Damalion Brazil desk
Doing business in Brazil
Majority of foreign investors thinking of expanding their reach and opening a business in South America choose Brazil over other countries. Brazil perceived as a promising country for economic growth due to various reasons.
Brazil is the seventh largest economy in the world per gross domestic product at purchasing power parity. The country ranks 84th in terms of income per capita recorded at $14,550 in 2020. As of 2020, Brazil’s estimated population is 212.6 million. The country is a member of the Mercosul trading bloc and remains as the largest economy in South American contributing close to almost 50% of South America’s GDP.
When doing business in Brazil, it is imperative to accumulate in-depth knowledge of the local legal, economic, and financial landscapes. While the country has a massive consumer base and is slowly becoming haven of many tech companies in recent years, it is also one of the most challenging countries to establish a company among foreign investors. Despite this, Brazil remains a highly competitive nation where investments can grow exponentially over time.
Here is a list of considerations when doing business in Brazil:
- Abundant natural resources
- Substantial external reserves
- Large middle-class population
- Brazil’s domestic services sector accounts for 72% of its GDP, industrial accounts for 22.7%, and agricultural production accounts for 5.2%.
- Ranked 124th according to World’s Bank’s Ease of Doing Business Index in 2020.
- Based on Global Competitiveness Report, Brazil had a competitive index of 60.9 in 2019.
The Key Advantages of Doing Business in Brazil
- Establishing a presence in Brazil gives foreign investors and foreign legal entities easy access to other countries in the South American region.
- Foreign investors doing business in Brazil can take advantage of strategic trade agreements with other countries.
- Companies owned by foreign investors but are incorporated in Brazil have direct access to countries like Paraguay, Argentina, and Uruguay and other members states involved in the multilateral agreement of MERCOSURI.
- Brazil is also a member of BRICS, a trade group made of emerging countries including Russia, India, China, and South Africa. Companies set-up in Brazil can benefit from trading and commercial opportunities to other members’ markets.
- Brazil is a vast country and rich in natural resources, making it the perfect place to establish agricultural production and related business ventures.
Brazil runs a federative and presidential republic. The government is categorized as secular and headed by the President. The government is not in any way influenced by any religious organizations. The country’s constitution clearly states the separation of powers between its three branches, namely executive, judicial, and legislative.
The country follows a civil law system inspired by Roman-Germanic tradition. Written laws are a crucial element of its legal framework prevail over existing custom and case law in terms
Brazil adopts a civil law system, based on the Roman-Germanic tradition. Although custom and case law are part of the legal framework, written law prevails over them from an interpretive point of view. Federal law provides that a judge can only resort to analogy, custom and general principles of law if the law is silent on a matter. Parties to arbitration can freely choose the body of laws and norms to govern the resolution of a dispute, including general principles of international trade law.
Brazil is a federative and presidential republic. The government is secular and is headed by the President. The government is independent of any religious group or organisation.
Laws are created at federal, state, and municipal levels. When federal and states are responsible for regulating a matter, federal law are required to create general concepts and guidelines while the state will be responsible in regulating the finer details.
The executive branch of government may release decrees that are provided by law. Government authorities may also issue administrative rules to control greater details under their given jurisdiction.
- Entity Choice
Brazil is generally welcoming of direct foreign investments. However, there are certain sectors that are considered strategic by the Federal Constitution which are either limited to Brazil nationals or subject to further government authorization. Some of the industry sectors that may be restricted to foreign investors are as follows:
- Financial institutions
- Postal services
- Nuclear energy
- Rural real estate
- Private security and transport
- International borders and adjacencies
- Cabotage or the transport of foreign citizens and goods within the borders of Brazil by a foreign-owned aircraft
Under Law 13,097 on 19 January 2015, which modified Law 8,080/1990, foreign companies may be allowed in certain healthcare niches. Provision Measure 863 of 13 December 2012 permits up to 100% foreign investment in airline companies operating under domestic flight concession contracts.
