Economy

Less bureaucracy for startups and SMEs: Understand the Brazilian "Economic Freedom" Policy

The Provisory Measure (PM) was passed in the House of Representatives, although it still has to be voted on in the Senate by the end of August, so as to remain valid

house of representatives brazil
  • The House of Representatives passed the bill Provisory Measure* 881/2019 on Tuesday (August 13th), christened by Jair Bolsonaro’s government as the “Economic Freedom” policy;
  • One of the core changes posed by the policy is the clearance of compulsory licences for activities that suppose a low risk and the release of prior authorization to begin operations;
  • In general terms, one of the more controversial measures was maintained: the termination of the system of social insurance information that includes employment and tributary data, a system known as the “e-Social”.

After hours of negotiations in an effort to filter controversial changes to labor rights and other parts in the original proposal that are aptly named “jabutis” or “turtles” (insofar as they represent elements in the text that tend to go unnoticed during the legislative process), the House of Representatives passed the bill Provisory Measure* 881/2019 on Tuesday (August 13th), christened by Jair Bolsonaro’s government as the “Economic Freedom” policy.

There are still 17 requests and amendments yet to be analyzed this Wednesday (August 14th), but the main content of the proposal, which involves the de-bureaucratization of startups and small to medium-sized enterprises (SMEs), was retained in the legislative process.

The original bill proposed by the Executive had 19 clauses. The text grew to include 55 clauses during its analysis in the Mixed Special Committee (MSC), when a series of amendments – including some which had nothing to do with the original bill – were proposed. The removal of five clauses was negotiated between the bill’s rapporteur Jerônimo Goergen in the MSC and members of Congress during the bill’s analysis and presentation in the House of Representatives.

One of the core changes posed by the policy is the clearance of compulsory licences for activities that suppose a low risk and the release of prior authorization to begin operations. The responsible entity for deciding which activities are of low, medium, or high risk are municipalities. Those municipalities that do not have a policy for risk definition will be able to apply the federal regulation on the matter, a regulation that considers more than 280 activities as low-risk.

In terms of changes to labor laws in Brazil, several controversial issues, such as the reduction of sanctions for delayed salary payments or the use of Civil Law code–instead of the rules stipulated in the body of Labor Laws (CLT)–in contracts of more than BRL 30 thousand, was cut from the text.

In the meantime, several other clauses were maintained: (1) the ability to digitize the “carteira de trabalho” (a compulsory document that keeps record of the worker’s employment history), (2) the clearance of restrictions for working on Sundays and holidays without the need to reference the collective agreement established by unions (the collective agreement stipulates that workers have a right to rest on Sunday, once every four weeks), and (3) the removal of compulsory monitoring of the workday hours (“clocking in” to work would only be necessary when putting in extra hours or missing hours).

In general terms, one of the more controversial measures was maintained: the termination of the system of social insurance information that includes employment and tributary data, a system known as the e-Social.” The decision was taken by the government’s economic team after being pressured by the rapporteur of the policy; Geogren threatened to place the termination of e-Social in the middle of the proposal and take the bill straight to Congress, without giving the government time to consider other alternatives for the system.

In July, the month in which small and medium-sized enterprises would have to comply with e-Social, the secretary of Pension and Work, Rogério Marinho, announced that in the second semester of this year, the government would reduce the amount of data that companies and domestic employers would have to send to the government, going from 900 pieces of information to 450. But the search for an alternative to the current system, such as the reduction of necessary information, will not be easy.

Nowadays, e-Social connects to the Secretary of the Brazilian Federal Revenue (RFB), the Federal Economic Bank (“Caixa Econômica”), the National Social Insurance Institute (INSS), and the Secretary of Work and Pension, this last one connected to the Ministry of Economy. In practice, the network brings together 15 accessory obligations under a single system. This system came into effect on January of 2018, establishing compliance among large-sized enterprises (those with revenues above BRL 78 million) and also requiring large investments in management and tools from those organizations at the time.

The Economic Liberty policy came into effect this April and needs to pass through the House of Representatives and Senate to become a law. This needs to take place before the 27th of August or the bill will miss its deadline.

The policy’s text complements in several ways Inova Simples, which is a special fiscal program for startups in effect since April of this year. Inova Simples provides the creation and registry of the CNPJ** of small enterprises directly via the Internet, allowing its automatic removal in case of prolonged inactivity, and also opens up the possibility of startups operating within education institutions, technological parks, and accelerators.

Below are five core changes introduced by the Economic Freedom policy:

1. Creation of a digital document of the worker’s employment history

The “carteira de trabalho,” which is nowadays physical and has its own number called PIS***, will now be issued electronically and will have the same identification number as the CPF****.

2.Work on Sundays and holidays

Employees can now work on Sundays and holidays without a prior agreement with unions.

3. The termination of e-Social

The social insurance system that centralizes all the employment, retirement, and tributary information that employers need to relay to the government will be substituted by another system, one that will require, according to the claims of the government, only half of the 900 pieces of information anticipated by e-Social.

4. Clearance of compulsory licences for enterprises and startups

Low-risk activities, which depend on municipalities for their appropriate categorization, will not require a licence or prior authorization to begin operating. With the PM, the required licence will not be required while the enterprise is in the process of creating, testing, and implementing a product or service–as long as that product or service does not offer higher risks, such as health risks.

5. Declaration of a free market

The bill affirms that the enterprises have a right to redefine prices in unregulated markets.

An small glossary about the subjec for you:

*In Brazil, “Provisory Measures” (PMs) are government decrees that come into effect immediately, yet are only valid for a specific time frame while Congress analyzes the decree as a legislative bill to be passed in both Houses, before becoming law. The period of time that the PM is valid, before being passed in the House of Representatives and Senate is 60 days from the moment it is announced by government decree.

**The “Cadastro Nacional de Pessoa Jurídica” (CNPJ) is an identification number issued by the Brazilian Federal Revenue to companies in Brazil.

*** The “Programa de Integração Social” (PIS) is a number that helps track the contributions by employers to worker’s social insurance in Brazil. It appears on the “Carteira de Trabalho” issued to Brazilian workers and necessary for formal employment.

**** The “Cadastro da Pessoa Física” (CPF) is an identification number issued to identify individual persons in the Brazilian Federal Revenue. It is similar to an identification number issued by the IRS in the United States.

Translation by Axel Diniz