How tax reform could affect startups in Brazil

The main change foreseen by the reform is the unification, from 2033, of five taxes (ICMS, ISS, IPI, PIS and Cofins) into a single charge. The division is therefore between the federal level by the Contribution on Goods and Services (CBS) and the state/municipal level by the Tax on Goods and Services (IBS).

In the context in which the tax reform proposal is being analyzed by the National Congress, the startup market in Brazil has been discussing the repercussions for the sector. The financial director at Octus, a legal consultancy for the iGaming sector, Kleber Senhorelli, from São Paulo (SP), states that there are different positions from startup representatives regarding the impact of the proposed changes.

According to him, among the positive aspects of the reform for the sector is “the promise of tax simplification”. “The current system, with its high complexity and multiple taxes on consumption, represents a major challenge for startups, which often have limited resources to deal with tax bureaucracy”, he says.

Senhorelli also points out that the proposed reform of greater tax neutrality can benefit startups by promoting, according to him, a fairer competitive environment. “This can be especially important in highly technological and innovative sectors.”

Possible exit of startups from the country

On the other hand, Senhorelli believes that there are concerns in the industry regarding a possible increase in the tax burden. “Startups that operate with reduced margins and are still in the growth phase may be negatively impacted if the effective tax burden increases. This is one of the biggest concerns,” he points out.
Tax lawyer and partner at the Bento Muniz Advocacia law firm, Eduardo Muniz Cavalcanti, from Brasília (DF), also points out that the unification of taxes by CBS and IBS can facilitate the management of tax burden for startups or for this type of taxpayer.

However, the lawyer points out that the possible increase in the tax burden could increase the tax burden on startups and affect the competitiveness and growth capacity of these companies. “The technology sector in particular, which depends on profit margins for reinvestment, could be particularly sensitive to any increase in the tax burden,” says Eduardo.

Cavalcanti points out that the increase in the tax burden also makes the environment less attractive to investors and encourages the emigration of these companies to locations that are more favorable for growth.

“Startups are particularly vulnerable to these changes, as I can say that many operate with reduced profit margins and depend heavily on reinvestment to maintain growth. And if operating costs increase due to a higher tax burden, we may see an exodus of these companies to places where tax structures, I would say, are more competitive,” highlights Eduardo Cavalcanti.