How to avoid costs and risks when employing expatriates

Companies should consider numerous factors when hiring expatriates in line with tax, labor, and social security regulations

The transfer of professionals between different countries, such as foreign executives working in Brazil, requires careful attention to avoid high costs and minimize risks for both the employer and the expatriate.

Lack of proper planning can lead to tax overburdening, labor rights violations, and social security issues, impacting the company's operations and the expatriate's quality of life.

Expatriation begins with planning

A successful process involves structured planning. Careful analysis is essential to ensure that the international transfer occurs without surprises.

Below are some key points regarding the planning of expatriation to Brazil:

1. Visa and immigration status

It is necessary to analyze the role the foreigner will perform in order to determine the appropriate visa type. To avoid setbacks, it is recommended to begin the process of obtaining this document in advance, ensuring the expatriate’s availability at the right time.

To work in Brazil, whether with or without an employment contract, unless exceptions apply, the immigrant needs a residence permit for work purposes. This process allows foreign citizens to legally remain in the country for a specified period.

As stated by current immigration legislation, irregular status may result in fines:

• BRL 100 with a ceiling of BRL 10,000.00 for violations committed by immigrants.
• BRL 1,000.00 with a ceiling of BRL 1,000,000.00 for violations committed by legal entities per violation.

2. Employment contract

The contract should address specific aspects of an expatriation, such as the duration of the transfer, compensation conditions, benefits, and others. Details regarding costs that may be covered by the company should be discussed and agreed upon in advance.

The planned period for the service should be considered: short-term assignment or long-term assignment. In the latter case, it is more common for foreigners to be subject to the laws of the location where the contract is performed, although there is conflicting case law – which should be carefully examined.

3. Tax agreements

It is also important to consider that Brazil has agreements with other countries to avoid double taxation. Failing to take advantage of such treaties can result in excessive tax payments, negatively affecting both the expatriate and the company.

There are also international social security agreements that ensure social security rights. A prior analysis of the application of these agreements can exempt the employer from social security contributions, representing a significant cost saving.

Read more: Expatriates: workers and companies may benefit from tax and social security treaties

4. Split Payroll

Split payroll is a solution that allows the expatriate’s compensation to be divided between Brazil and their home country. This means that a portion is paid in Brazil, in accordance with local tax and labor laws, while the other part can be paid by the employer in the home country.

This model provides greater flexibility in managing the costs related to the expatriate, but requires careful monitoring to avoid errors and, consequently, issues with the tax authorities of the countries involved.

5. Attention to labor legislation

Brazil has a robust and complex labor law system. When an expatriate is hired, these regulations must be respected. Rights such as the 13th salary, overtime, and FGTS (Government Severance Indemnity Fund For Employees) must be guaranteed, even if they are not required in the expatriate's home country. On the other hand, benefits that the foreigner would be entitled to in their home country are not necessarily required by Brazilian companies.

6. Expatriate individual obligations 

The expatriate must be aware of the tax and labor obligations that apply to them. In Brazil, they must pay attention to local labor laws, contribute to the social security system, and, when applicable, file declarations with the Federal Revenue Service or the Brazil Central Bank. The company must ensure that the expatriate is aware of these obligations and that they are properly fulfilled.

Support in expatriate management

Support in planning expatriation processes is essential for designing a strategy that benefits both companies and foreign professionals, creating a productive environment free of complications.

DPC offers comprehensive solutions in expatriate management, including consulting on the applicability of international agreements, compensation policy planning, workforce tax planning, and the development of individual obligations. Rely on this support: dpc@dpc.com.br.