Proposed by Senator José Agripino in 2012, Senate Bill 321 amends the Brazilian tax legislation to grant new technology start-ups a temporary exemption from federal taxes.

The bill was passed on a terminative basis (ie, through a senate committee decision, which has the same weight as a senate decision) by the Senate Economic Affairs Commission and will be put to a vote by the House of Representatives. The bill creates the System for the Special Treatment of New Technology Enterprises (SisTENET), under which registered start-ups will be temporarily exempt from all federal taxes for the first two years of incorporation, extendable for an additional two years.

To be considered a start-up eligible for inclusion in SisTENET, a new technology company must operate in the following areas:

  • email, hosting, website and blog development;
  • personal communication, social networks, search engines and internet advertising;
  • the creation or distribution of original software for use in computers or mobile electronic devices in general;
  • the design of computer cabinets and other hardware elements for computers and other information technology devices; and
  • research and development activities pertaining to innovative ideas with an internet-based business model.

The start-up's capital must comprise donations from individuals or public or private legal entities, or funding or grants obtained from such entities. Its gross income cannot exceed R30,000 a quarter. If this quarterly limit is exceeded, the company must request its exclusion from SisTENET and may opt for one of the other tax determination methods, such as the Simples Nacional framework (an integrated tax and contribution payment system for micro and small enterprises), the estimated profit method (lucro presumido) or the taxable income method (lucro real).

Certain aspects must still be clarified, especially with regard to the extension of this exemption to federal contributions due on a company's gross revenues and payroll, which account for a large part of the federal tax burden. The annual limit of R120,000 would also need to be established in gradual tiers, so that it does not ultimately punish those companies that are successful in obtaining funding from third parties to develop their activities.

For further information on this topic please contact Luciana Bassani or Eduardo Navarro at Dannemann Siemsen Bigler & Ipanema Moreira by telephone (+55 21 2237 8700), fax (+55 21 2237 8922) or email ([email protected] or [email protected]).