Learn all about the importance of accounting for IT companies

Information Technology (IT) companies are at the epicenter of our digital age. Whether developing software, providing IT consulting services or managing technological infrastructure, these companies play a crucial role in our daily lives. But in the midst of constant innovation and digital transformation, there is one element that is often overlooked: accounting. In this article, we'll explore the importance of accounting for IT companies and why it's essential for long-term success.

1 - Strategic decision-making

Accounting is much more than just dealing with numbers and fulfilling tax obligations. It offers valuable insights into your company's financial performance. With accurate data and financial reports, you can make informed strategic decisions. This is especially crucial in the IT sector, where competition is fierce and innovation is constant.

2 - Cost management

In a highly dynamic business environment like IT, cost control is key. Accounting helps track and manage expenses, identifying where resources are being used effectively and where there is room for optimization. This can result in significant savings in the long term.

3 - Financial forecast

For IT companies looking to grow and expand their operations, financial forecasting is essential. Accounting provides the tools to create financial models that make it possible to predict future performance, identify financing needs and strategically plan the company's growth.

4 - Tax compliance

Accounting ensures that your company complies with all tax and regulatory obligations. In a sector where tax regulations can be complex and subject to change, the expertise of an accountant is invaluable for avoiding penalties and legal problems.

5 - Investment and fundraising

If your IT company plans to seek investors or loans, accounting is key to presenting a solid financial track record. Investors and lenders want to see evidence of responsible financial management and consistent growth. Having accurate financial records and clear reports is essential for attracting external funding.

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Tax regime alternatives for IT companies

The right choice of tax regime makes all the difference to the amount you have to pay in taxes.

So, to help you choose the right tax regime, let's understand how Real Profit, Presumed Profit and Simples Nacional work.

Real profit within taxes for IT companies

Real Profit is the tax regime that calculates taxes based on the company's monthly or quarterly turnover and is levied only on its actual profit.

Therefore, companies with a turnover of more than R$ 78 million in the calculation period are obliged to opt for this regime, but other organizations can also choose this tax regime when it is convenient.

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Corporate income tax (IRPJ):

Real Profit companies are subject to an IRPJ rate ranging from 15% to 25% on taxable income. This tax is calculated based on the company's accounting profit, with tax adjustments.

Social contribution on net profit (CSLL):

CSLL is a tax levied on the company's net profit and generally ranges from 9% to 12%. Like the IRPJ, the basis for calculating the CSLL is the company's actual profit.

PIS (social integration program) and COFINS (contribution to the financing of social security):

Real Profit companies must also calculate PIS and COFINS on a non-cumulative basis. This means that these taxes are calculated on gross revenue, with the possibility of deducting credits related to expenses and costs.

Contribution to PIS/PASEP and COFINS imports:

When the company makes imports, it must also pay the PIS/PASEP-Import Contribution and the COFINS-Import Contribution on the value of the imports. These taxes are calculated separately.

Social security contribution on gross revenue (CPRB):

For some companies, especially those operating in specific sectors such as construction, the social security contribution on gross revenue can be an alternative to the employer's contribution on payroll.

IRRF (income tax withheld at source):

When the company makes payments to third parties, such as service providers or suppliers, it may be obliged to withhold and pay Withholding Income Tax on these payments, if there is a legal obligation to do so.

ISS (tax on services):

Although ISS is a municipal tax, companies that provide services are subject to this tax. The rate and method of calculation may vary according to the legislation of the municipality where the company is registered.

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Presumed profit in IT company taxes

Presumed Profit is a simplified tax system for determining the basis for calculating IRPJ and CSLL. Therefore, instead of considering the actual profit obtained, a presumption is made based on taxable income earned in previous calendar years.

So, all companies that have a turnover of less than R$ 78 million in the calculation period and are not obliged to opt for Real Profit can opt for Presumed Profit.

Corporate Income Tax (IRPJ):

Presumed Profit companies are taxed at rates ranging from 1.6% to 4% on gross revenue, depending on the company's activity. This rate is applied to the presumed profit margin, which varies according to the sector.

Social Contribution on Net Profit (CSLL):

CSLL is calculated at rates ranging from 12% to 32%, also on the company's presumed profit margin, depending on the activity.

PIS (Social Integration Program) and COFINS (Contribution to Social Security Financing)

In Presumed Profit, PIS and COFINS are calculated based on gross revenue, without the possibility of deducting credits, as in the non-cumulative regime.

ISS (Tax on Services):

Companies that provide services are subject to ISS, which is a municipal tax. The rate and method of calculation vary according to the legislation of the municipality where the company is located.

