Eight Significant Changes to Brazil’s EInvoicing & VAT Tax Compliance Measures
In 2016, a number of changes will go into effect in Brazil designed to help the government better audit, track and trace tax liabilities in real time. Here, let’s take a deeper dive into these new requirements.
- ECD (SPED digital accounting bookkeeping) – Digital bookkeeping as required under Brazil’s eAccounting legislation is now due for all companies by May 31, 2016. Combined with its e-invoicing mandate, having all accounting records electronically improves the government’schecks and balances, ensuring that invoices match accounting records and accounting records match tax payments. Ultimately, this visibility helps the government confirm it receives accurate tax payments.
- ECF (SPED accounting and tax return) – This new report under Brazil’s eAccounting mandates requires companies to submit Net Income Reports by June 30, 2016. With more than 1,300 pages of documentation regarding this new mandate, the requirements for this report are specific and complex.
- Bloco K: Beginning in 2017, Brazil will require companies to submit monthly inventory and production reports, including details on inventory and stock movement, raw material usage, components lost, etc. Many companies currently do not itemize their tax reporting in this manner, requiring a significant shift in internal processes. Specifically, companies with revenues exceeding 300 million Reais must comply with this measure beginning January 1, 2017, companies with revenues exceeding 78 million Reais by January 1, 2018, and all companies by January 1, 2019.
- NFS (service invoices) – Brazil recently launched a pilot program to unify and expand its NFS requirements. Currently reported at the city level, this standardization is projected to expand the requirement to more than 4,000 cities in the future, vastly changing the compliance landscape for service-oriented businesses.
- eSocial – Employers in Brazil will now be required to submit all labor, social security, tax and fiscal information related to hiring and employment practices, including wages, contract details, warnings and suspensions, medical leave, etc. This new mandate requires immense changes in the way companies currently document and process information on their labor force. This mandate goes into effect in September for companies with revenues exceeding $78 million USD and in January 2017 for all other enterprises.
- GNRE (state sales tax) – For companies selling goods to final consumers across state lines, Brazil’s new web service enhancement calculates the tax equalization owed to each state involved in the transaction. The GNRE document is required to ship, meaning compliance with this step is critical to avoid business disruptions.
- Manifestação do Destinatário – Under this requirement, a recipient acknowledgement process, companies must recognize their vendors’ XML via the government web service. Already mandated for certain companies, this mandate will have continued rollouts to further its reach in 2016.
- ICMS suspension – Under this legislation, companies may suspend collection and payment of ICMS tax on raw materials sent to 3rd party manufacturers for a period of up to 180 days. This can equate to hundreds of thousands to millions of dollars for companies that use this business model, meaning they need a clear process in place to identify qualified transactions and track the 180-day timeline.
It’s also important to note that while not a new mandate, 2016 represents the first year that companies will (or, at least, should) have a full five years of XML archived – giving the government increased visibility into financial transactions. Missing XMLs carry a penalty of up to $200 USD EACH, which can quickly add up when we’re talking about 5 years of archives.
Brazil continues to stay at forefront of business-to-government regulations, moving from e-invoicing to mandates that affect accounting, inventory management and personnel. Companies operating here must take a holistic approach to compliance – especially as the pace of change in Brazil continues to accelerate and affect new business processes. But there is good news. Because of the standardization required in Brazil, records like GNRE and ICMS can be automated, freeing up internal teams to focus on innovation.