By rule, foreign direct investments are to be registered with the Brazilian Central Bank. For foreign investments in the securities market, foreign entities must be fully registered with the Brazilian Securities Commission. Additionally, foreign investors must complete enrollment in the Brazilian Federal Revenue Office’s taxpayer registry when appointing representatives living in Brazil.
For foreign investors, the most common legal forms when doing business is through an incorporated subsidiary or limited liability company. Listed below is an overview of all general business legal forms that foreign legal entities can choose form when setting up a business in Brazil:
- Limitada or Limited Liability Company
The limited liability company in Brazil closely resembles that of the United States. One of the main points when considering an LLC is its limitations that pertain to the responsibilities assumed by each shareholder. By rule, each shareholder’s responsibility is solely limited to the amount of his or her shared capital. Despite this, it is important to note that all LLC shareholders will be held responsible for the payment of its initial corporate capital.
- No minimum or maximum capital unless an entity will be involved in trading activities or hires foreign nationals as directors and managers.
- An LLC founded on Articles of Association needs to be registered with the Board of Trade.
- At least two shareholders are required with no minimum or maximum interest percentage requirement.
- Foreign legal entities are to be represented by a Brazil resident or national.
- LLCs cannot be registered or sell shares in the stock exchange.
- A LLC member cannot sell its shares without full approval from other shareholders.
- Sociedad Anonima or Limited Liability Corporation
The country’s limited liability corporation is closely regulated by a specific law and closely resemble the C corporations of the US. Foreign companies that choose this legal form can issue different types of shares. A shareholder’s liability is limited to the percentage of shares to which he or she prescribed. It is imperative for foreign legal entities to select a company legal representative to form a limited liability corporation in Brazil. A limited liability corporation is ideal for larger companies seeking to raise funds from the general public.
- At least two shareholders, either natural persons or legal entities to form a limited liability corporation.
- May come in the form of publicly traded or closed, which means securities and shares will be made available to the general public.
- A minimum of 10% of capital shares must be deposited in the bank to complete incorporation.
- At least 5% of annual net income should be allocated to a legal reserve until it successfully reaches 20% of capital.
- Majority shareholders have full control while minority shareholders may assume control in case other shareholders are not in attendance during general meetings.
- Required to file financial statements with the local commercial registry and publish them in the Official Gazette and a major private newspaper.
- Required to form its own Board of Directors consisting of fiscal residents in Brazil or those holding permanent visas, as well as an administrative council that may include foreign nationals.
- Silent Partnership or SCP
Silent partnerships are considered unincorporated organizations consisting of two or more members that partake in business, financial, and trade operations, as well as divide profits among themselves. In essence, silent partnerships are typically used for real estate initiatives, reforestation projects, and hotel pooling. Silent partnerships have a limited lifespan, which means the company shall since once operations have is fulfilled.
- At least one member will be held responsible for the management and operations of the company. This ostensible partner will be responsible for any liability before third parties.
- The other partners, also referred to as silent partners, will only be liable to the ostensible partner in relation to obligations before third parties. Their liability is restricted to the ostensible partner’s quantity.
- According to Brazil tax legislations, silent partnerships are similar to corporate entities for income tax purposes.
This is a collective gathering of corporations and companies with the sole purpose of conducting a limited operation or activity. Consortiums fall under the unincorporated entity category wherein two or more members can take part in business, financial, and trade ventures, as well as share profits within themselves.
- Partners’ joint liability are not considered as each partner will be held responsible for his or her own obligations, as per consortium agreement.
- A consortium agreement will clearly define the organizational role of each consortium while identify each partner’s obligations and rights.
- A consortium agreement should feature all the following elements: mission of the consortium, company members of the consortium, duration, address and jurisdiction, obligations and liabilities of each partner.
- Consortium agreement needs to be filed with the local Board of Trade based in the same jurisdiction of its main office. As a consortium is not considered a corporate entity, it is not regarded as a taxpayer.
- Single Holder Limited Liability Entity
- This is the most common legal form used by individual entrepreneurs.
- The paid-in capital should be equal to a minimum of 100 times the current minimum wage.
- Each shareholder’s responsibility will only be limited to the total amount of his or her shares.