ICMS (Tax on the Circulation of Goods and Services):

ICMS is a state tax levied on the movement of goods and services. Companies that carry out operations subject to ICMS must calculate and pay this tax, following the rates and rules of the state in which they are registered.

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Simples Nacional within taxes for IT companies

Simples Nacional is a simplified tax system for IT companies. As such, all taxes are collected in a single payment slip - making it practical for the entrepreneur.

However, despite its aim of reducing tax costs, Simples Nacional is not always the best alternative for an IT company. It is therefore essential to carry out a good comparative study before opting for a tax regime.

Calculation through Simples Nacional varies according to the activities carried out by the company and the gross revenue for the period. Therefore, for IT companies, it is necessary to follow the information in Annex I, Annex III and Annex V.

Annex I

Annex I is intended for commercial activities - which are among the activities that can be carried out by an IT company. According to the Simples Nacional table, the tax rate can vary between 4% and 19%:

Gross revenue in 12 months	Rate	Deduction from the amount to be paid
Up to R$ 180,000.00	4.00%	0
From R$ 180.000,01 to R$ 360.000,00	7,30%	R$ 5,940.00
From R$ 360.000,01 to R$ 720.000,00	9.50%	R$ 13,860.00
From R$ 720,000.01 to R$ 1,800,000.00	10.70%	R$ 22.500,00
From R$ 1,800,000.01 to R$ 3,600,000.00	14,30%	R$ 87.300,00
From R$ 3,600,000.01 to R$ 4,800,000.00	19.00%	R$ 378.000,00

Annex III

Annex III brings together activities related to installation, repair and maintenance service companies. For IT companies, there are four activities that stand out:

• Data processing, application service providers and web hosting services (CNAE 6311-9/00);
• Portals, content providers and other information services on the Internet (CNAE 6319-4/00);
• Professional and management development training (CNAE 8599-6/04);
• Technical support, maintenance and other information technology services (CNAE 6209-1/00).

For these activities, the rate levied on gross revenue varies between 6% and 33%:

Gross revenue in 12 months	Rate	Deduction from the amount to be paid
Up to R$ 180,000.00	6.00%	0
From R$ 180.000,01 to R$ 360.000,00	11,20%	R$ 9,360.00
From R$ 360.000,01 to R$ 720.000,00	13.50%	R$ 17,640.00
From R$ 720,000.01 to R$ 1,800,000.00	16.00%	R$ 35.640,00
From R$ 1,800,000.01 to R$ 3,600,000.00	21.00%	R$ 125.640,00
From R$ 3,600,000.01 to R$ 4,800,000.00	33.00%	R$ 648.000,00

Annex V

Annex V of Simples Nacional is also relevant to the study of IT company taxes. Among the activities included in this Annex are, for example:

• Development and licensing of non-customizable computer programs (CNAE 6203-1/00);
• Development and licensing of customizable computer programs (CNAE 6202-3/00);
• Web design (CNAE 6201-5/02).

Thus, the rates for these activities vary between 15.5% and 30.5%:

Gross revenue in 12 months	Rate	Deduction from the amount to be paid
Up to R$ 180,000.00	15.50%	0
From R$ 180.000,01 to R$ 360.000,00	18.00%	R$ 4.500,00
From R$ 360.000,01 to R$ 720.000,00	19.50%	R$ 9.900,00
From R$ 720,000.01 to R$ 1,800,000.00	20.50%	R$ 17.100,00
From R$ 1,800,000.01 to R$ 3,600,000.00	23.00%	R$ 62.100,00
From R$ 3,600,000.01 to R$ 4,800,000.00	30.50%	R$ 540.000,00

To find out whether your IT company falls under Annex III or V, you have to apply the R Factor, which is the proportion of payroll to Gross Revenue. Businesses whose payroll exceeds 28% of turnover fall under Annex III.

In turn, companies whose proportion of this expenditure on personnel is less than 28% will be taxed under Annex V.

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Conflicts of tax jurisdiction for IT company taxes

One of the main conflicts of tax jurisdiction when it comes to taxes for IT companies concerns the application of the Tax on the Circulation of Goods - ICMS and the Tax on Services - ISS.

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In this sense, there is a lack of definition as to whether software is a good in circulation or a service provided. In many cases, this confusion leads to both taxes being levied simultaneously, which is a major mistake from a tax point of view, as it amounts to double taxation.

In an attempt to regulate this issue, several courts have already spoken out and there are some regulations in this regard, which in some way establishes a jurisprudence that can be mobilized within the justice system.

Complementary Law 116 of 2003, for example, provides for ISS to be levied on the assignment and licensing of software. However, in December 2015, the Monetary Council for Finance Policy - CONFAZ, linked to the Ministry of Finance, through Agreement 181/2015 established new taxation rules for the sector that provide for ICMS to be levied on some operations.

The importance of ICMS Agreement 181/2015

ICMS Agreement 181/2015, promoted by the National Finance Policy Council (CONFAZ), is an attempt to address these complex issues. This agreement establishes rules for resolving conflicts of jurisdiction involving the Tax on the Circulation of Goods and Services (ICMS) in interstate transactions that send goods and services to final consumers who are not ICMS taxpayers.

Some key points of the ICMS Agreement 181/2015 include:

1. Definition of ICMS taxpayer: The agreement establishes clear criteria for determining whether or not a company is an ICMS taxpayer.
2. Interstate rate and rate differential: The agreement defines how the rates should be applied to interstate transactions.
3. Payment of the rate differential: Establishes how the rate differential should be paid in interstate transactions involving final consumers who are not ICMS taxpayers.

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Strategies for dealing with conflicts of competence

How can IT companies deal with tax jurisdiction conflicts and adapt to the changes brought about by ICMS Agreement 181/2015?

1. Evaluation and planning: Understanding the complexity of conflicts and the rules of ICMS Agreement 181/2015 is fundamental to effective tax planning.
2. Specialized consultancy: Accounting and tax law professionals can provide valuable guidance in dealing with complex tax issues.
3. Constant monitoring: Tax legislation is always changing. Companies must keep up to date with changes to ensure compliance.
4. Negotiation with tax authorities: In some cases, it is possible to negotiate with tax authorities to avoid costly litigation.

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What are the implications of CONFAZ agreement ICMS 181/2015?

Earlier we talked about the controversial publication of Convention 181/2015 by CONFAZ. However, the fact is that long before this resolution, some states had already been applying ICMS on the sale of software. In some cases, the rates were as high as 18%.

Therefore, with the publication of the agreement, a minimum ICMS rate of 5% was agreed, which for some sectors of the software market represented a relief, given the great variation observed between the states of the federation. See what the resolution says:

Clause one:

The states of Acre, Alagoas, Amapá, Amazonas, Bahia, Ceará, Goiás, Maranhão, Mato Grosso do Sul, Paraná, Paraíba, Pernambuco, Piauí, Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul, Santa Catarina, São Paulo, Tocantins are hereby authorized to grant a reduction in the ICMS tax base, so that the tax burden corresponds to a percentage of, at least 5% (five percent) of the value of the operation, relating to operations with software, programs, electronic games, applications, electronic files and the like, standardized, even if they are or can be adapted, made available by any means, including operations carried out by means of transfer electronic data.

Clause two

The benefit provided for in this agreement will be used optionally by the taxpayer as a substitute for the normal taxation system, and the appropriation of any other tax credits or benefits is prohibited.

Clause three:

The federated units referred to in the first clause are authorized not to demand, in whole or in part, ICMS tax debts, whether or not assessed, including interest and fines, related to the transactions provided for in the first clause, which occurred up to the date this agreement came into force.

Sole paragraph. The non-requirement referred to in this clause:

I - does not authorize the refund or compensation of amounts already paid;

II - comply with the conditions laid down in state legislation.

Note that the vast majority of states - 19 in total - are signatories to the agreement, which makes taxation uniform nationwide. It is also important to note that the 5% rate does not refer to a "ceiling" but rather a "floor".

At the same time, we can see in practice that all the states listed in the resolution have not applied rates higher than 5%, in a kind of informal agreement signed with the Union.

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How to evaluate each case of IT company tax on software?

So, as you may have realized, assessing taxes for IT companies is no easy task, given the lack of legal qualifications in this segment. So, in order to make life easier for entrepreneurs looking to understand what is due in taxes when selling this type of service/product, we have organized the software into 6 categories of taxation. Then follow the list below:

1. Off-the-shelf software

Qualifications: Off-the-shelf software is therefore considered a commodity.

So taxes are levied on this product:

• ICMS: 5%
• Non-cumulative PIS (real profit): 1.65%
• Non-cumulative COFINS (real profit): 7.60%
• Cumulative PIS (presumed profit): 0.65%
• Cumulative COFINS (presumed profit): 3%
• IRPJ*: 15%
• Additional IR*: 10%
• CSLL*: 9%

 2. Customizable software

Qualifications: Customizable software is therefore considered a service.

