Tax | Tax Issues About The New Brazilian Startups Law

The new Brazilian Startups Law has an important improvement from a tax standpoint but ended up leaving aside at least three aspects that would effectively make investing in startups more attractive. 

1. Benefit: The investor, individual or legal entity, will not be considered a partner or shareholder, and cannot be held liable in their personal assets for the startup’s tax debts. He will only be responsible in the event of fraud or simulation with the investor’s involvement. 

This legal definition is very important, as it brings greater protection to the investor’s personal assets.  

2. Points left out:  

(i) Prohibition of the structure as a corporation (sociedade anonima) for purpose of being eligible for a simplified tax program. What ends up generating higher tax costs when converting an investment to society. Individual entrepreneurs, individual limited liability companies, cooperative societies and simple companies may have the special treatment provided for by law. 

(ii) Higher tax cost with capital gain. A article was vetoed, in the case of individual investors, which allowed the use of losses incurred with the instruments used for the investment at the time of calculating the capital gain. What makes the capital gain greater, and consequently, greater taxation by Income Tax. 

(iii) The law did not change the understanding of the Federal Revenue Service that the taxation of investment is equivalent to the taxation of investment in fixed income. 

In other words, income is subject to income tax calculated from the application of regressive rates depending on the duration of the participation contract: (a) 22.5%, for participation contracts with a term of up to 180 days; (b) 20%, for those with a term from 181 to up to 360 days; (c) 17.5%, for those with a term from 361 to up to 720 days; and (d) 15%, with a term greater than 720 days.


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