MEI and income tax: What you need to know about micro-entrepreneurship

Individual Microentrepreneurs (MEIs) have become an essential part of the Brazilian economic landscape, providing an opportunity for individuals to launch their own businesses with less bureaucracy and reduced costs. However, even with the benefits offered by the MEI regime, many entrepreneurs still have doubts about how to deal with their tax obligations, especially with regard to Income Tax. 

What is an MEI?

The Individual Microentrepreneur is a legal entity created in Brazil in 2008, by Complementary Law 128/2008, with the aim of formalizing small entrepreneurs and self-employed workers. This simplified taxation system seeks to facilitate the formalization of low-billing economic activities, offering various benefits and reducing bureaucracy for these entrepreneurs.

To become an MEI, the entrepreneur must meet certain criteria established by law. The main requirements for becoming an MEI include:

• Limited Annual Turnover: The MEI must have a gross annual turnover of up to R$ 81,000.00. This figure is reviewed annually and adjusted in line with inflation.
• Permitted Activities: There are certain economic activities that are permitted for registration as an MEI. These activities are categorized by the government and are available for consultation on the Entrepreneur Portal.
• No Participation in Other Companies: The entrepreneur cannot be a partner, administrator or owner of another company. The MEI must be an exclusive activity of the individual.

By registering as an MEI, the entrepreneur obtains a CNPJ (National Register of Legal Entities), which enables them to issue invoices and access various benefits, such as formalization of the activity, access to lines of credit, social security rights such as retirement due to age or disability, sick pay, among others.

One of the most attractive features of the MEI is the simplified payment of taxes. The MEI pays a fixed monthly amount through the Simples Nacional Collection Document (DAS), which includes taxes and social security contributions. This amount is calculated based on the activity carried out and is subject to annual adjustments.

In addition, the MEI is exempt from some federal taxes, such as Corporate Income Tax (IRPJ), Social Contribution on Net Profit (CSLL), PIS, COFINS and IPI. This contributes to the simplification of the tax system and reduces the tax burden on the entrepreneur.

MEI Tax Obligations

Understanding tax obligations is essential for any entrepreneur, and it's no different for the Individual Microentrepreneur (MEI). Although the simplified MEI regime reduces bureaucracy and tax burdens, there are still some tax obligations that the MEI must fulfill. 

1. issuing the DAS (Simples Nacional Collection Document)

The MEI's main fiscal commitment is the monthly payment of the Simples Nacional Collection Document (DAS). This document unifies the payment of MEI taxes and social security contributions. 

The value of the DAS is fixed and varies according to the activity carried out by the entrepreneur, and is adjusted annually. Failure to pay or late payment of the DAS can result in fines and interest, so it is essential to keep this obligation up to date.

2. MEI's Annual Simples Nacional Declaration (DASN-SIMEI)

In addition to the monthly payment of the DAS, the MEI must submit the Annual Declaration of the Simples Nacional do MEI (DASN-SIMEI) every year. This declaration includes information on the MEI's annual gross revenue, as well as other income from services rendered, sales of goods and permitted activities.

The DASN-SIMEI must be submitted by the last day of May each year, and failure to comply with this obligation by the deadline can result in penalties.

3. Maintaining Financial Records

Although it's not a tax obligation per se, keeping accurate and organized financial records is crucial for MEIs. This includes keeping track of all money coming in and going out, issuing invoices, recording expenses and income, among other things. These records not only help the MEI comply with its tax obligations, but also provide a clear view of the business's financial health.

4. Issuing invoices

Depending on the activity they carry out, MEIs may be obliged to issue invoices to their clients. Even if there is no obligation to do so, issuing invoices is a recommended practice, as it makes the business more professional and provides legal certainty for both parties involved in the commercial transaction.

Income tax for MEIs

Income tax for Individual Microentrepreneurs (MEIs) is an important issue, although it is generally less complex compared to other forms of company. 

Exemption from Some Federal Taxes

One of the advantages of the MEI regime is the exemption from some federal taxes, such as Corporate Income Tax (IRPJ), Social Contribution on Net Profit (CSLL), PIS (Social Integration Program) and COFINS (Contribution to Social Security Financing). This means that the MEI does not have to pay these taxes, which considerably simplifies its tax burden.

MEI's Annual Simples Nacional Declaration (DASN-SIMEI)

Despite being exempt from certain taxes, MEIs still need to submit the Annual Declaration of the Simples Nacional do MEI (DASN-SIMEI) every year. This declaration is relatively simple and includes information on the MEI's annual gross turnover, as well as other income obtained from the provision of services, sales of goods and permitted activities. The DASN-SIMEI is compulsory and must be submitted by the last day of May each year.

Individual Income Tax (IRPF)

Although the MEI is exempt from some federal taxes as a legal entity, the entrepreneur is still responsible for paying Personal Income Tax (IRPF) on their personal income. 

This means that if the MEI has income other than that generated by the MEI activity, they must declare this income in their personal income tax return. It is important to clearly separate personal income from income from activity as an MEI when filing your income tax return.

Benefits of the Income Tax Return

Although it may seem like an additional obligation, the income tax return can bring benefits to the MEI. It can be used as proof of income to apply for financing, loans or participate in government programs to encourage entrepreneurship. In addition, the income tax return can help MEIs keep their personal and business finances in order by providing a clear overview of income and expenses throughout the year.