So taxes are levied on this service:

• ISS: 2.90%
• Cumulative PIS: 0.65%
• Cumulative CONFINS: 3%
• IRPJ*: 15%
• Additional IR*: 10%
• CSLL*: 9%

3. Custom software

Qualifications: therefore, the sale of software to order is considered a service.

So, taxes levied on custom software:

• ISS: 2.90%
• Cumulative PIS: 0.65%
• Cumulative COFINS: 3%
• IRPJ*: 15%
• Additional IR*: 10%
• CSLL*: 9%

4. Imported off-the-shelf software

Qualifications: Thus, imported off-the-shelf software is considered a product.

Then sales tax:

• ICMS: 5%
• Non-cumulative PIS (Real Profit): 1.65%
• Non-cumulative COFINS (Real Profit): 7.60%
• Cumulative PIS (Presumed Profit): 0.65%
• Cumulative COFINS (Presumed Profit): 3%
• IRPJ*: 15%
• Additional IR*: 10%
• CSLL*: 9%

5. Customizable imported software

Qualifications: Thus, operations involving imported customizable software are considered to be services.

So, taxes levied on the operation:

• ISS: 2.90%
• Non-cumulative PIS (real profit): 1.65%
• Non-cumulative COFINS (real profit): 7.60%
• Cumulative PIS (Presumed Profit): 0.65%
• Cumulative COFINS (Presumed Profit): 3%
• IRPJ*: 15%
• Additional IR*: 10%
• CSLL*: 9%

Accounting audits for IT companies

In the digital age, Information Technology (IT) companies are the architects of our interconnected world. But behind all the innovation and digital transformation, there is an equally important need: to understand and manage finances wisely. That's where accounting audits for IT companies come in.

Imagine the accounting audit as a health check for your company. Just as you would have a regular check-up to make sure your body is in top shape, IT companies carry out accounting audits to make sure their finances are in order.

But what exactly is accounting auditing in IT companies and why is it so crucial? Let's explore this financial journey and uncover the vital role of the accounting audit in one of the most dynamic sectors of the market.

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The Depth of Accounting Audits in IT Companies

In a scenario of constant evolution and innovation, Information Technology (IT) companies play a crucial role in the world's digital transformation. However, behind all this innovation, there is a fundamental need to ensure that the financial health of these companies is sound and that they comply with all tax obligations and regulations. That's where accounting audits for IT companies come in.

Analysis of income and expenses

One of the core areas of the accounting audit is the detailed analysis of the IT company's income and expenditure. This involves a thorough check of financial transactions, including:

• Sales: The audit checks the accuracy of the sales register, ensuring that all revenue is properly recorded.
• Expenses: In the same way, expenses are scrutinized to ensure that all cash outflows are properly recorded.
• Investments: Investments in assets, projects and acquisitions are evaluated to ensure that all resource allocations are aligned with the company's financial strategy.
• Recipes: The audit also checks the accuracy of revenue records, including diversified revenue sources such as service contracts, software licenses and more.

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Valuation of intangible assets

Intangible assets play a significant role in IT companies. Often, a substantial portion of an IT company's value is tied up in intellectual property, patents, trademarks and other non-physical assets. The accounting audit comes into play here:

• Registration accuracy: The audit verifies that all intangible assets are accurately recorded and that their value is adequately reflected in the financial statements.
• Value Assessment: Auditors assess the value of these assets, which is crucial for strategic decisions such as mergers and acquisitions.

Tax compliance

IT companies often face complex tax challenges, including global taxes, international tax treaties and ever-changing regulations. The accounting audit ensures that the company complies with all tax obligations:

• Tax Review: Auditors examine all aspects of tax compliance, from the timely payment of taxes to the proper application of tax deductions.
• Tax strategies: The audit can also help identify opportunities for tax optimization, minimizing the tax burden.

Cyber risk management

In an increasingly digital world, cyber risks are a growing concern. The accounting audit also plays a role in assessing the effectiveness of financial security measures:

• Financial security: The audit checks whether the company has adequate cyber security measures in place to protect its financial assets and confidential information.
• Risk Management: Identifying and managing cyber risks is an essential part of accounting audits in IT companies.

Discover the two main accounting mistakes that can damage an IT company

Information Technology (IT) companies are known for their dynamism and innovation, but when it comes to accounting management, they also face unique challenges. Accounting mistakes can have serious repercussions, from tax fines to legal problems. In this article, we'll explore the two worst accounting mistakes an IT company can make and how to avoid them.

