Impact of the tax reform on service companies

Changes in the tax burden: Tax reform could result in changes to the tax burden that service companies have to pay. This could affect companies’ operating costs and profitability.

Changes to expense deduction rules: Tax reform may bring changes to expense deduction rules, which may affect how service companies can claim certain expenses as deductible expenses. This could have a direct impact on companies’ financial results. As VAT is non-cumulative, it will be possible to deduct costs from tax bases, and it is extremely important that these amounts are correctly accounted for.

Changes in tax rates: The tax reform could lead to changes in tax rates, which could directly affect the amount of tax to be paid by service companies. It is not yet known exactly how much VAT will be, but it is estimated to be around 27.5%. Compared to a presumed profit company, which currently pays around 16%, this could be very damaging, especially for companies with low real profit margins.

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Simplifying the tax system: One of the goals of the tax reform could be to simplify the tax system, reducing complexity and making it easier for service companies to comply with their tax obligations. This can result in savings in time and resources.

Tax incentives: The tax reform could also introduce new tax incentives for service companies, aimed at boosting specific sectors of the economy. These incentives can help reduce operating costs and increase the competitiveness of companies.

It is important to note that the exact impacts of tax reform on service companies may vary depending on the specifics of the changes implemented and the characteristics of each company. It is therefore essential that companies closely monitor the changes proposed in the tax reform and assess the specific impact on their operations and finances.

Written by Alex Vilela, Tax Supervisor at Drummond Advisors

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