Inactive and Non-Operating Companies: Know the Difference

Legal entities in Brazil can be classified as inactive or non-operating. While these terms may sound the same, they’re actually not. For tax purposes, they have different meanings, are treated differently, and have different filing requirements.

The Brazilian Tax Revenue Service (Receita Federal) defines an “inactive” company in IN 1.605/2015. This regulation describes an inactive company as a legal entity that isn’t performing any operational, non-operational, or financial activities. For all intents and purposes, it’s dormant.

A non-operating company, on the other hand, may still be active. It just isn’t engaging in its core business. If it’s a retailer, it’s not selling any goods. If it’s a service provider, it’s not providing any services.

Different from an inactive company, a non-operating company can still engage in non-operational activities. For example, the company can earn cash from the sale of assets or interest from financial investments.

It’s important to distinguish between inactive and non-operating companies because they have varying tax filing obligations. Inactive companies file the Declaração de Créditos e Débitos Tributários Federais (DCTF), but they don’t file the Escrituração Contábil Digital (ECD), Escrituração Contábil Fiscal (ECF), and Escrituração Fiscal Digital-Contribuições (EFD-Contribuições). Non-operating companies file the DCTF, ECD (if required), ECF, and EFD-Contribuições.

If you’re ramping down your business activities in Brazil, consider carefully how you classify the company. The words may seem the same, but in fact they have very different meanings. When in doubt, consult an accountant or tax lawyer to help guide you through the process.