Legal framework for startups comes into effect

Although it represents an important step in the legal field, the legal framework for startups still needs changes in the sector's tax structure

It is a well known fact that current legislation fails to keep up with technological advances, but the publication of Complementary Law No. 182, on June 1, 2021 - considered the legal framework for startups and innovative entrepreneurship - alleviates the lack of standards for this type of business.

Although it is an important step in the legal field, since it creates, for the fist time, rules for startups' operation, the legal framework does not promote major changes in the sector's tax structure, postponing measures of greater impact expected by players in this segment.

Below are some of the new law highlights:

Definition of startups

Startups are defined as business or corporate organizations, emerging or in recent operation, whose performance is characterized by the innovation applied to business model or to products or services offered.

The entities eligible for the special treatment, that aims to promote startups, are individual entrepreneurs, individual limited liability companies, businesses, corporations and simple partnerships:

With gross income of up to BRL 16 million in the previous calendar year or BRL 1,333,334.00 multiplied by the number of active months in the previous calendar year, when less than 12 months, regardless of the type of corporation;

With up to 10 years of registration in the National Register of Corporate Taxpayers (Cadastro Nacional da Pessoa Jurídica - CNPJ) in the Brazilian Federal Revenue Office of the Ministry of Economy; meeting at least one of the following requirements:

a) declaration, in its articles of incorporation, and use of innovative business models for creating products or services, in accordance with Paragraph IV of the head provision of Article 2, Law No. 10.973/2004; or

b) classification under the Inova Simples special regime, in accordance with Article 65-A of Complementary Law No. 123/2006.

Investment in innovation

Startups may receive capital contribution from individuals or legal entities, which may or not result in participation in the startup's capital, depending on the type of investment chosen by the parties.

The investor (*) who contributes to the capital without participating in it will not be considered a member or shareholder and will not have the right to manage or vote in the company's administration. He will also not be liable for any debt of the company, including in court-supervised reorganization, but will be compensated for his contributions.

(*) definition of angel investor according to Complementary Law 182/21.

Promotion of research, development and innovation

Startups can receive funds from companies that have obligations of investment in research, development and innovation.

Regulatory sandbox

One of the new creations is the experimental regulatory framework (regulatory sandbox), which allows the company to develop and test experimental products and services with less bureaucracy and more flexibility.

Bidding process

The public administration may contract individuals or legal entities, alone or in consortium, to test innovative solutions developed or designed by them, with or without technological risk, by means of bidding in the special modality established by the Complementary Law.

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Entry into force

The legal framework for startups comes into force 90 days after its publication date, which was on June 2, 2021. Thefore, the new rules start to apply as of August 31, 2021.

In general, the law gives more legal security for operating in the market. However, this environment that evolves at such an accelerated pace still needs improvements and other legislative measures, which are necessary and complementary for its proper operation.

Tax experts in the Brazilian scenario

Domingues e Pinho Contadores' specialized team has extensive experience in the technological sector and is ready to advise companies on their tax challenges, offering operational and consulting support in the complex Brazilian scenario.