Brazil
in numbers
Physical registration for self-employment is required but can be submitted via post or courier, and the necessary documents are generally easy to obtain. Although there is a moderate language barrier due to limited English proficiency among authorities, registration fees are low and affordable. EORs are well-established and permitted, but direct hiring is also an option, with employees declaring their own taxes.
Brazil’s legal framework includes clear contract classification guidance, but meeting the requirements as self-employed can be moderately difficult. Authorities regularly audit businesses, and potential misclassification is assessed using multiple indicators rather than standalone criteria.
Self-employed workers in Brazil face a relatively high tax rate. Tax returns must be submitted in hard copy, which is challenging due to high language barriers and the requirement to submit them in the official language. However, only basic tax knowledge is necessary.
Employee taxes are typically lower, however companies are liable to certain contributions if misclassification occurs, as well as back-payment of rights.
Brazil poses challenges in business operations, as opening a bank account requires multiple approvals, and receiving wire transfers may face occasional delays. These administrative obstacles can slow down business processes.
Brazil offers a digital nomad visa with low fees and relatively low income requirements, making it an attractive option for remote workers seeking legal residency for extended periods.
Key takeaways
Companies can easily engage self-employed contractors in Brazil or partner with an Employer of Record (EOR). Contractors enjoy the freedom to manage their own taxes, and offering perks like health insurance can enhance partnerships when thoughtfully structured.
Frequently asked questions
You can hire both self-employed contractors and employees without a local entity in Brazil. They are responsible for declaring and paying their own taxes and contributions. Pay attention to the shape and nature of the contract and the work to avoid misclassification issues. More details below.
Yes, using an EOR in Brazil is allowed. However, if the EOR model is misused1, local labor authorities or courts may treat the employee as directly employed by your company, which might also trigger establishing a PE in Brazil.
1 Misusing an EOR includes hiring full-time employees as temporary roles to bypass benefits and labor laws, ignoring statutory obligations such as minimum wages or collective bargaining agreements, avoiding corporate taxes or employer contributions, terminating workers without adhering to local protections, and withholding from the EOR critical details about employment terms, leading to compliance risks and inaccurate filings.
If you hire contractors via a foreign entity (i.e. if you do not use an EOR), there will be no tax withholding or declaration requirements as the team member will handle their own taxes.
Providing health insurance to contractors in Brazil can signal misclassification only alongside more significant indicators. While health insurance is typically provided to employees, it can be offered to contractors if the overall relationship clearly supports an independent contractor status.
Determining the correct contractual relationship
If the contract is reviewed by the Brazilian authorities, they would determine the relationship as B2B if the self-employed:
- Works autonomously without being subject to direct control or hierarchy
- Can delegate work to others
- Is usually paid per project or upon service delivery, without mandatory benefits such as vacation pay or 13th-month salary
- Can choose their work location, schedule, and number of working hours
If the relationship does not meet most of the criteria above, it will most likely be classified as an employment relationship. Read the next sections to understand what the exposure might be in the event of a reclassification.
Financial risk associated with a potential contract misclassification
If a contractor is reclassified as an employee, employers in Brazil may face additional obligations which can include extra taxes, as well as covering labor-related benefits that were not previously provided.
Misclassification claims in Brazil have a statute of limitations of 5 years from the date of the non-compliance or from the end of the employment relationship, whichever is later.
Additional taxes
Employers may owe 13%* additional taxes if a contractor is reclassified. If the self-employed contractor has claimed deductions on their tax return, they may owe additional taxes on that income since employees usually can’t claim those deductions.
*To keep things comparable, we use a gross income of $4,000/month to determine the potential exposure. The calculation takes into account equivalent taxes paid to the authorities by the self-employed person during the same period of time. The exact amounts might be different depending on your regular payouts.
What could trigger a compliance review?
Self-employed people are regularly audited by the tax authorities, which may trigger a misclassification review. Disgruntled team members or well-publicized cases may also trigger a compliance review.
How will any additional amounts be charged?
If Brazilian authorities reclassify a contractor as an employee, the responsibility for back taxes, social security contributions, and labor obligations generally falls on the employer, not the worker. This applies even when the foreign company does not have a physical presence in Brazil. This would be enforced by imposing sanctions on local partners or freezing local assets, as well as through international treaties, although this is rarely seen in practice.
Will a local contractor trigger a permanent establishment?
Having a team member in Brazil may create a Permanent Establishment (PE)* if the contractual relationship is reclassified as employment. This is regularly checked during a compliance review targeting worker classification. However, the PE risk is lower than if you have local employees in Brazil (e.g. employed directly or via an EOR).
*A PE represents a fixed place of business through which a foreign company conducts its commercial activities in Brazil. If a PE is established, the business income associated with it will be subject to local taxation.
Is paid health insurance one of the indicators used by local authorities to determine if a worker is misclassified?
Providing paid health insurance in Brazil can indicate worker misclassification only when combined with other core factors. While extending employee-like benefits (e.g., paid time off or a 13th-month salary) to contractors may suggest an employment relationship, offering health insurance alone typically does not result in reclassification if the overall relationship reflects independent contractor status.
About the Future of work index
This information is provided by SafetyWing in collaboration with a Big 4 company to assist companies in understanding potential compliance risks. While we strive to provide accurate and up-to-date information, it should not be used as the sole basis for ensuring compliance. Individual circumstances and changing laws may alter the applicability of this information. Please seek appropriate professional support.