MEI Annual Declaration

The Annual Declaration of the Simples Nacional of the Individual Microentrepreneur (DASN-SIMEI), also known as the MEI Annual Declaration, is a mandatory document that the MEI must submit to the IRS every year. This declaration is one of the MEI's main tax obligations and its purpose is to inform the Receita Federal of the MEI's gross revenues over the previous year.

Next, we'll explore in more detail what the MEI Annual Declaration involves:

Content of the Declaration

The DASN-SIMEI includes relevant information about the MEI's activity, such as:

• Gross Annual Turnover: The total of all revenue earned by the MEI over the previous year must be declared. This information is crucial in determining whether the MEI has exceeded the annual turnover limit allowed to remain in the MEI regime.
• Revenue from the Provision of Services: If the MEI provides services, it is necessary to inform the total revenue obtained from providing these services.
• Sales of Goods: If the MEI sells goods, it is necessary to inform the total revenue obtained from these sales.
• Other Income: Any other income earned by the MEI related to its business activity must be declared in the DASN-SIMEI.

Delivery time

The MEI Annual Declaration must be submitted by the last working day of May each year. It's important to pay attention to the deadline for submission, as failure to do so within the established timeframe can result in fines and penalties for the MEI.

How to Fill Out and Submit

The DASN-SIMEI is filled in and submitted online via the Portal do Empreendedor or the Receita Federal website. The process is relatively simple and the MEI will need to provide accurate and truthful information.

How to calculate MEI income tax?

The calculation of Income Tax for Individual Microentrepreneurs (MEIs) follows some particularities due to the simplified regime in which they are included. I'll explain the process step by step:

1. Annual turnover

The first step is to determine the MEI's gross annual turnover. This includes all revenue from services rendered, sales of goods and other permitted activities. This figure is declared in the MEI's Simples Nacional Annual Declaration (DASN-SIMEI).

2. Exemption verification

MEIs are exempt from some federal taxes, such as Corporate Income Tax (IRPJ), Social Contribution on Net Profit (CSLL), PIS, COFINS and IPI. This means that there is no direct calculation of these taxes for the MEI.

3. Individual Income Tax (IRPF)

As an individual, MEIs are subject to Personal Income Tax (IRPF) on their personal income. This includes not only the company's turnover, but also other income, such as salaries, rents and so on.

4. IRPF Calculation Basis

The basis for calculating the IRPF for the MEI is the profit obtained from its business activity, i.e. the gross annual turnover minus deductible expenses. Deductible expenses can include spending on raw materials, rent, water, electricity, telephone and employee salaries, among others.

5. IRPF rates and deductions

Once the IRPF calculation base has been determined, the MEI needs to apply the progressive Personal Income Tax rates, which vary according to the annual income bracket. In addition, some legal deductions can be applied, such as education, health and social security expenses, among others.

6. Payment of the IRPF

Individual Income Tax can be paid monthly, through the "carnê-leão" (if the MEI has other income in addition to the activity as a MEI), or annually, in the annual IRPF tax return.

Importance of the MEI Annual Declaration

The Simples Nacional Individual Microentrepreneur Annual Declaration (DASN-SIMEI), or MEI Annual Declaration, is an extremely important tax obligation for Individual Microentrepreneurs (MEIs) for various reasons:

1. maintenance of fiscal regularity

Submitting the MEI Annual Declaration is one of the main ways of maintaining the MEI's fiscal regularity with the Receita Federal. Complying with this obligation demonstrates that the entrepreneur is in compliance with tax regulations and is fulfilling their tax obligations.

2. Updated revenue records

The DASN-SIMEI allows the Federal Revenue Service to know the MEI's gross annual turnover, including revenue from services rendered, sales of goods and other permitted activities. This provides a clear view of the business's finances and helps to identify possible inconsistencies.

3. Basis for Social Security Benefits

The MEI Annual Declaration also serves as the basis for access to social security benefits, such as old-age retirement, sick pay and maternity pay. Keeping the declaration up to date is essential to ensure access to these benefits when necessary, contributing to the entrepreneur's financial security.

4. Proof of Income

The MEI's annual declaration can be used as proof of income in various situations, such as applying for loans, financing, renting property and participating in entrepreneurial incentive programs. Having the declaration up to date can facilitate these processes and increase opportunities to access financial resources.

5. Compliance with Legal Obligations

As well as being a tax obligation, submitting the MEI Annual Declaration is a legal requirement for all MEIs. Failure to comply with this obligation within the established deadline can result in fines and penalties, damaging the entrepreneur's financial situation and even leading to exclusion from the MEI regime.

A simplified tax regime

Individual Microentrepreneurs enjoy a simplified tax regime and significant benefits, but they still need to comply with their tax obligations, including submitting the MEI Annual Simples Nacional Declaration. 

It is therefore essential that MEIs are aware of their tax responsibilities and keep their financial records up to date to avoid problems with the tax authorities. In addition, seeking advice from an accountant or specialized professional can be extremely useful to ensure correct compliance with tax obligations and avoid legal problems in the future.

See also: Rent Adjustment: How much is allowed by law?

March 31, 2024