Unit 3: Managing Property, Payroll, and Credit

Story: Beatriz Expands Her Business

After one year, Beatriz & Co. Consulting is growing. Beatriz decides to rent a small office downtown to meet clients. She also hires her first assistant, Ana.

Beatriz is proud—but Mr. Silva reminds her:

“Beatriz, new responsibilities mean new taxes. Now you will face municipal property tax, payroll taxes, and maybe even financial transaction tax if you take a loan.”

Property Tax – IPTU

When Beatriz signs the rental contract, she notices a clause: “Tenant is responsible for IPTU.”
She asks: “What is IPTU?”

Mr. Silva explains:

• IPTU – Imposto Predial e Territorial Urbano – is the Urban Property Tax.

• It is charged once a year by the municipality on property owners.

• In many rental contracts, the tenant must pay it.
  

Beatriz checks her bill: the IPTU for her office is R$2,400 per year. She can pay in 10 monthly installments of R$240.

Payroll Taxes – INSS and FGTS

When Ana starts working, Beatriz must pay her salary—but also social contributions.

• INSS (Instituto Nacional do Seguro Social): Beatriz must contribute a percentage of Ana’s salary to social security. This helps fund pensions, maternity leave, and sick leave.

• FGTS (Fundo de Garantia do Tempo de Serviço): Beatriz deposits 8% of Ana’s salary each month into a special fund. If Ana loses her job, she can withdraw this money.

Ana’s salary is R$3,000. Each month, Beatriz must calculate:

• INSS (around 20% from the company side) → R$600

• FGTS (8%) → R$240

Beatriz is surprised: “Hiring is more expensive than I thought!”
Mr. Silva smiles: “Yes, but it protects employees and ensures compliance.”

Credit and Debt – IOF

A few months later, Beatriz considers taking a bank loan to buy new computers. The bank explains the loan conditions, and Beatriz notices another tax: IOF.

Mr. Silva explains:

• IOF (Imposto sobre Operações Financeiras) is the Tax on Financial Transactions.

• It applies to credit, loans, insurance, and currency exchange.

• The rate changes depending on the operation. For example, loans usually have a daily rate (around 0.0082% per day, plus an additional 0.38% on the total).

Beatriz does a quick calculation:
If she borrows R$50,000, she will pay R$190 immediately (0.38%) plus the daily tax on the loan until it is paid.

“This tax is small compared to interest,” she says.
“True,” Mr. Silva answers, “but you must always include it in your financial planning.”

Authentic Element: Bank Loan Agreement

Beatriz reads a line from the loan contract:

“The borrower is responsible for IOF (Imposto sobre Operações Financeiras), which will be collected at the time of disbursement, plus any daily charges until the loan is paid.”

Beatriz underlines “collected at the time of disbursement”. She asks:

“Does this mean I pay the IOF immediately?”
“Exactly,” says Mr. Silva. “The bank withholds the tax and sends it to the government.”

Glossary (Plain English → Portuguese + Acronym)

• IPTU – Urban Property Tax (Imposto Predial e Territorial Urbano)

• INSS – National Social Security Institute (Instituto Nacional do Seguro Social)

• FGTS – Severance Indemnity Fund (Fundo de Garantia do Tempo de Serviço)

• IOF – Financial Transactions Tax (Imposto sobre Operações Financeiras)

• Withholding tax – Tax kept by the payer before giving payment to the provider (e.g., payroll or foreign services)
  
  

Discussion

1. Why do you think Brazil taxes both property and financial transactions?

2. What difficulties do you see for small companies in managing payroll taxes?

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Unit 2: The Flow of Goods and Services (State and Municipal Taxes)

Story: Beatriz Makes Her First Sale

Three months after opening Beatriz & Co. Consulting, Beatriz finally receives good news: her first contract is signed with a logistics company. She is excited to send her first invoice.

But before she celebrates, Mr. Silva, her accountant, calls.

“Beatriz, now that you are selling services, you must pay attention to state and municipal taxes. Which one applies depends on the type of activity: goods or services.”

Beatriz sighs. “More taxes?”

Two Possible Scenarios

Scenario A – Goods (ICMS)
If Beatriz had opened a clothing boutique, her main tax would be ICMS – the Tax on the Circulation of Goods and Services (Imposto sobre Circulação de Mercadorias e Serviços).

Mr. Silva explains:

• “ICMS is similar to a Value Added Tax (VAT). It is collected by the state government.”

• “It applies when you sell products, move them between states, or import goods.”

• “You pay ICMS but you can also receive credits for the tax already paid in the supply chain.”
  

He shows Beatriz an example invoice with ICMS included.

Scenario B – Services (ISS)
Since Beatriz is running a consulting company, her tax is different.

• ISS – Tax on Services (Imposto sobre Serviços).

• “This is collected by the municipality, not the state,” Mr. Silva explains.

• “The rate depends on the city, usually between 2% and 5% of the service value.”
  
  

Beatriz does the math: if her first invoice is R$10,000, and her city charges 3% ISS, then she must pay R$300 in service tax.

“That’s not so bad,” she says.
Mr. Silva nods. “True, but it’s important to declare it correctly. Each city has its own rules.”

