Recruiting expatriates: get to know split payroll

Payment option allows expatriates to receive part of their salary in Brazil and part of it abroad

This text was originally published in Portuguese by GBrasil (read it here).

Frequently used at multinational companies, split payroll compensation means the payment of a professional’s salary is going to be divided in two shares, one in Brazil and the other abroad. Check how split payroll works on the latest article of the series “Recruiting Expatriates”.

As a tax resident of Brazil, the expatriate must declare their revenue through income tax. “Income tax is withheld on the portion of compensation paid by the Brazilian company, and the employee is responsible for paying the taxes payable on the portion of remuneration delivered abroad”, explains Augusto Andrade, partner in Domingues e Pinho Contadores (GBrasil | Rio de Janeiro and São Paulo).

The division of the payroll can be done in two ways: the Brazilian company may bear the salary paid in both countries entirely, and another organization, member of the same economic group, may be responsible for the part of the compensation paid abroad.

Read also: international social security agreements benefit both companies and employees

To adopt split payroll, it is important that corporations understand how they must pay charges and fees on the payroll. Check the following tips given by Augusto de Andrade and Luzinete Rosario, both partners in DPC, on how to properly execute split payroll when hiring expatriates.

What are the necessary precautions for Brazilian companies using split payroll?

If the Brazilian company is the one responsible for the compensation full payment, all values must be added to the payroll (folha de pagamentos, or FOPAG in Portuguese) and submitted to eSocial. The full compensation must work as the base for Income Tax, INSS (Social Security National Institute) and FGTS (Guarantee Fund for Length of Service) contributions, in the absence of any legal provision to the contrary.

If a Brazilian company bears the local share of the salary and the foreign one pays the remaining share abroad, there are differences. For expatriates working in Brazil, legislation is not objective when it comes to the need to pay taxes on the compensation borne by the foreign company, however, in regard to Brazilians transferred abroad, it’s undisputed that all charges must be calculated on the total amount received.

How to guarantee wage isonomy when you opt for split payroll compensation?

For Brazilians abroad, to maintain wage isonomy, keeping the base salary and using different titles or descriptions, such as a transfer benefit or moving allowances, for example, is essential to perform the necessary exchange rate adjustments.

For foreigners in Brazil, stipulating a value lower than expected in the wage register of payrolls is usual, thus, the difference (between what has been determined and what had been expected) should be paid under a different title so that the exchange rate variations can be compensated every month.

Learn other conducts that may be adopted when hiring foreign professionals in other articles of the special series “Recruiting expatriates”.