SIMPLES (Integrated System of Micro and Small Business Tax and Contribution Payments)
The implementation of the SIMPLES meet the recurring demand of micro and small businessmen of achieving simplification and reducing tax-related costs. The SIMPLES took advantage of part of the taxation system being applied to micro enterprises, at the Federal level, until then. It modified some criteria and definitions, making the system broader and applicable to every government level. Consequently, this was the first attempt to standardize simplified tax treatment at the national level, favoring small enterprises. Basically, the SIMPLES established abridged procedures for the verification and payment of Federal taxes, with the possibility of covering State and Municipal taxes. With regard to the central government, the system includes the following taxes:
- Income tax of juridical people
- Social Contribution on Liquid Profits (CSLL)
- PIS/PASEP (Social Integration Program) Contribution
- COFINS (Contribution to Financing Social Security)
- IPI (Tax on Industrialized Goods)
- INSS Contribution - employer part
With respect to other Federal taxes, the enterprises that adopted the SIMPLES must still undergo verification and make payments in accordance with the general rules. With States and Municipalities adopting the system, by way of an agreement, the ICMS (State) and the ISS (Municipal) would also be included.
Small enterprises were classified, in accordance with their annual gross income, into Micro Enterprise (ME) or Small Enterprise (EPP). Enterprises invoicing up to R$120 thousand annually were classified as Micro enterprises, while those invoicing between R$120 thousand y R$1.200 thousand were classified as EPP. Within this category (ME and EPP), there is also a classification granting progressive rates on each tax, as shown in the tables below.
SIMPLES: Rates by Gross Annual Income Bracket
| Taxes
|
Micro Enterprise
|
|
Up to 60,000
|
60,000 to 90,000
|
90,000 to 120,000
|
|
IRPJ
|
zero |
zero |
zero |
|
PIS/PASEP
|
zero |
zero |
zero |
|
CSLL
|
zero |
0.40% |
1.00% |
|
COFINS
|
1.80% |
2.00% |
2.00% |
|
INSS
|
1.20% |
1.60% |
2.00% |
|
SUBTOTAL
|
3.00% |
4.00% |
5.00% |
|
IPI 1
|
0.50% |
0.50% |
0.50% |
|
SUBTOTAL
|
3.50% |
4.50% |
5.50% |
|
ICMS/ISS 2
|
1.00% |
1.00% |
1.00% |
|
TOTAL 3
|
4.50% |
5.50% |
6.50% |
SOURCE: Law 9.317, of December 5, 1996, amended by Law 9.779, of January 19, 1999 and MP 1.753/99.
1- Increase in social contribution when the corporation is an IPI contributor. 2- Maximum increase in social contribution when the corporation is an ICMS/ISS contributor. 3- Maximum total rate.
| Taxes
|
Small Enterprise |
| Up to 240,000 |
240,000 to 360,000
|
360,000 to 480,000
|
480,000 to 600,000
|
600,000 to 1,200,000
|
|
IRPJ
|
0.13% |
0.26% |
0.39% |
0.52% |
0.65% |
|
PIS/PASEP
|
0.13% |
0.26% |
0.39% |
0.52% |
0.65% |
|
CSLL
|
1.00% |
1.00% |
1.00% |
1.00% |
1.00% |
|
COFINS
|
2.00% |
2.00% |
2.00% |
2.00% |
2.00% |
|
INSS
|
2.14% |
2.28% |
2.42% |
2.56% |
2.70% |
|
SUBTOTAL
|
5.40% |
5.80% |
6.20% |
6.60% |
7.00% |
|
IPI 1
|
0.50% |
0.50% |
0.50% |
0.50% |
0.50% |
|
SUBTOTAL
|
5.90% |
6.30% |
6.70% |
7.10% |
7.50% |
|
ICMS/ISS 2
|
2.50% |
2.50% |
2.50% |
2.50% |
2.50% |
|
TOTAL 3
|
8.40% |
8.80% |
9.20% |
9.60% |
10.00% |
SOURCE: Law 9.317, of December 5, 1996, amended by Law 9.779, of January 19, 1999 and MP 1.753/99.
1- Increase in social contribution when the corporation is an IPI contributor. 2- Maximum increase in social contribution when the corporation is an ICMS/ISS contributor. 3- Maximum total rate.
Gross income is the principal parameter to define possible classification in the simplified system, however, it is not the only one. By reducing tax costs, both direct and indirect, on small enterprises, the purpose was to enable these enterprises to compete more effectively with larger enterprises, which are able to take such costs due to scale economies. Proper care was taken to prevent this benefit from becoming a privilege for specific sectors. Therefore, for those economic agents who, by the nature of their activity, did not report a market asymmetry, which justified such differentiated treatment, the adoption of the SIMPLES was prohibited. Also banned from joining the system were enterprises, which, by virtue of other tax benefits or the need for a more rigorous follow-up of the activity, require the keeping of more detailed books and tax records.
One of the principal innovations of SIMPLES, which represents a driving force in the creation and legalization of jobs, is the inclusion of the social security contribution (INSS) in the system. The social security contribution has two parts, one of which is owed by the employee and the other by the employer. The rule of thumb for estimating the owed contribution is as follows:
- Employee: Contribution of 11% on the salary earned, limited to R$ 110,00;
- Employer: Contribution of 20% on the payroll.
By adopting the SIMPLES, the employer begins contributing a fixed percentage on his invoicing instead of the payroll. It is evident that, given the low percentage adopted under the new system, the fact the employer contribution has nothing to do with the payroll created an incentive for hiring employees and/or legalizing labor relationships that already existed.
For more information, see Federal Revenue and Customs Secretariat.
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