As a friend likes to say: starting up in Brazil is entrepreneurship "Level: Hard".
This means huge challenges, but the market is huge, there's REAL problems to be solved and there's the opportunity of building significant entry barriers.
Plus, even if rules are absurd, all players in the market are subject to the same constraints. Meaning that they're a problem if you're debating between tackling Brazil or another market, but they're a given if you're set on setting foot there.
As I understand it, the business tax structure in Brazil is one of the most complex in the world [1], resulting in iPhones for example costing as much as $1,200 [2]. A good friend in Rio is working on a solar startup and said on some products they face 88% tax on revenue. Correct me if I'm off-base, but what impact is that having on attracting and fostering startups?
The maximum tax quota is 60% by the Correios, which is simple Taxing, the other quotas are from 1% - 50% depending on the product type.
What happens a lot of times is that the business guys want to say that it's "too hard" to do business here where it actually is pretty easy, not too much taxes and a great market. There's the employee taxes which are the most expensive but some of the taxes you can get back if you're smart enough with your accounting.
It's a great place to live and to have a business, the best part is that Brazilians like new things, when you open your business everyone is coming in to see what's it about.
Nope, I'm brazilian and have worked with company taxes while launching a startup. You're talking mostly about natural persons import taxes based on Correios importation.
What you are not seeing is: we have a pretty complex tax structure based on the kind of product/service you are providing. Also, we have a pretty bureaucratic import process, have you ever tried to deal with Port Customs over here? You have a 7 step process, each one involving some tax or payment to be made to one or other agency.
It's very hard too when the rules are always changing, when I opened the juridical person for my startup I had to contact a lawyer and an accountant to get the best deal on taxes for the service that I was providing, some months later the rules had changed and I'd to pay around 8% more on taxes than if I went as another type of company.
So yes, it's pretty hard to do business over here, you need to have a competent lawyer and accountant just to get your company out of the ground, like, reaaally in the beginning.
And this complexity doesn't end there because, in order to deal with these heavy employee taxes, it's not uncommon for IT companies to ask employees to open their own one-man companies to avoid these taxes. Now having a B2B relation, the company is free from these taxes and mandatory benefits, and the employee now deals with it declaring himself as the only employee and paying himself minimum wage on paper, receiving the rest of his salary as company's profit. Or the scheme they call flex, which is to pay a great deal of the salary as extras (even up to 80%) because these do not get taxed. The employee, in turn, needs to declare expenditures to his contractor in order to receive this extra share.
The real meaning of "being smart enough with your accounting" seems to me mostly finding these loopholes in the tax structure to avoid leaking money to the government.
telecuda, everything you said is right on point. The tax is Brazil is beyond crazy. If I recall correctly, even Amazon had problems bringing servers into the country because of the taxes and import duty. That's just the tip of the iceberg in terms of taxes and regulations in this country, it is not at all a startup friendly country.
In the end of the day, none of this really matter, because people will still go to Brazil to do business. It is the center of Latam economy, if you can win Brazil, you are destined to win Latam. The Brazil opportunity > obstacles, hence why people are flooding Brazil despite the challenges involved.
Good paper, thanks Bowei. It is a great place to be an entrepreneur - despite some of the problems you point out it is also a world of opportunity where you can help solve real problems if you have the right attitude. Also, its a great place to live!
I've worked at one of the first B2B SaaS to launch here in Brazil, back in 2008. Get in touch and I'll be glad to answer questions regarding the challenges you're expected to face here.
2 years ago I was looking into the VC culture here in Brazil but all I kept hearing was that investors were looking for "Local Innovation" which is a pretty way of saying "Just clone sucessful US startups" and that the only risk they would take would be that making sure something like Groupon worked in our local market.
Did that change at all? If I'm looking to create the next crazy idea my only option is to either rellocate or bootstrap.
I'm a developer with lots of ideas living in São Paulo. How can I take advantage of this hub? I have zero experience in business and not that many contacts...
This means huge challenges, but the market is huge, there's REAL problems to be solved and there's the opportunity of building significant entry barriers.
Plus, even if rules are absurd, all players in the market are subject to the same constraints. Meaning that they're a problem if you're debating between tackling Brazil or another market, but they're a given if you're set on setting foot there.