- All shareholders will be held liable for the payment of corporate capital.
- Only individuals can be shareholders, with each individual only allowed to incorporate one EIRELI.
- Only Brazilian nationals and foreigners with permanent residency are allowed to form a Single Holder Limited Liability Entity.
- Branch Office of a Foreign Corporation
Legal entities such as companies may opt to set-up a branch office in Brazil. This is more challenging as it typically takes six months to complete and associated costs are greater than that of other legal forms.
- Branch office needs to operate under the same name in Brazil as that of its origin country.
- Required to have a permanent company legal representative based in Brazil.
- Main company should prove its legal existence by submitting copies of their Articles of Incorporation, shareholders’ list, latest balance sheet, and a resolution to legally open a branch in Brazil.
- A certain amount of capital from the corporation should be allocated to the branch in Brazil.
- All documents that are to be submitted must be officially translated and notarized and certified by the Brazilian consulate.
- Remittance of profits are exempt from withholding tax.
- Foreign corporations are required to acquire a special authorization to open a company branch. The authorization shall be issued by the Ministry of Development, Industry, and Trade.
- A foreign branch office may only commence operations when it has been fully registered, with its authorization and all documentary evidence are published in the Diario Oficial and a local newspaper.
There is a wide range of credit and financial services that are available from an extensive range of banking and financial network in Brazil. The banking and financing business is regulated by the Central Bank, while other banks and other financial institutions are under strict government supervision in relation to their accounting activities and general operations.
- Investment banks offer valuable services to foreign investors that are looking to acquire medium and long-term financing.
- With the help of an investment bank, foreign investors can obtain long-term financing through sale of stock or debt obligations in the public market or private placement, and M&A transactions.
- There are generally no restrictions imposed on access of foreign-owned companies to local private-sector financing in Brazil.
- Foreign legal entities may investment in government securities and in listed companies.
- Foreign investors have access to the Brazilian securities market through registered Brazilian investment funds.
The Brazilian Ministry of Labor published a resolution that tightened the investment requirements for obtaining permanent visa for foreign investors.
- Foreign investors who are looking to obtain a permanent visa in Brazil must invest at least 500,000 Brazilian Reals or USD 130,000 to be granted visa eligibility.
- The Brazilian Ministry of Labor may accept smaller investments, such as 150 Brazilian Reals in some special cases where investments are for tech companies included in the government’s incentives for start-ups.
- If a foreign quota holder obtains a Resident Visa, the quota-holder may be appointed as manager of a Limited Liability Company.
- Temporary Visa
A temporary visa is recommended for professionals with (i) valid employment contracts with a Brazilian company (ii) under technical assistance or technology transfer agreements without a formal employment relationship with a Brazilian company.
- Laws, Contracts, and Permits
Employment relationships are regulated by the Consolidation of Labor Laws (CLT), Decree-Law 5,452 and the Brazilian Constitution. CLT and other specific laws are applicable to both Brazilian and foreign employees working in Brazil.
- A written employment contract is not a necessarily imperative under the law, except in the case of intermittent contacts and whenever certain clauses are negotiated.
- Basic conditions of employment are to be registered under the Brazilian Tax Authorities to collect labor, social security, and tax information regarding employees and independent contractors.
- Written employment contracts are recommended as it helps establish an employee’s working conditions.
- A written contract should include the following: (1) contract type, whether it’s a definite , indefinite, or intermittent term contract (2) contract duration and reason for employment (3) location where an employee is expected to work and transfer possibilities, should their work find it necessary (4) Employee’s position (5) wages (6) possibility of salary deduction as a result of damages that he or she may incur to the employer.
- Collective bargaining agreements apply to employment contracts and prevails over contractual agreements. The collective bargaining terms should be more beneficial to the employee than a contractual agreement.
Brazil’s federal constitution establishes the general principles of taxation, power limitations to tax, tax competencies across different government levels, tax revenue sharing provisions.
- Each state and municipality have their own discretionary powers to enact laws and regulations in tax collection.
- The Brazilian Internal Revenue Service (IRS) manages the federal tax system, including social security contributions and customs taxes.
