Expatriates: workers and companies may benefit from tax and social security treaties

International agreements should be examined when planning for relocations abroad

Analyzing tax and social security treaties signed between countries is a key part of expatriate management. Planning the process well in advance contributes to the implementation of the most favorable legal practices for workers and companies alike.

When undergoing expatriation, employees are often unsure about how their earnings will be taxed and how their contribution time will be factored in for retirement purposes.

But there are a few ways to assist those workers while maxing out the benefits for the business. Learn more below about the tax and social security treaties currently in force and the importance of planning ahead during the process of relocating employees.

Tax treaties

Typically, international agreements on tax matters set out the rules for tax residence of an individual to determine how each type of income will be taxed.

In order to achieve the desired results, an assessment must be thoroughly planned and carried out well before the employee enters the country. The goal is to identify the country where each type of income will be taxed. Then, tax offset will provide relief from double taxation should any conflict arise between taxing powers.

At present, Brazil has treaties in place with the following countries: South Africa, Argentina, Austria, Belgium, Canada, Chile, China, South Korea, Denmark, United Arab Emirates, Ecuador, Slovakia, Spain, Philippines, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, Norway, Netherlands, Peru, Portugal, Czech Republic, Russia, Singapore, Sweden, Switzerland, Trinidad and Tobago, Turkey, Ukraine, and Venezuela.

Brazil also enjoys automatically enforceable tax reciprocity with Germany, the United Kingdom and the United States of America. Federal income tax paid in one of these countries may be offset against the tax due in Brazil levied on the same earnings, provided that the legal requirements are met.

In addition to agreements signed to avoid double taxation, one should keep in mind that treaties also provide for ways of curbing income tax evasion.

See also: Brazilians transferred abroad: get to know the taxation system and the expatriates’ tax obligations

Social security treaties

Brazil has signed social security treaties which are part of the country’s foreign policy and are intended to align diplomatic understandings between the governments of each signatory state.

These agreements provide social security coverage to Brazilian workers abroad and make it possible for foreigners working in Brazil to have access to social security benefits.

Thus, these treaties guarantee that the social security rights provided for under the laws of the signatory countries are granted to their respective workers and dependents, whether they live there on a permanent or temporary basis.

As a rule, these agreements may be used to ensure that:

• an employee pays his/her social security contributions only in Brazil, while remaining entitled to social security rights in the destination country, pursuant to the terms signed between both states.
• the period when contribution was paid to the destination country’s Social Security Administration is factored in when calculating the time required for the employee’s retirement.

By abiding by such agreements, companies are granted the benefit of being exempted from paying the employer’s social contribution when hiring foreign workers. In this case, only social security contributions pertaining to the employee’s country of origin are due, reducing costs for the business.

In terms of social security, Brazil has bilateral treaties in effect with: Belgium, Cape Verde, Canada, Chile, Germany, South Korea, Spain, United States, France, