New tax rule already affecting online stores in Brazil

A few days ago, Igor Gaelzer, a southern brazilian businessman wrote a long blog post on Medium telling how the changes in the collection of the Taxes on the Circulation of Goods and Services (ICMS) for the virtual retailers should affect his business – a small shop of leather accessories. Within hours he started to get feedback from various entrepreneurs, also owners of ecommerce businesses in Brazil, in dismay and disoriented about the subject.

The new rule of the ICMS affects E-commerce and small businesses in the country, as starting in 2016 there will be a tax-sharing between the selling state and the state where the buyer of the product resides. For most of the Brazilian electronic commerce entrepreneurs, the year began with doubled work and tasks on cost spreadsheets and extra appointments with their accountants. A retailer detailed how their accountant requested an urgent meeting on New Years day!

In detail, the existing rule, set by Emenda Constitucional 87/2015, requires the payment of the rate difference between the states of origin and the destination. With greater effect on e-commerce transactions, but applicable in any negotiation involving individuals and legal entities, the new tax collection for the states requires a new practice in companies around the country. Now,  they need to collect the ICMS on the state in which the sale is being held and also pay tribute to the target state, and also attach the collection receipts and dispatch it to the client!

According to a lawyer, those entrepreneurs opting for the Simples (another tax model supposed to benefit the small companies) will pay more taxes than before and will engage on more bureaucracy on a daily basis. The impact of these changes on the daily lives of these companies they will need to hire skilled labor or spend more money with their accounting firms.

The image details how the tax collection will be divided between the states.
The image details how the tax collection will be divided between the states.

The President of the Brazilian Service for Micro and Small Companies (Sebrae), Guilherme Afif Domingos, said that the products sold on the internet can get up to 50% more expensive with the new collection rule of the ICMS and ranked as the system as “medieval in the digital age.”

The move changes the nature of the tax, that up until now was retained in the selling state, and is a result of the mobilization of the states that saw revenues fall with the e-commerce growth in the country. In 2015, e-commerce revenues in Brazil totaled R$ 41.3 billion, according to e-bit data, which specializes in e-commerce monitoring in the country.

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Max Francisco
Max Francisco has been involved with the Internet in Brazil and has been doing digital projects in the country for the last 15 years.