- Brazilian taxes are self-assessed and tax returns are filed in the taxpayer’s place of residence.
- Brazil presents a heavy tax burden, complex and dynamic legislation but with an agile and efficient collection system.
- Non-compliance to tax obligations can result in steep penalties.
- Tax assessment issued by the tax authorities include a 75% fine on principal amount of unpaid tax debt.
- For cases that involve fraud, deliberate misconduct, or simulation, aggravated fine of 150% will be imposed on top of principal amount of unpaid tax debt.
- Withholding Tax
- Interest payments made by a Brazilian resident company to a non-resident company are subject to withholding tax at 15% rate, regardless of whether the transaction is at arm’s length of otherwise.
- Withholding tax rate is at 25% if interest beneficiary is in a low tax jurisdiction.
- Withholding tax may be reduced on tax-spring credit under an applicable double tax treaty.
- Remittance abroad for payment of services are assessed with 15 or 25% withholding tax, whether the service was rendered in Brazil and the foreign service company does not have a permanent address in Brazil.
- Non-technical services are subject to 25% withholding tax.
- Technical services are subject to 15% tax.
- Remittance of royalties from abroad are subject to 15% withholding tax.
- Remittance of technical service fees abroad is subject to other taxes due at the level of the Brazilian paying company, including Municipal Service Tax at 2% to 5%, Contribution for Intervention in the Economic Domain at 10%, Imports Tax at 9.25%, and Foreign Exchange at 0.38%.
- Brazil employees are subject to withholding tax at 7.5% to 27.5% depending on monthly compensation, which shall be withheld by the employer on a monthly schedule.
- Thin Capitalization
- A Brazilian subsidiary financed with debt will be subject to thin capitalization rules.
- Debt-equity ratio is reduced to 0.3 to 1 in case interest beneficiary is resident in a low tax jurisdiction or entitled to a privileged tax regime. If the debt exceeds this ration, there will be a proportionate denial of the interest deduction for corporate income tax purposes.
- Transfer Pricing Rules
- As Brazil is not a member of the OECD, its transfer pricing rules do not comply with international standards or OECD Transfer Pricing Guidelines.
- Rules are based on fixed statutory profit margins.
- Basket approach is unauthorized, thus transactions subject to Brazilian transfer pricing rules must be documented and reported on an annual basis through corporate income tax returns detailing intercompany import and export transactions.
- Interest paid to related parties or residents in low tax jurisdictions are assessed with Brazilian transfer pricing rules.
- Maximum deductible amount will depend on the loan currency and interest type, if floating or fixed. For instance, EUR or UK lenders will be subject to deductible interest limited to six-month London Interbank Offered Rate plus a fixed spread of 3.5%. For loans granted in USD at a fixed rate, the criteria are the market rate of sovereign bonds issued by the government plus a fixed spread of 3.5%.
- Minimum interest rate is applicable in case the lender is a Brazilian entity. In this case, the applicable spread is at 2.5%.
- Stamp Tax
- Long term inflow of funds (IOF) is subject to 0% rate, as long as repayment terms is longer than 180 days. Partially repaid loan or liquidated in advance, principal amount will be subject to IOF at 6% rate plus 20% fine.
- Short-term loans are assessed of IOF at 6% levied on the conversion of foreign currency into Brazilian real.
- Corporate Income Tax
- Corporate income tax is 34%. Other taxes apply for specific businesses, including insurance companies and financial institutions that are subject to 45% corporate income tax.
- Brazilian laws provide federal income tax incentives for companies established in certain areas such as those located in the north and northeastern part of Brazil, and in the form of reduction in corporate income tax rate.
Corporate Income Taxation Systems
- Actual Profit Method
General rule for corporate income taxation where taxable base is determined by applying law-defined adjustments to a taxpayer’s booked income. Taxpayers are allowed to offset tax losses up to 30% of the taxable income per fiscal year.
- Presumed Profit Method
Optional for a Brazilian company given it is not required by law to adopt the Actual Profit Method. The annual gross revenue of a taxpayer should not exceed 78 million Brazilian Reals in the previous year. Expenses are not counted in the determination of a company’s taxable income and tax losses may not be offset under this system.
- Arbitrated Profit Method
Similar to Presumed Profit Method but with higher presumed profit margins or with a 20% increase. More commonly used by tax authorities if there is no reliable accounting information.
- Simplified Tax Regime
Favorable taxation regime applied to micro and small companies. It allows the payment of one tax that replaces six different federal taxes, including corporate income tax, federal social contribution, social contribution net income, monthly federal social assistance contribution, tax on industrialized products, and social security tax, state tax, and municipal tax. Tax rates vary between 4% and 33% depending on a company’s activity and size. The Simplified Tax Regime is not applicable to companies with more than 4.8 million Brazilian Reals worth of gross revenues and certain businesses including companies owned by foreign shareholders.
- Capital Gains
- Local Brazilian companies and subsidiaries of foreign corporations are required to include capital gains in its taxable income.
- Taxable capital gains will be taxed in the same manner as ordinary income. Current year accounting losses may be used to offset taxable capital gains accrued in the same fiscal year.
- Foreign investors are subject to withholding income taxation on capital gains arising from the disposition of Brazilian assets, levied at rates between 15% and 22.5%.
- Double Tax Treaties made by Brazil with other countries are authorized to undergo concurrent taxation by contracting countries; hence cannot avoid capital gains taxations on assets, including bonds, shares, and securities.
- Branch Tax
Brazil does not impose a branch tax. A branch registered by a foreign company in Brazil will be treated as a separate entity, thus is subject to taxation as an independent Brazilian subsidiary.
- Income Tax Reporting
Foreign companies are required to file an annual corporate income tax return. All taxpayers need to report all transactions that impact their corporate income tax, including accounting details transfer pricing adjustments, and country-by-country report information. Corporate income tax should be filed in electronic format and transmitted to Brazil tax authorities by the end of July following the tax year ending on December 31.
- Multilateral Instrument
While Brazil did not sign Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting, majority of DTTS are renegotiated by Brazil showcase a clear alignment with base erosion and profit shifting projects.
- State Vat
State tax is levied on transactions that imply the legal transfer of goods and imported goods. State VAT varies depending on the state and nature of goods and services.
- In the state of Sao Poulo, state VAT rate is 18%. Interstate transactions are subject to state vat between 7% and 12%.
- State VAT on goods containing more than 40% foreign content is 4%. Export transactions are exempt from State VAT.
- Contribution for Intervening in the Economic Domain (CIDE)
CIDE royalties are federal contributions levied at 10% on amounts paid, delivered, invested, credited, remitted to individuals or domiciled abroad by Brazilian entities that hold license of use of technology knowledge overseas.
CIDE is levied in payments to non-residents for royalties, technology transfers, and software licenses.
- Municipal Tax
It is levied in a services’ gross revenues at 2% to 5% rate. Municipal tax is cumulative tax and therefore no credit system is available. It is also assessed on services rendered by a foreign supplier for the benefit of a local Brazilian company.
- Property and Transfer Tax
This is a state tax imposed on inheritance, gifts, donation, and succession, and are applicable on the transfer of real estate and other assets that do not involve payment or other consideration as form of compensation. Property and transfer tax vary on the state but sits between 2% and 8%
- State Tax on Ownership of Vehicles
State tax imposed on vehicle ownership, with rate varying in each state. For instance, in the state of Sao Paulo, the state tax on ownership of vehicles usually corresponds to 1.5% to 4% of the assessed value of the vehicle.
- Municipal Tax on Ownership of Urban Land
This is a municipal tax applied on the control, ownership, and possession of urban land or buildings. The calculation varies in each municipality. For instance, in Sao Paulo, municipal tax on ownership of urban land ranges between 1% and 1.8% of the real estate’s market value assessed by the municipality.
- Municipal Tax on Transfer of Real Estate
Municipal Tax assessed on the assignment, purchase, and sale of real estate and related rights, provided the transaction is not considered a gift. Rates vary according to city, with Sao Paolo assessment at 3%.
