In both North and South America, Brazil is the largest economy outside the United States. If you are considering expanding into Brazil, here is a quick guide to help prepare you for the transition.
Ease of Doing Business in Brazil: An Overview
As a general rule, it is much cheaper to do business in Brazil than it is in the United States or Canada. Brazil’s currency, the Brazilian Real or BRL, is worth only 24 cents in the U.S. One $1 USD is worth 4.11 BRL. Due to Brazil’s poor tax organization and recent major developments in labor law, experts strongly recommend that foreign employers keep a local attorney on retainer so as to help them remain compliant. These recent labor law changes were intended to improve work conditions, as well as encourage businesses to hire more employees. However, Brazil still ranks only 18 out of G20 nations.
Recent Developments in Brazil Payroll Laws
Brazil is still in its early years of putting its 2017 labor law reform into action. The new law allowed employers and employees more power to negotiate with less meddling from local courts. The new law also attempts to encourage more business and hiring within Brazilian borders. Employment laws earlier this year sought to simplify the 2017 sweeping reforms. A key addition in 2019 included reforms on 30-year-old health and safety laws in the workplace.
Basic Facts about Payroll in Brazil
In Brazil, there are only federal taxes, along with social security, and contributions to a public pension fund. Employees are tasked with filing their own taxes, as well as any additional taxes owed after employer withholdings.
In Brazil, only the federal government requires taxes. States, cities, and municipalities do not require income taxes from their employees.
Rates and Thresholds
Wages and cost of living are significantly lower in Brazil than they are in the U.S. and Canada. Those that make less than BRL 21,453.25 pay no income taxes. The highest tax rate, 27.5%, is reserved for those that make BRL 3,565.73 or more. For a closer look, see the tax rate chart below.
How Withholding Works
The main taxes or contributions that Brazilian employers withhold are income taxes, social security, INSS (public pension fund), and severance. Of all taxes/contributions withheld, INSS is the highest at 20%. Regulations change somewhat depending on the industry.
Returns and Tax Credits
Most employees choose the standard deduction of 20% of their annual income (not to exceed BRL 16,595 in one year). The other option is to deduct qualifying expenses. Very similar to the United States, Brazilian employees must file their taxes by the end of April (technically, the last workday) on the prior year’s income. The government will not authorize an extension on tax filings.
Employee Stock/Share Plans
There are no legal requirements for Brazilian employers to provide retirement, stock, or profit-share benefits. However, employers may do so at their discretion in order to remain competitive and retain top talent.
If employees neglect to file their taxes at the end of April, the government places a 1% penalty on taxes owed and increases each month (up to 20%) until taxes are properly filed. Even if an employee does not make enough to owe any taxes, they are penalized BRL 166 for not filing by the due date. Tax evasion and fraud on the individual and/or corporate level result in heavy fines and possible jail time.
Tax Rate Chart
|USD Comparison||Income Range||Tax Rate|
|$0 – 5,221.42||BRL 0 – 21,453.24||0%|
|$5,221.43 – 7,825.22||BRL 21,453.25 – 32,151.48||7.5%|
|$7,825.23 – 10,433.75||BRL 32,151.49 – 42,869.16||15%|
|$10,443.76 – 13,037.15||BRL 42,869.17 – 53,565.72||22.5%|
* Non-resident employees are taxed 25% of their income, regardless of what they make. The table above does not take into account an additional social security tax which ranges from 8-11% (capped at BRL 482.93 monthly).
Compensation and Benefits
One unique benefit to Brazilian employees is the 13th Month Salary. Essentially, after a full year of work, that employee is entitled to an extra full month’s salary. It works much like a mandatory bonus. Employees also receive overtime pay, paid sick leave, and vacation days.
Minimum wages vary by industry and region. However, the bare minimum wage for all employees in Brazil is BRL 4.54/day, 33.27/day, or 998/month. Minimum wage laws are enforced regardless of gender or work type.
Overtime is considered on a daily rather than strictly a weekly basis. Employees may work up to 10 hours in one day, so long as any hours exceeding 8 are paid 1.5 times regular pay. Because night shifts are paid higher than day shifts, it means that any nighttime overtime is paid 1.5 times the higher nighttime pay.
Hours of Work
In Brazil, the standard employee workweek is 44 hours per week. Employees usually receive Sundays off each week. Additionally, there are day and night shifts. Night shifts are paid at 1.2 times day shift pay.
Holiday & Sick Leave
All employees are allotted by law 15 sick days. If an employee is still too sick to work at 15 days, then they are entitled to social security benefits. Once an employee has remained with their employer for a full year, they are legally entitled to 30 days’ vacation/holiday pay at 1 1/3 regular pay. Employers also observe 12 national holidays.
- New Year’s Day
- Carnival (March 4-5)
- Ash Wednesday (March 6)
- Good Friday (April 6)
- Tiradentes Day (April 21)
- Labour Day (May 1)
- Corpus Christi (June 20)
- Independence Day (Sep 7)
- Lady of Aparecida (Oct 12)
- All Souls’ Day (Nov 2)
- Republic Day (Nov 15)
- Christmas Day
How Employees File Taxes at the End of the Year
As noted earlier, employees must file their taxes by the last workday in April for the previous fiscal year (January 1 – December 31). If an individual still owes money after the employer withheld taxes, they must pay the amount owed when filing their own taxes.
Foreign employees that come to work in Brazil must secure the appropriate work visa. For business trips or short work visits, there is a 3-month-long business trip work visa. Those needing a temporary work visa for longer can apply for a Visto Temporario V and remain for two years at the same employer. These foreign workers are allowed one renewal for an additional two years (4 years total). If a foreign employee uses up all 4 years and still wishes to remain working in Brazil, they must apply for a permanent work visa, Visto Permanente.
For more information about how our Global Payroll Technology integrates with local payroll providers in Brazil, contact us today