that Brazil is the country in which businesses spend by far </span><a href="https://brazilian.report/guide-to-brazil/2018/08/12/understand-brazilian-bureaucracy/"><span style="font-weight: 400;">the most time complying with tax legislation</span></a><span style="font-weight: 400;">, around 2,000 hours per year.</span></p> <p><span style="font-weight: 400;">“Labor laws also complicate the task of doing business in Brazil,&#8221; says Mr. Zambon. “The justice system has a tendency to defend the employees more, but legislation is getting more viable for companies.” </span></p> <p><span style="font-weight: 400;">Vladimir Fernandes Maciel, the coordinator of the Mackenzie Center for Economic Freedom, echoes the same sentiment. “We have a culture inherited from the Portuguese that is very institutional, legal, bureaucratic, and procedural. The state is more present in the economy,” he argues. “The current administration has been pushing to open up the country more, with privatization and deregulation. For now, there have been some concessions to private companies.” Indeed, the current administration is pushing for more liberalization and deregulation of the market, such as privatizing publicly-owned companies such as Petrobras. </span></p> <p><span style="font-weight: 400;">Slowly but surely, the system is getting simpler. “There are more automated systems now that facilitate the way businesses report their tax obligations at the federal level,” says Mr. Zambon. More specifically, the report praises the country’s digital bookkeeping, the Public System of Digital Accounting (SPED), “to standardize tax reporting and enhance foreign investment.”</span></p> <p><span style="font-weight: 400;">“In Congress, we are beginning to construct a new tax system, a big tax reform that will homogenize and simplify tax systems,” says Andre Rebelo, Advisor on Strategic Affairs of the Presidency. “We try to follow the example of the European Community.” On the more social side, he adds that “the pension reform will create conditions for stability.”</span></p> <p><span style="font-weight: 400;">Even though it can be very hard to establish a business, Brazil’s attractiveness should carry on, as its heavy and volatile bureaucracy is nothing new.

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MoneyJul 01, 2019

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BY Amin Guidara

Amin is an intern at The Brazilian Report. He is a journalism student at Sciences Po Paris and has worked for La Presse and Radio-Canada