- Double Tax Treaties and Totalization
Brazil agrees on treaties with other countries to avoid double taxation of businesses. It is necessary to employ double tax treaties to foster business, grow the economy, and succeed in international trade. Tax credits are available in relation to income tax paid to countries with which Brazil has finalized taxation treaties or with countries that would render reciprocal treatment of income tax paid to the Brazilian government, provided requirements are met.
- Tax exemption or reduced tax is available in relation to dividends, interest, capital gains, royalties, and transactions carried out between parties associated with the Double Taxation Prevention Treaty.
- Brazil is a signatory country for the prevention of double taxation with countries, including Austria, Australia, Belgium, Canada, Chile, China, Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, Norway, Peru, Philippines, Portugal, Russia, Singapore, Slovak Republic, South Africa, South Korea, Spain, Sweden, Switzerland, Trinidad & Tobago, Turkey, Ukraine, United Arab Emirates, and Venezuela.
- For transactions between the United States, United Kingdom, and Germany, the Brazilian authorities recognize reciprocity of tax treatment which allows offsetting of tax paid in these countries against the tax due to Brazil.
- Double tax treaties are subject to tax restrictions from contracting counties to minimize or totally elimination the possibility of taxation and provides security for the activity in general.
- For foreign legal entities doing business in Brazil, it is imperative to obtain the services of one or more institutions to assume as legal or fiscal representatives in the country. Legal representatives are responsible for submitting all pertinent information the Brazilian authorities, including Central Bank of Brazil, Brazilian Securities and Exchange Commission, and the Federal Revenue Secretariat.
The National Institute of Industrial Property (INPI) is the government authority that manages the registration of patents, trademarks, geographical indications, and industrial designs. Applications may be filed through the INPI website.
- A Brazilian trademark should be visually perceptive and distinctive, original sign not prohibited by law.
- Trademark can be a combination of letters, words, designs, numbers, 3D marks, shape or packaging of goods without functional or technical effect.
- After preliminary examination by the INPI, marks are published on the Industrial Property Gazette and becomes open to scrutiny or opposition by concerned parties for two months. After two months of substantive examination, trademark is finally granted.
- Term of protection for a trademark is 10 years from granting date. Protection can be renewed indefinitely every 10 years.
- Brazil trademark only permits registration in one class of goods or services. Tp trademark brand for multiple classes, one must submit separate application for each class.
- No need to submit proof of use when filing a trademark.
- Brazil follows a first-to-file system for trademark rights.
- Brazil affords protection to well-known marks.
- The country applies the Nice Classification System to determine goods and services according to agreed-upon categories.
- Applicants may file trademark rights in other acceptable languages apart from Portuguese.
- In essence, a patent is a legal right to prevent other parties from using or earning profits from your invention.
- Two types of patents in Brazil, include novel inventions that involve an inventive step and is capable of industrial application and utility models akin to patents of inventions. These patents are granted to objects of practical use that can be used for industrial applications.
- Reduced or discounted patent fees for natural personals, small businesses, and non-profits.
- Patent application can be submitted directly to the INPI or apply through Patent Cooperation Treaty.
- Patent application must be submitted before any public disclosure of the subject matter, as public announcement puts an invention in the public domain.
- Brazil provides a 12-month grace period for public disclosure of an invention under special cases.
- Brazil Patent Act has a mandatory license provision, wherein any individual with economic and technical capacity to perform efficient utilization may file patent application to have a license granted to them.
- Industrial refers to the appearance of a product in particular, the aesthetics such as shape, set of lines, and colors related to a product given that it provides a brand new and unique visual aesthetic that can be industrially produced.
- Term of protection lasts for 10 years from filing date. Protection renewal comes every five years for a maximum of 25 years from the filing date.
- Inventors who publicly launch their design are given 180 days from time of launch to register. After the grace period, the industrial design enters public domain and may no longer be protected.
- Protection of industrial design is facilitated by the INPI.
- Novelty and uniqueness of design are not evaluated prior to registration. Examination is implemented after registration has been granted.
- Foreign applicants must be represented by a Brazilian patent attorney or agent.
