For many small entrepreneurs, working informally may seem like a simpler and cheaper path. However, formalizing your business brings numerous benefits, including access to credit, the possibility of issuing invoices, participation in government programs, and, most importantly, regularizing your tax situation.
Contrary to what many people think, formalizing a business does not mean paying high taxes. There are tax regimes and legal options designed to simplify and reduce the tax burden for small businesses. In this article, you’ll learn how to formalize your business and how to pay less in taxes legally.
Why Formalize Your Business?
Before we talk about how to pay fewer taxes, it’s important to understand why formalizing your business is essential:
- Legal security: You avoid fines and penalties.
- Access to financial services: You can open a business account, request loans, and issue invoices.
- Professional credibility: Customers and suppliers trust formal companies more.
- Participation in public tenders and government programs.
- Social security benefits: Retirement, sick leave, and maternity leave.
Working informally may seem like a way to save money, but it increases risks and limits your business growth.
What Do You Need to Formalize Your Business?
1. Choose the Appropriate Legal Structure
The first step is to define what type of company you will formalize. In Brazil, the main options for small businesses are:
MEI (Microempreendedor Individual)
Ideal for those starting out and who:
- Earn up to R$ 81,000 per year
- Have at most one employee
- Work in one of the authorized professions
MEI is the simplest and cheapest option.
ME (Microempresa)
For businesses with annual revenue of up to R$ 360,000. Suitable for those who want to hire more employees or exceed the MEI limit.
EPP (Empresa de Pequeno Porte)
For companies with annual revenue between R$ 360,000 and R$ 4.8 million.
Each structure has its rules and tax benefits. Consult an accountant to choose the best option for your business.
2. Register Your Business
The basic formalization steps are:
- Register with the Commercial Board (Junta Comercial) of your state.
- Register for CNPJ at the Federal Revenue Service.
- Register with the city hall to obtain an operating license.
- Obtain specific permits if necessary (sanitary, fire department, etc.).
If you choose to become an MEI, this process is done online and free of charge on the government portal.
3. Choose the Right Tax Regime
Choosing the tax regime is crucial to avoid paying unnecessary taxes. The main options are:
Simples Nacional
Simplified and unified tax regime for MEI, ME, and EPP. It consolidates several taxes into a single payment and has reduced rates for small businesses.
Lucro Presumido
Suitable for companies that cannot or do not want to join Simples Nacional. Taxes are calculated based on estimated profit.
Lucro Real
Recommended for large companies or businesses with high profit margins. Taxes are calculated on actual profit.
For most small businesses, Simples Nacional is the most advantageous option.
4. Keep Accounting in Order
Even if your business is small, keeping accounting organized is essential:
- Record all revenue and expenses.
- Issue invoices for all sales and services.
- File tax declarations on time.
- Maintain all documents organized.
MEIs have simplified accounting, but MEs and EPPs need professional accounting services.
How to Pay Less in Taxes Legally
Paying fewer taxes is possible when you formalize your business correctly and use legal strategies. Some tips include:
1. Choose the Simplest Tax Regime
For small businesses, Simples Nacional usually offers the lowest tax burden. Analyze if your business qualifies and opt for this regime.
2. Control Your Revenue
For MEI, the limit is R$ 81,000 per year. If you exceed this amount, you will have to migrate to ME and pay higher taxes. Planning and controlling your revenue helps you avoid surprises.
3. Deduct Business Expenses
In some tax regimes, you can deduct expenses such as:
- Rent
- Equipment purchases
- Employee salaries
- Operational costs
This reduces the tax calculation base.
4. Separate Personal and Business Finances
Mixing finances is one of the main mistakes of small entrepreneurs. Maintain separate accounts and record everything correctly to avoid fines and unnecessary tax payments.
5. Keep Up to Date with Tax Obligations
Paying taxes on time avoids fines and interest. Late payments increase your tax burden and harm your business’s financial health.
6. Consult an Accountant
An accountant can help you:
- Choose the best tax regime
- Keep tax records in order
- Plan tax strategies to pay less
- Avoid fines and penalties
The cost of an accountant is small compared to the benefits of professional tax management.
Formalizing Your Business is a Smart Step
Working informally may seem like a way to save money, but it limits your business’s potential and increases risks. By formalizing your business and managing taxes correctly, you gain legal security, credibility, and financial advantages.
Plan your formalization, choose the right structure and tax regime, and always keep your accounts organized. That way, your business can grow sustainably and profitably.