Global Mobility – Labor and Tax Implications
With the technology evolution and new trends of the post-pandemic work culture, it is increasingly common to see people moving abroad to work remotely. Here are some of the main considerations in case (1) a person residing in Brazil moves abroad or (2) a foreign individual intends to work in Brazil remotely and on a temporary basis
- Brazilian individual working from abroad
Employment and Immigration aspects
According to local laws, if an employee will remain working for more than 90 days from abroad, it may be deemed an international transfer.
Law 7,064 / 1982 provides that, in case an employee is sent to work abroad on a temporary basis, company will have to cover the costs associated with the transfer and pay a transfer allowance equivalent to 25% of the employee´s salary during the entire period the employee is abroad.
Note that Law 7,064/1982 will not apply to employees working abroad on a transitory basis and less than 90 days.
Regarding this matter, Law 14,442/2022 enacted on September 2, 2022 amended certain provisions of the Labor Code and provided that for employees admitted under a local agreement working remotely from different places/regions, local laws shall apply.
Brazilian tax impacts are contingent on whether the person will be treated as a tax resident in Brazil, after moving abroad. Brazil provides for specific rules to determine when a Brazilian tax resident becomes a non-resident. Under Normative Ruling RFB No. 208/2002, an individual becomes a Brazilian non-resident for taxation purposes:
- on the date of departure, if the person leaves the national territory on a permanent basis and files an Exit Communication;
- after 12 (twelve) months being abroad, if the person leaves the national territory permanently without filing an Exit Communication; or
- after 12 (twelve) months being abroad, if the person leaves the national territory temporarily.
For tax residents in Brazil, income such as salary and work remuneration are subject to Personal Income Tax according to progressive rates which vary from 0% (exempt) to 27.5% (the maximum rate). The maximum rate applies on monthly income over Brazilian Reais (BRL) 4,664.68 (which corresponds to approximately USD 932, considering the current exchange rate of around 5). In this case, social security contributions also apply.
For a person who has become a non-resident in Brazil but still has their remuneration received from a Brazilian source, a Withholding Income Tax (WHT) of 25% applies. Considerations on potential relief on Brazilian source taxation due to a treaty to avoid double taxation between Brazil and the country where the person resides must be analyzed on a case-by-case basis.
Besides income from work, there are other types of income and gains which are subject to different tax treatments. For instance, in general: (i) income from dividend is tax free in Brazil for both residents and non-residents; and (ii) capital gains realized by individuals residing in Brazil or abroad (the latter only in the case they are selling an asset located in Brazil) are subject to capital gains tax at rates ranging from 15% (for gains up to BRL 5 million – around USD 1 million) and 22.5% (for gains that exceeds BRL 30 million – around USD 6 million). On the other hand, with respect to gains arising from the sale of stocks in the Brazilian stock exchange market, individuals residing in Brazil are subject to income tax of 15% while non-residents are exempt from income tax (provided that certain conditions are met).
Above are the general rules, but there are a variety of situations that may result in different tax implications, and which should be carefully planned to avoid over taxation. Some common situations are, for example: (i) a person who moves abroad not sure whether to stay temporarily or permanently; (ii) a person who leaves the country indefinitely, but still has financial investments in fixed and variable income based on a Brazilian resident status; or (iii) a person who becomes a non-resident but provides their services through a Brazilian legal entity. A detailed analysis of each case is highly recommended to plan the most efficient scenario from a Brazilian tax standpoint.
- Foreign individual working from Brazil
Employment and Immigration aspects
The ‘Digital Nomads Resolution (n. 45/2022)’ published on Jan 2022 provides that an individual may remain in Brazil, working as digital nomad, with a residence/work permit valid for 1 year, which may be extended for 1 additional year (total 2 years). In this scenario the individual would remain employed by US employer, for example, and paid abroad. The individual would have to present a formal request confirming that the work will be performed to a foreign entity, remotely, and monthly salary above USD 1,500.00 or bank balance of USD 18,000.00, minimum.
Brazilian tax impacts are contingent on whether the person will be treated as a tax resident in Brazil while this person stays in Brazil. Under Normative Ruling RFB No. 208/2002, a foreign individual becomes a Brazilian resident for taxation purposes:
- on the date of entry to Brazil, if the person holds a permanent visa or a temporary work visa under an employment contract with a Brazilian entity; or
- after completing 183 days in Brazil (within a 12-months period, consecutive or not), if the person holds a temporary visa without an employment contract with a Brazilian entity.
Brazilian tax legislation does not address the digital nomad visa specifically. As a consequence, we consider that the 183-days general rule is applicable to the non-resident individual who comes to Brazil under a digital nomad visa.
Brazilian tax residents are subject to Brazilian income tax on their worldwide income. Therefore, if a foreign individual becomes a tax resident in Brazil, this person will be subject to pay monthly income tax in Brazil (“carnê-leão”) on earnings received from foreign sources at the same progressive rates mentioned in item 1, which vary from 0% (exempt) to 27.5% (the maximum rate). For 2023, the maximum rate applies on monthly income over BRL 4,664.68 (which corresponds to approximately USD 932, considering the current exchange rate of around 5).
Any possible adjustment relating to overpaid or underpaid monthly income tax will be made through the annual Brazilian individual tax return that should be filed in the first months of the following year (usually by the end of April). Considerations on the possibility of offsetting credits arising from income tax paid abroad based on a treaty to avoid double taxation between Brazil and the income source country must be analyzed on a case-by-case basis.
Also note that an individual working in Brazil with authority to enter into binding agreements on behalf of the foreign employer may be deemed as a permanent establishment in Brazil. We advise employer to review the powers granted to the individual.
Please reach us in case you have any doubts in relation to this matter.
Tax Senior Associate