- Copyright refers to the exclusive legal right to communicate, produce, reproduce, or publish an original literary, spoken artistic, textual dramatic, audio-visual, musical, model, literary adaptation, complication work, and computer program.
- Two types of copyright in Brazil are patrimonial rights and moral rights.
- Primary registration authority is Copyright Office under the National Library.
- Copyright is automatic and requires no formal registration. Voluntary registration is possible to assist in establishing a priority date of creation and method of filing, depending on the type of work.
- Brazil copyright protection term lasts throughout the life of the author plus 70 years after the author’s date. Rights are inherited by the author’s successors.
- Enforcement is administered on a country-by-country basis. It is imperative to monitor the Brazilian marketplace for any unauthorized use of Intellectual property.
- Department of Federal Revenue of Brazil can aid in enforcing your IP rights in Brazil. They help in preventing fake goods entering the country.
- If your IP rights are being infringed upon in Brazil, it is highly recommended to consult a lawyer or IP expert to discuss the best course of action.
- IP rights may be brought before the state courts, unless a federal agency is the accused infringer, in which case, the case will be brought before the federal court.
- Alternative dispute methods to resolve IP issues can be made through arbitration and mediation. These methods are less stressful, cheaper, and centered on arriving at a settlement.
LABOR AND EMPLOYMENT
- Short-term operations or only needs a few employees, obtaining the services of a professional employer organization (PEO) is an alternative option. PEOs allow investors avoid company formation and liquidation. This set-up also ensures compliance with prevailing employment laws.
- Standard working hours as per law is eight hours long, while a working week should be no longer than 44 hours, with a working month no longer than 220 hours.
- Overtime hours are allowed but only limited to two hours per day.
Employment Contract Types
Nature of employment will be based on the type of job an individual is hired for.
1. Indefinite-term employment contract
No work period is established. Should the employer terminate the contract, the employee will be entitled to receive indemnification payment equivalent to three months’ salary.
2. Definite-term employment contract
Contract term up to two years and applicable under the following conditions, (i) the nature of service justifies the pre-determined period of employment, (ii) temporary business activity, (iii) probation agreements.
3. Temporary employment contract
Contract term may only be used for certain types of employment roles. Examples include seasonal workers, coverage for maternity leave, and other types of extended leave periods.
4. Intermittent employment contract
This employment contract is provided for work that involves ad-hoc or irregular working schedule, wherein employees are paid on an hourly basis according to the needs of their respective employers.
Employment Benefits, Vacations, Leaves, and Absences under Brazilian Law
- After twelve months of working for the same company, an employee is entitled to 30 days’ worth of leave over the following year.
- Leaves may be split into three separate vacation periods as approved by the employer.
- One vacation period must last for at least 14 straight days, while others must last at least five calendar days. These leaves are paid at an elevate rate equal to the normal salary, plus a third of the salary.
- Employers are required to pay up to 14 days of sick leave days provided an employee receives certification and authorization from a registered doctor. After 14 days of paid sick leaves, the remaining days will be paid by the National Institute for Social Security agency up to two years.
- Maternity and paternity leave up to four months or 120 days. This can be extended to 180 days and paid by the INSS. Paternity may be extended an additional 20 days.
- Bereavement leave paid in the event of the death of an employee’s parent, sibling, spouse, or child. Bereavement leaves in each case up to two days.
- An employee is entitled to three days of paid leave when they get married.
- Employees are entitled to take one day of paid leave every 12 months for blood donation but must provide evidence of having made the donation.
- Income tax deduction varies between 0% and 27.5% based in salary, with the highest band being any salary above $885. Social security deductions vary between 7.5% and 14%.
- Employers are required to make a contribution to the INSS equivalent to 26.8% of an employee’s salary, and 8% towards government indemnity fund.
Damalion assists foreign legal entities in setting up a business in Brazil. We have the expertise and experience that allows us guide clients during the painstaking activity of building a company in Brazil. Our Damalion experts are highly skilled in providing various integral business solutions, including compliance, entity management, accounting, taxation, payroll support, and many more across major Brazil states.
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