Foreign companies employing workers in Brazil will typically face certain regulatory issues, especially if they are planning to set up a full local office and human resources department. Rules for paying taxes and withholding may greatly vary. Apart from that, there is no centralized system to administer federal and state taxation.
Companies incorporated in Brazil must register with a number of tax agencies that are in control of the 16 most common types of tax. Apart from this, individual income tax for employees, health insurance contributions and social security costs, VAT and withholding tax on interest and royalties are among the primary concerns for a foreign company operating in Brazil.
The application process for the two major categories of visa for which local Brazil companies could sponsor potential employees, the VITEM V temporary visa and Permanent work visa (“Visto Permanente”), is quite complex and involves a lot of paper work. Apart from this, most of the required documents must be translated into Portuguese.
Operating a company in Brazil requires intimate knowledge of the local business environment with all its pitfalls, including both the direct and the indirect costs of doing business in Brazil (referred to as “Custo Brasil”). There are many challenges associated with logistics, employee benefits, government procedures, environmental laws, and a complex structure of tax system.
Companies entering Brazil must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or Brazil Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Brazilian entity established that can run payroll.
A DIY approach will be delayed until there is a properly incorporated company or branch ready to run payroll and can be a costly option if registered capital is required. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
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Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.
|Tax Returns Supplied||
|Corporate Tax Requirements||
Brazilian companies are allowed to file consolidated returns, but each company must file a separate return. Companies must file an annual income tax return for the previous calendar year by the last working day of June. Tax year in Brazil is a calendar year.
|Employers Social Security and statutory contributions||
Employers contribute 8% of wages to each employee’s salary account to the severance fund. They also have to contribute 20% of an employee’s wages to the public pension system (National Institute for Social Security or INSS) as well as a rate ranging from 1% to 3% for risk of the activity to the health or safety of the employee. There are also additional social security contributions (also known as “s” system contributions), which are approximately 5.8%. For certain business industries, the 20% INSS contribution has been replaced by a rate imposed on gross revenue.
|Employees Social Security and statutory contributions||
Social security contributions are imposed on employees at rates that range from 8% to 11% based on their remuneration. The maximum required monthly contribution is BRL 482.93.
Contributions of self-employed individuals are calculated at a rate of 20% of their base salary, which is fixed by the government at a value that will depend on the date when the self-employed individual joined the social security system. The maximum monthly contribution for this category is BRL 878.05.
|Corporate Income Tax Rate||
The rate of corporate income tax (IRPJ) is 15% of taxable company profits. There is also a surtax of 10% on annual income that exceeds BRL 240,000.
Brazilian companies can choose to pay taxes based on their actual or presumed income. Under the “lucro real” method, the corporate tax is based on actual annual or quarterly taxable income. The “lucro presumido” method (available if certain requirements are satisfied) is based on a deemed taxable income or income estimated on a quarterly basis.
See social security section below.
There is a multiple rate VAT system in Brazil, with tax imposed at the federal, state and municipal levels. Industrialised Products Tax (or IPI) is a federal excise tax, which is levied on the manufacture of goods and the import of goods into Brazil. The rate of IPI is 20% on average depending on the type of commodity.
Merchandise and Services Circulation Tax (also known as ICMS) is a VAT imposed at the state level on the circulation and import of goods and the provision of interstate and intercity communication and transportation services. ICMS rate range from 4% to 25%.
Exports are exempt from Value Added Tax.
There is no withholding tax on dividends distributed to a nonresident that are paid from profits earned from the 1st January 1996.
A 15% withholding tax is imposed on the interest paid to a nonresident, unless there is a tax treaty that reduces the rate (the same rate applies to royalty payments and technical service fees). This rate is increased to 25% if the recipient of interest is resident in a tax haven. There is also a 25% tax levied on the payments for technical services that do not involve the transfer of technology.
Small enterprises that qualify and have annual gross income that does not exceed BRL 3.6 million may elect to be taxed under a simplified regime (for purposes of corporate income tax, federal social contributions on gross income (PIS and COFINS), federal excise tax (IPI), state VAT on sales and services (ICMS), tax on services (ISS) and social security contributions).
PIS/PASEP (social integration program) and COFINS (tax for social security financing) are federal taxes levied on gross revenue at rates of 0.65% (PIS) and 3% (COFINS), where a Brazilian entity pays corporate income tax under the deemed taxable income regime. When the corporate income tax is paid based on actual income, the PIS and COFINS rates are 1.65% and 7.6%, respectively. For the import of goods and services the PIS and COFINS are combined at a rate of 9.25% (or 10.25%).