Brazilian tax breaks for startups in the works… hopefully

Contxto – The Brazilian government wants to beef up its startup ecosystem. The proverbial old-school, best-practice handbook dictates that this is done through tax breaks. Last Wednesday, José Barroso Tostes Neto, the Federal Revenue Secretary of Brazil, announced a fiscal proposal that would favor the development of startups in the country.

This proposal is part of President Jair Bolsonaro’s overall pending tax reform. Through it, he seeks to draw in investments by simplifying the country’s fiscal processes.

So, the first obstacle to overcome will certainly be for the legislative branch to approve his government’s proposal. Then he’ll need there to be no delays. The chances of this seem increasingly thin. The growing tensions between the President and Congress, and overall civic unrest in Latin America, conspire against the fledgling bill.

It’s also important to note that this tax plan would only apply at a federal level. Hence, in order for this fiscal package to have any meaningful impact (if approved), states and municipalities have to follow suit.

Governments and startup ecosystems

Oftentimes one talks about the startup ecosystem by referring to venture capital (VC) and the to the startups themselves. Yet, we should never forget the role that government plays, especially in Latin America, in affecting the way these systems work. 

There isn’t a one size fits all model, though. For example, we’ve seen in countries like Argentina and Venezuela the bloom of Bitcoin due to political and economic uncertainty. Conversely, in Mexico, Colombia, and Brazil, fintechs flourish, but each due to their own unique environments. 

In Mexico, legislation has played a big role thanks to pioneering policies like its Fintech Law.

Colombia has placed fintech startup growth front and center through mandatory electronic invoicing and its Orange Economy initiative.

Brazil, for its part, has sought to decentralize banking and has the largest number of startups dedicated to fintech. That’s a total of 377 in the whole country, according to Finnovista. What these countries have in common are formal links between both private and government entities, connecting policy and project development.

As corny as it sounds, teamwork does make the dream work. So here’s to hoping the government in Brazil reaches middle ground sometime soon.

-ML