Brazilian Senate approves new and simple tax regime for self-employed professionals

The Human Rights Commission (CDH) of the Brazilian Senate has taken a historic step that will significantly simplify the tax system for self-employed professionals and providers of intellectual, scientific, literary, or artistic services. In this context, a new legislative bill aimed at alleviating the burden on these professionals was approved by the commission. The regulation was the result of a public-supported initiative launched through Portal e-Cidadania, a digital platform where citizens can also contribute. The proposal, prepared and favorably reported by Senator Laércio Oliveira, has now moved beyond being a simple suggestion and has been elevated to the status of a complementary bill. The said bill will be presented to the plenary for discussion in the Brazilian Senate General Assembly in the upcoming sessions.

The new system creates a new tax regime called the "Micro Entrepreneur Professional" (MEP), which sets a fixed tax rate of six percent (6%) on monthly gross income. The main objective of this new model is to eliminate the complex tax obligations faced by independent professionals and to provide a transparent system. This fixed rate unifies the Corporate Tax (IRPJ), the Social Contribution on Net Profit (CSLL), and the social security premium obligations applied to current micro-entrepreneurs under a single umbrella. Thus, it is aimed for taxpayers to make a single payment once a month. In addition, the new Goods and Services Tax (IBS) and the Goods and Services Contribution (CBS) introduced within the scope of the comprehensive tax reform ongoing in the country, along with the existing ICMS and ISS taxes, are planned to be collected monthly through this system in accordance with the current legislation.

Professionals wishing to benefit from this advantageous and simplified new tax regime will have to meet certain fundamental and strict criteria. At the forefront of these criteria is the requirement that the professional's annual gross income must not exceed the limit of 120 thousand Brazilian Reais (R$). In addition, it is a strict condition that service providers joining this system must work entirely individually and independently. In other words, the professional must not use the help of any employee, business partner, or third party to conduct their business. Finally, it stands out as a requirement that individuals applying to the system must not have any shares or positions in any other company as a partner, owner, or manager.

Behind the regulation lies the goal of solving a long-standing historical problem in the Brazilian tax system. While the currently active Individual Micro Entrepreneur (MEI) system contains very restrictive rules for intellectual activities, the standard micro-company tax regime generated excessively high costs for this group. Rapporteur Senator Laércio Oliveira emphasized that this new MEP model offers professionals a lower tax burden than even the national simplified tax system (Simples Nacional) and is more compatible with economic realities. Furthermore, it was stated that the bill was initially designed to cover only architects and engineers, but was expanded to cover all intellectual and artistic categories because the Constitution prohibits granting tax privileges to taxpayers based on their professions.

The new bill also includes an important safeguard mechanism to prevent potential abuses in employment relationships and the spread of precarious work. Accordingly, if a professional uses the MEP system, it will be strictly forbidden for that professional to provide services in a continuous, personal, and hierarchical relationship tied to a single employer. If an independent service provider works dependently for a single contracted party for a period longer than three months, this situation will automatically be considered a regular employee-employer relationship, and the independent worker status will become invalid. On the other hand, in order to maintain the balance of the social security system, it has become a legal obligation for the executive branch (the government) to reassess the social security contributions under the MEP every two years and take the necessary measures.