Authentic Element: City Hall Guidelines

Beatriz opens a short note from the Prefeitura (City Hall) website:

“ISS is a municipal tax on services. The service provider is responsible for declaring and paying ISS according to the rules of the municipality. Rates vary between 2% and 5%. Electronic invoices must be issued through the city’s online system.”

Beatriz underlines “electronic invoices” and asks:

“Does this mean I need to register in the city’s system?”
“Yes,” Mr. Silva answers. “Every city has its own portal. You must issue an official Nota Fiscal Eletrônica (electronic invoice). Without it, you cannot prove your tax payment.”

Choosing the Scenario for Beatriz & Co.

Since Beatriz provides consulting services, her focus will be on ISS. But she keeps a note in her business journal:

• “If I ever sell software products, I may have to deal with ICMS.”

• “If I only sell consulting services, I will pay ISS to the city.”

Beatriz is surprised by how taxes depend not only on revenue but also on the nature of her business.

Glossary (Plain English → Portuguese + Acronym)

• ICMS – Tax on Circulation of Goods and Services (Imposto sobre Circulação de Mercadorias e Serviços)

• ISS – Service Tax (Imposto sobre Serviços)

• VAT – Value Added Tax (similar concept to ICMS)

• Nota Fiscal Eletrônica – Electronic Invoice (official tax document)

• Prefeitura – City Hall (municipal government office)

Discussion

1. Why do you think Brazil separates taxes by different levels of government (federal, state, municipal)?

2. What challenges could a foreign company face when trying to understand these rules?
   
   

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Unit 1: Setting Up the Business & Choosing a Federal Tax Regime

Story: Beatriz Takes the First Step

Beatriz is excited. After years of working for others, she is opening her own company: Beatriz & Co. Consulting. Her first client is already waiting.

But before she can send her first invoice, her accountant, Mr. Silva, tells her something important:

“In Brazil, Beatriz, every business must choose a federal tax regime. This choice will decide how much tax you pay, how you report it, and how much paperwork you’ll face.”

Beatriz looks nervous. “I don’t understand. What are my options?”

Mr. Silva explains:

• Simples Nacional: the Simplified National Regime. “This is designed for small businesses. You pay one tax each month, and it already includes many different federal, state, and municipal taxes. Less bureaucracy, lower rates, but only for companies with revenue up to R$4.8 million per year.”

• Lucro Presumido: the Presumed Profit Regime. “Here, the government assumes your profit is a fixed percentage of your revenue, depending on your industry. You pay taxes based on that assumption, even if your real profit is different.”

• Lucro Real: the Actual Profit Regime. “Large companies must use this one. You calculate taxes based on your actual profit. It can be fairer, but it requires detailed accounting. It’s mandatory if revenue is above R$78 million per year.”

Beatriz takes notes.

Understanding Federal Taxes

Mr. Silva then tells her that under any regime, she will face the main federal taxes:

• Corporate Income Tax (IRPJ – Imposto de Renda da Pessoa Jurídica)

• Social Contribution on Net Profit (CSLL – Contribuição Social sobre o Lucro Líquido)

• Social Integration Program Contribution (PIS – Programa de Integração Social)

• Contribution for Social Security Financing (COFINS – Contribuição para o Financiamento da Seguridade Social)
  

“These sound complicated,” Beatriz says.

“Yes,” Mr. Silva smiles, “but if you start with Simples Nacional, many of these are grouped together in one single monthly payment.”

Authentic Element: Beatriz Reads a Receita Federal Guide

Mr. Silva sends her a short text from the Receita Federal (Brazil’s Federal Revenue Service). Beatriz reads carefully:

“Simples Nacional is a special unified tax regime for micro and small enterprises. It simplifies the collection of federal, state, and municipal taxes. Eligibility: annual revenue up to R$4.8 million. Companies in certain industries, such as financial services, are excluded.”

Beatriz underlines two words: “unified” and “excluded.” She asks Mr. Silva:

“Does that mean some companies cannot use Simples Nacional?”
“Exactly,” he replies. “For example, banks or investment companies. But consulting is included, so you’re safe.”

Decision Time

Beatriz looks at her first-year business plan. She expects annual revenue of only R$400,000.
“So, which regime should I choose?” she asks.

Mr. Silva answers:

• “With your revenue, Simples Nacional is the best. Easy to manage, less stress, and you can focus on growing your company.”
  
  

• “If you grow beyond the limit, we’ll switch to Lucro Presumido. And if one day Beatriz & Co. becomes a multinational with more than R$78 million in revenue—then we’ll move to Lucro Real.”

Beatriz laughs. “That sounds like a long way from now!”

Glossary (Plain English → Portuguese + Acronym)

• Corporate Income Tax – Imposto de Renda da Pessoa Jurídica (IRPJ)

• Social Contribution on Net Profit – Contribuição Social sobre o Lucro Líquido (CSLL)

• Social Integration Program Contribution – Programa de Integração Social (PIS)

• Contribution for Social Security Financing – Contribuição para o Financiamento da Seguridade Social (COFINS)

• Simples Nacional – Simplified National Regime

• Lucro Presumido – Presumed Profit Regime

• Lucro Real – Actual Profit Regime

Discussion

1. If Beatriz’s company grows very fast, what problems might she face when moving to another tax regime?

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