For legal professionals, choosing which tax regime to follow can raise some questions. This is because, before making this decision, lawyers need to carefully analyze various aspects of their work routine.
Know that this concern is common and very valid. After all, choosing the wrong tax regime can lead to negative results and impact the future of the business for a long time.
To help you, IDP has compiled a short guide on taxation, the differences between tax and duty, and for individuals and legal entities. In addition, this text contains important tips to help you better understand how the tax system works for lawyers.
Make a note of the important points you will see below. Happy reading!
What is a tax regime?
When we talk about a tax regime, we mean the way in which rates, especially taxes, are organized in a given economic sector.
Thus, the tax regime is a set of rules that allow the State to collect payment for services provided by companies.
This system is determined according to the amount of revenue and type of business, and can be applied to both individuals and legal entities.
Purpose of taxation
The purpose of taxation is basically to guarantee public resources so that the State can implement public policies . In other words, it is through taxation, via laws, that the State funds the services provided to society.
Tax vs. Tribute
It is important to highlight that "tributo" is the general term, while "imposto" is a specific type. A "tributo" is any compulsory payment mandated by law to the State , such as fees, taxes, contributions, and betterment levies.
On the other hand, a tax is a type of levy where the taxable event is not linked to a specific event , meaning it is an act of the taxpayer, not an act of the State.
For example, earning income is the taxable event for income tax; promoting the circulation of goods is the taxable event for ICMS (a Brazilian sales tax); owning real estate is the taxable event for IPTU (a Brazilian property tax).
Tax regime for lawyers
The provision of legal services, like many other areas, is subject to taxation. This raises numerous questions about the best tax structure for each lawyer.
One of the first difficulties encountered is determining which tax regime to choose, since the lawyer may be self-employed or form a law firm, for example.
The choice will definitely have a direct influence on how taxes are applied, as you will see later.
Tax regime for individual lawyers
When working independently, a lawyer can be taxed as an individual. That is, through their CPF (Brazilian taxpayer identification number).
In this case, the taxes levied on income are:
- Individual Income Tax (IRPF) – tax rate from 7,5% to 27,5%;
- Contribution to Social Security as a mandatory individual contributor;
- Tax on Services of Any Nature (ISSQN).
Tax regime for legal entities operating under the law firm regime
Conversely, lawyers can also be taxed as legal entities. Therefore, unlike an individual, these professionals are subject to an income tax rate of 16,90%.
When operating as a legal entity, all taxes are collected at a single rate (federal, state, and municipal), which greatly simplifies obligations.
A lawyer can create a law firm, including a sole proprietorship. In this case, they have more options, being able to be taxed under three possible regimes: SIMPLES Nacional (Simplified National Tax Regime) , Lucro Presumido (Presumed Profit Tax Regime), and Lucro Real (Actual Profit Tax Regime ).
SIMPLES National
The Simples Nacional is a simplified tax regime for micro and small businesses with annual gross revenue of up to R$4,8 million.
This system allows for the collection of various federal, state, and municipal taxes in a single payment slip, making taxation more practical.
All these taxes are paid through the DAS, which stands for Documento de Arrecadação do Simples Nacional (National Simplified Tax Collection Document).
Presumed profit
If the investment is in a larger law firm, with revenues exceeding 4,8 million per year, the lawyer will have to adopt other tax regimes instead of the Simples Nacional (Simplified National Tax System). For example, the presumed profit regime or the actual profit regime.
Under the presumed profit regime, the lawyer presumes the income of the legal entity, based on revenue, using a percentage applied to that revenue.
In general, a gross tax rate of 32% is applied to the firm's revenue, plus the Corporate Income Tax rate and the Social Contribution on Net Profit (CSLL).
In addition, the office will have to pay the ISS (municipal service tax) and social security contributions separately.
Real profit
Real Profit is a tax regime in which the calculation of Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL) is based on the company's actual profit — revenues minus expenses — following the adjustments provided for by current law.
It is also important to consider the calculation of the Social Integration Program (PIS) and the Contribution for Social Security Financing (Cofins).
For very large firms, it is recommended to consider the actual profit taxation method. This is seen as the most complex of all tax regimes.
How to determine the best tax regime?
To determine the best tax regime, you first need to know your income, your revenue, and how much your expenses are.
Next, you need to take a few steps further. Below, we list four important points to help you define the most appropriate tax regime for your case.
Tax Planning
You will be able to better visualize which taxes will apply to your business through tax planning.
Ultimately, implementing this plan allows the lawyer to better visualize their income and expenses, analyzing the best path forward.
To complete this step, find a tax lawyer or an accountant, people who deal with the tax authorities on a daily basis and can offer all the necessary guidance and support.
Hire an accountant.
When opting for individual income tax, hiring an accountant is not necessary. However, it is advisable to work with this professional, at least when filing your annual personal income tax return. The accountant will be able to accurately classify your income and expenses, resulting in less tax to pay.
Conversely, in the case of a legal entity, hiring accountants is essential, as they are responsible for monthly entries and calculations. These professionals will forward the payment slips to the responsible lawyer.
Individual Law Firm
A sole proprietorship law firm can be a good option for those who work as individuals but suffer from the significant impact of Personal Income Tax (IRPF) annually.
Ultimately, there is a significant difference in the corporate income tax rate compared to the individual income tax rate.
In the case of a Sole Proprietorship, there is an increase in maintenance costs, including hiring accounting professionals and paying the annual OAB (Brazilian Bar Association) fee for the firm; however, it may be the best option depending on the costs as an individual.
Office registration with the OAB (Brazilian Bar Association)
Among the legal requirements for opening a law office is the need to register with the Brazilian Bar Association (OAB).
The law firm must be registered with the OAB (Brazilian Bar Association) of the section (or subsection) to which you are affiliated. Therefore, you need to submit copies of the Articles of Incorporation for registration, as well as pay a fee charged by the OAB for this service.
Finally, if no corrections are needed after the review period, the firm is granted registration and receives its own number within the OAB (Brazilian Bar Association).
However, this numbering does not replace the number of the lawyer responsible for the firm.
This registration aims to formalize the existence of that firm within the OAB (Brazilian Bar Association) framework, and can also serve for the purpose of publishing notices in official gazettes.
Is it possible to change the current tax regime?
Yes! However, before making the change, it's important to verify if the company meets the requirements to opt for the new tax regime and carefully analyze whether migrating is truly advantageous.
Ideally, you should seek the help of a specialist, such as a tax lawyer or accountant , to handle this transition. After all, the process of changing regimes can vary depending on which tax regime you choose.
Collection of taxes and own payment slips
As we explained earlier, each tax regime has its own particularities. Therefore, each also has its own specific tax payment forms.
Pay attention when collecting the payment slips! Check that they are correct. Because, in case of payment on the wrong slip, you must pay the tax on the correct slip and then request a refund of what was paid on the incorrect slip.
Conclusion
There are many details to consider when choosing the best tax regime for you, as a lawyer.
Therefore, consider the importance of being an up-to-date professional in the tax field.
When you have in-depth knowledge of tax matters, you can better understand the legislation, case law, and doctrine, and thus become capable of understanding the situation in which you or your firm find yourself.
It is also possible to analyze how the situation can be improved, such as paying less or recovering amounts paid improperly.
At IDP Online , the postgraduate program in Tax Law guarantees content that is up-to-date with legal changes, tax regimes, and much more. Furthermore, it's possible to interact directly with professors during classes.
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