Expatriate management: planning minimizes risks and cuts costs for companies and foreigners in Brazil

Expatriation entails several factors that require an individual analysis and attention to labor, social security and tax laws

By Augusto Andrade and Luciana Lupinucci

Those working in expatriate management have certainly stumbled across problems that could have been avoided by a careful planning of this process.

A few strategies may be adopted so that companies and professionals undergoing expatriation can seize the best tax opportunities. Issues related to immigration, labor and social security matters must also be factored when assessing the procedures for country relocation.

In order to cut costs and avoid risk exposure one must deal with the global migration of workers by complying with legislative developments while acknowledging that each situation is unique and requires its own analysis.

When planning the arrival of a foreign worker to Brazil, attention must be paid to a number of aspects. Read below:

Entry of expatriates into Brazil

For expatriates to enter and stay in Brazil, the first step is to define their visa type, which must be compatible with their relocation purpose and the role performed by them.

An inappropriate visa will hinder a foreigner from performing jobs not covered by that document. For this reason, it is pivotal to prevent inconsistencies between the permit type and the employment agreement.

In addition to the option of requesting a temporary work visa so that an expatriate can work in good standing in Brazil, foreigners may contact the Brazilian government to apply for a residence permit, whose term can be fixed (from 1 to 2 years) or indefinite.

A residence permit may be obtained by foreigners whose countries of origin have signed international agreements with Brazil or by those whose spouses or children are Brazilian, pursuant to the legal requirements currently in force.

Tax residence in Brazil

Tax residence is defined according to a few factors:

Residence permit	Foreigners become tax residents in Brazil as of the date of their entry.
Temporary visa for workers
Temporary visa for non-workers	Foreigners become tax residents after staying in Brazil for 183 days, whether in succession or not, in any 12 month-period.
Family reunion	Foreigners become tax residents as of the date of their entry or after 183 days - depending on whether they intend to live in Brazil or not.

Income tax

For income tax purposes in Brazil, the source of payment is the one who bears the payment costs, regardless of whether the work is performed in Brazil or abroad.

Foreigners who are tax residents in Brazil must declare in the country their income on a worldwide basis, in addition to the assets they own in any other country. Furthermore, whenever expatriates have earnings abroad, they are required to pay their taxes via the "carnê-leão".

Whenever individuals become tax residents in Brazil, they are liable to submit their Annual Income Tax Return to the Brazilian Federal Revenue Service in the following year. Thus, for as long as they maintain their tax residence, this requirement will be in place and must be complied with pursuant to the legal requirements for filing the document.

For instance, an expatriate who gained tax residency in Brazil this year must file the tax return in 2023, regardless of whether their income is taxable or any other requirement for filing an Annual Income Tax Return is met during that year, as the document that will be filed pertains to 2022.

There are different taxation methods for tax residents and non-tax residents.

Tax residents

Income tax is levied on earnings received in Brazil, and must be withheld from payroll, according to the graduated tax rates, which range from 0% to 27.5%.

When the compensation of a Brazilian company’s employees is partially paid by a company abroad that is part of its same economic group (a practice known as “split payroll”), the responsibility of paying the corresponding taxes falls upon the individual themselves (via “carnê-leão”). It is thus recommended that a portion of the compensation is processed in the Brazilian company’s payroll for the specific purposes of collecting contributions related to Social Security (INSS) and the Guarantee Fund for Length of Service (“FGTS”).

Any income earned through a foreigner's personal investments abroad (e.g. interest, dividends, rent) are also subject to taxation in Brazil by means of the "carnê-leão").

Non-tax resident

Foreigners classified as non-residents are only subject to taxation if their income stems from a payment source located in Brazil.

For instance, if a non-tax resident foreigner used to work in Brazil but has left the country and informed the authorities of their definitive departure, the foreigner is required to pay a tax on all supplementary amounts received from the Brazilian paying source. In this case, the rate is 25%.

Read more: Obligations of foreigners in Brazil: planning ensures compliance with the rules

Split payroll

This is a form of compensation in which salary is paid in two portions: one is paid in Brazil and the other abroad, at varying percentages, as per the agreement signed by the employee and the company.

As a matter of fact, one may choose to receive 50% in Brazil and 50% abroad, or opt for a 60%-40% split, among other distributions. Under the split payroll method, issues related to currency translation and exchange rates must still be addressed.

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Unadvised foreigners who are not acquainted with Brazilian laws are susceptible to making mistakes, creating tax problems that might lead to undesirable consequences for their companies. If an expatriate in a management position has their Individual Taxpayer Registration Number (“CPF”) suspended, for example, the company's business may be harmed.

International agreements: avoiding double taxation and reducing payroll costs

As far as income tax is concerned, international agreements usually establish the locations where an individual is considered a tax resident to determine the taxation levied on each type of income.

Check the treaties currently in force here. There are countries with which Brazil has yet to sign an agreement but whose reciprocity is acknowledged by the Federal Revenue Service.

There are also international social security agreements in place ensuring that social security rights established under both countries’ laws are applied to workers and their legal dependents, either resident or in transit. The enforcement of these agreements may exempt employers from paying social security contributions. See here.

Read more:

Expatriates: companies must be aware of issues related to payroll and income tax

Solutions for companies and expatriates

Many companies find it challenging to carry out a well-planned strategy for relocating international workers pursuant to the laws in force at a feasible cost, while taking into account the specifics of each situation.

DPC's tax and social security specialists assist multinationals in the transfer of foreign executives, analyzing every variable involved in order to ensure law compliance and reduce the resulting costs to a minimum for expatriates and companies. You can rely on this support: dpc@dpc.com.br.