Poor management of income and expenditure

The first accounting pitfall that many I.T. companies face is the mismanagement of income and expenses. Due to the complex nature of I.T. operations, it's easy to lose track of financial transactions. Here are some common scenarios:

• Incomplete sales records: Not recording all sales, especially in long-term service contracts, can result in an underestimation of revenues.
• Undocumented Expenses: Forgetting to document expenses can lead to missed tax deductions and an inaccurate view of operating costs.
• Ineffective Cash Flow Management: Failure to properly monitor cash flow can lead to liquidity problems and compromise the ability to pay bills.

How to avoid it: The solution to this mistake is to implement a robust accounting system and use financial management software. Keep detailed records of all transactions, reconcile accounts regularly and ensure that all expenses are documented.

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Failure in tax compliance

IT companies often face complex tax challenges, including global taxes and international tax treaties. Failure in tax compliance is one of the worst mistakes an IT company can make:

• Incorrect Tax Returns: Errors in tax returns, such as non-compliance with sector-specific tax obligations, can result in substantial fines and penalties.
• Not taking advantage of tax benefits: Not taking advantage of tax deductions and incentives available to the IT sector can lead to a heavier tax burden than necessary.
• Not keeping up with regulatory changes: The tax area is dynamic, with regulations frequently changing. Non-compliance with constantly evolving tax regulations can be detrimental.

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Fiscal compliance and taxes:

1 - What tax obligations must an IT company fulfill in Brazil?

Obligations include the payment of taxes such as IRPJ, CSLL, PIS, COFINS and ISS.

2 - What are the tax rules for withholding tax on IT contracts?

The rules vary, but it is important to withhold income tax and social contributions on services rendered.

3 - How can I optimize my IT company's tax planning?

A specialized accountant can help identify legal strategies to reduce the tax burden.

4 - What tax incentives are available for IT companies?

Some states offer tax benefits to attract technology companies, such as ICMS exemptions.

5 - How can I prepare my company for tax audits?

Keep accurate records, comply with all tax obligations and rely on an experienced accountant.

Accounting and finance:

1 - How important is specialized accounting for IT companies?

Specialized accountants understand the nuances of the sector and can optimize company finances.

2 - Which financial indicators should I monitor in my IT company?

Profitability, profit margins, personnel costs and recurring revenue are all important.

3 - How do I draw up an effective financial plan?

Analyze cash flow projections, identify fixed and variable costs and set clear financial targets.

4 - What is the best way to manage expenses and income?

Automate processes, maintain strict control over expenses and strive for efficiency.

5 - How to ensure compliance with the accounting standards applicable to IT companies?

Hire an experienced accountant and keep up to date with accounting standards.

Opening and registering a business:

1 - What are the essential steps to opening an IT company in Brazil?

Define the type of company, obtain a CNPJ, register with the Board of Trade and obtain a business license.

2 - What type of company is best suited to an IT startup?

The type of company (MEI, EIRELI, LTDA) depends on the size and structure of the startup.

3 - How do I register a trademark or intellectual property?

Go to the INPI (National Institute of Industrial Property) to register trademarks and patents.

4 - What documents are needed to open a CNPJ?

Personal documents of the partners, articles of association, proof of address and other specific documents.

5 - How do I choose the most suitable tax regime for my IT company?

Consult an accountant to assess the options and choose between Simples Nacional, Lucro Presumido or Lucro Real.

Contracts and agreements:

1 - Which clauses are essential in IT service contracts?

Define scope, deadlines, values and guarantees, as well as confidentiality and intellectual property clauses.

2 - How to draw up software license agreements?

Specify rights, restrictions, payment terms and support, guaranteeing legal protection.

3 - What precautions should you take when outsourcing IT services?

Choose reliable partners, define clear SLAs (Service Level Agreements) and include confidentiality clauses.

4 - How to resolve contractual disputes in IT agreements?

Establish mediation or arbitration procedures, and include conflict resolution clauses.

5 - How can we guarantee the security of IT contracts in relation to intellectual property?

Include clauses on the transfer of intellectual property rights and confidentiality.

These questions and answers are an initial guide for IT companies on issues of fiscal compliance, accounting, taxes, opening a CNPJ and contracts. Remember that the advice of a specialized accountant is essential for specific situations.

Financial planning strategies for IT companies

IT companies face unique challenges in a dynamic and competitive environment. Financial modeling offers a strategic vision that assists in making informed decisions. From revenue projections to cost analysis, financial modeling provides a comprehensive understanding of business finances.

[Learn more:] Financial planning strategies for IT companies 

If you need to rely on experienced accounting advice, capable of providing the best strategies for your company to improve its financial performance, get to know CLM Controller's solutions now.