Main aspects - Immigration, labor legislation, income tax and social security

Globalization and opening up to transnational companies have raised several questions on the circulation of foreign workers in a different territory from their home countries.

Over the last few years, with the Brazilian market increasingly receptive to foreign investments, the inflow of expatriates to work for multinationals with local operations is more intense.

Against this background, people management in Brazil involves peculiarities which call for proper sizing before foreign companies transfer their professionals to work in Brazil. Aspects such as immigration, labor legislation, income tax and social security should be carefully considered.

First of all, it is necessary to pay attention to the various types of visa existing in Brazil and the need for prior work authorization, in order to avoid that waste of time and excessive red tape jeopardize corporate businesses or render them unfeasible.

There are various categories of visa under Brazilian pertinent legislation, the applicability of which depends on the purpose and the specific circumstances surrounding a trip to Brazil. For granting a permanent and/or temporary visa to foreigners intending to stay in Brazil to work, it is necessary to obtain a Ministry of Labor prior authorization, through a specific procedure.

Normally it’s necessary a work agreement with a Brazilian entity that should require previously the work visa before the Ministry of Work.

Foreigners with tourist or transit status visa are not allowed to perform any remunerated activity. The illegal use of this type of visa can result in fines for the company and for the foreign citizen, as well as the mandatory departure of the foreign citizen from the national territory.

The work agreement is not a pre-requisite for obtain a temporary business visa, which permit the foreigner stay for a period of 90 days, renewed for more 90 days.

The purpose of the business visa is to enable the travel of foreign citizens to Brazil to offer their products, learn about the Brazilian market, seal deals or formalize them. Therefore, they can take part in meetings, conferences, fairs and seminars, visit potential clients and perform market research.

The business is not the correct visa for activities that are related to the performance of any technical or administrative services, training, internship, temporary work, consultancy, study or any other activities that imply work, whether paid or not, in Brazil by foreign citizens of any nationality is forbidden.

Immigration authorities have noticed that several companies have been incorrectly advising theirs executives that, for short term work assignments, a business visa must be used. This has caused embarrassing situations for some expatriates who hold a business visa as a work permit. The illegal use of this type of visa can result in fines for the company and for the foreign citizen, as well as the mandatory departure of the foreign citizen from the national territory.

Pursuant to the Brazilian legislation some expenses are incurred in connection with labor rights granted to all workers, which expenses should be taken into account when calculating the compensation package offered by companies to expatriates.

Additionally, despite the great need for qualified labor in Brazil, some legal restrictions are imposed on the hiring of foreign workers, under the pretext of safeguarding local labor.

The Brazilian labor law imposes a limit under a 2/3 rule. According to this rule, legal entities with tree or more employees are obliged to maintain a proportionality of 2/3 of Brazilian employees to 1/3 of foreigner employees. This ratio applies both to the number of employees and to the payroll, which means that 2/3 of the salaries should be paid to Brazilian employees. Likewise, under the 2/3 rule a Brazilian worker cannot receive lower than that paid to a foreign worker performing the same job/function.

Also an individual taxpayer's fiscal situation in terms of income tax should be assessed; having in mind the tax requirements they will have to meet when transferring residence to Brazil, where a worldwide basis taxation system is in place. The same holds true even existing double -taxation-avoidance treaty between Brazil and several other countries, including Italy. It should be kept in mind that there are various taxation methods applicable to each type of income.

Under this context, it’s important to consider, for example, if the individual has the right to receive bonuses related previous years. Depending on the specific situation, is very probably that the individual will be taxable on Brazil, as in cases where the foreigner has only an expectation of right (and not an effective right).

As regards social security, the high payroll costs incurred by a Brazilian company should be taken into consideration when calculating the compensation package offered to expatriates coming to Brazil. On the side of expatriates, they may wish to keep their links with Italian social security during their stay in Brazil, relying on coverage by the Brazil-Italy social security agreement.

The most commonly posed question refers to payment to expatriates, which is made partly in Brazil and partly abroad, under the system known as split payroll. This is possible, but the consequences and risks involved should be carefully considered, both in terms of work visa and social security costs to be borne by companies and individual income tax.

Also, it is quite common for compensation packages to include allowances and benefits intended to, for example, make up for the difference in cost of living, commissions and bonuses, not to mention the regular salary itself. Anyhow, the tax-related aspects should be studied in advance to enable proper planning that is capable of reducing the tax burden on expatriates.

To conclude, it is worth stressing that before making any decision on the management of expatriates and their transfer to Brazil, a transnational company should recur to a professional with sound knowledge of pertinent Brazilian legislation, one who is capable of providing the company with thorough and detailed advice.


* Edemir Marques de Oliveira is a lawyer at Marques de Oliveira Advogados.


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