Taxes in Brazil

Employer Contributions In Brazil

Social insurance (INSS)

Employers must withhold the employee’s part of the Social Security contributions (INSS) monthly and make contributions themselves based on the employee’s total remuneration for the month. The flat rate is either 20% or 22.5%, depending on the industry, and is without a cap.

The INSS funds employee’s pension, worker’s compensation, disability retirement, accident assistance, sick pay, unemployment, imprisonment allowance (goes to the dependents while the person is in prison), maternity pay, family allowance, and education. It guarantees payments to the employee and their families in the event of illness and death.

Pension (FGTS)

Employers must also make a mandatory contribution equivalent to 8% of the employee’s total monthly salary (inclusive of overtime, 13th month salary, vacation pay) into the Brazilian Government Fund for Employees (FGTS). The FGTS (also used as a pension fund) covers the severance indemnity that an employee is entitled to when their employment is terminated without cause. When an employment contract ends, deposits cease and the amounts are retained in the account, which becomes inactive. Thus, professionals can accumulate several FGTS accounts, depending on the jobs they have held, and may be able to cash the amounts in specific situations (e.g., retirement).

Work accident insurance (RAT)

The RAT amount depends on the industry and the number of employees, ranging from 1% (used for companies with low accident risk) to 3% (used for companies with high accident risk) of the employee’s monthly salary. Tech companies tend to require a 2% levy.

Other contributions

Employers should keep in mind that, on top of the monthly contributions mentioned above, every employee gets mandatory benefits impacting taxation and increasing the monthly cost for employers.

• 13th month salary – Employers must pay employees an additional one-month salary, which includes all the general taxation of a regular monthly pay.
• Vacation bonus – When an employee takes a vacation, their employer must give them a two-day bonus preceding the start of their time off. This vacation bonus is deducted monthly, set aside for that purpose, and adds up to one-third of the employee’s monthly pay for the year.
• FGTS penalty – If a company fires an employee without cause, it must pay an additional 40% of the total sum on the employee’s FGTS account to the employee.

Employee contributions in Brazil

Residents of Brazil are subject to tax on their worldwide income on a monthly basis, whereas non-residents are subject to tax on the income generated only within the country. To be considered a resident, an individual must spend more than 183 days within any 12-month period in Brazil, be a Brazilian citizen living in Brazil or a naturalized foreigner, or hold a permanent or temporary visa with a local employment contract. Brazilian residents living abroad are also considered residents for the first 12 months after their departure (if no tax clearance certificate is filed).

Income tax

In Brazil, employers are responsible for withholding income tax and social security contributions on behalf of the employees. The income tax rate is broken down monthly rather than yearly, and the tax rate is progressive, as follows:

Brazil monthly income tax

_{Non-residents are taxed at a rate of 25%, and their offshore income is tax exempt.
Married couples may choose to file tax returns jointly for the household.}

Income tax is applicable to base salaries, cost of living (some companies may elect to cover water, electricity, and food expenses), housing, education allowance covered by the employer, vehicle allowances, leave to visit family (usually for expats), reimbursement of work-from-home expenses, personal use of a car provided primarily for business use, company-provided security guards or drivers, interest on below-market-rate loans and free or below-market-value use of accommodation (the subsidized portion of rental costs is considered to be the taxable benefit).

Social security tax

Employees are subject to social security contributions (INSS) withheld monthly by the employer as part of payroll. Social security contributions protect the employee and their family in case of illness, injury, death, accident, and pregnancy. 

The contribution rate is based on the employee’s full remuneration for the month, at a rate of 7.5% – 14%, capped at BRL 713.09 monthly (2021).

Brazil social security contributions 

Tax-Free Allowances In Brazil

In Brazil, taxpayers can choose between two different taxation methods according to their preferences: (1) the simplified version and (2) the complete version. The simplified version requires taxpayers not to itemise the deductions but rather use a standard annual deduction of 20% of their taxable income, capped at BRL 16,754 annually. The complete version itemises each deduction and applies the full taxation from the start for an accurate tax declaration, which doesn’t require additional payments or reimbursements at the end of the year.

Personal deductions

Taxpayers with dependants can claim them as a deduction. A dependant can be

• a spouse or a partner with whom the taxpayer has lived for at least five years or has a child;
• a child 21 years of age or younger;
• a physically or mentally disabled child unable to work;
• a university-aged child (21 – 24);
• a minor under the age of 21 whom the taxpayer sustains economically and is a legal guardian of;
• a sibling, grandchild, or great-grandchild who is 21 or younger not sustained by parents and whom the taxpayer sustains economically and is the legal guardian of;
• a sibling, grandchild, or great-grandchild who is physically or mentally unable to work and is not sustained by parents, and whom the taxpayer sustains economically and is the legal guardian of;
• an incapacitated individual of any age for whom the taxpayer is the legal guardian or court-appointed administrator.

The dependant deduction changes every year and requires a Central Provident Fund (CPF) number. For the year 2021, the deduction per dependant is BRL 2,275.08.

Education expenses an employee incurs are deductible for tax reasons, capped at BRL 3,561.50 per student, which is also applicable to those with kids going to school abroad. Child support and alimony are also deductible for tax purposes. 

Employment deductions

Contributions to the Brazilian Social Security (INSS) are deductible when the monthly tax assessment and the annual tax return are determined.

Contributions to a Brazilian private pension are also deductible, capped at 12% of the employee’s gross income annually.

Medical expenses on behalf of an employee or any of their dependants are also deductible, up to 6%.

Exempt income

Employees don’t pay income tax for some work-related benefits, including meals, transportation, uniform, per diem allowance for work outside their country, certain components of severance pay, contributions made by the employer into private social security programs, FGTS, and relocation costs when moving to a different county at the request of the employer. No caps apply to any of them.

Other deductions

A taxpayer can also deduct the following from the tax they have to pay:

• donations they make to official government, state, and/or municipal child care entities and elderly funds
• qualified contributions or investments to cultural, audio-visual, and sports projects (limited to 6% of the tax)
• contributions to cancer and mentally handicapped support (Pronon and Pronas) health programs (limited to 1% of the income tax during the calendar year per program)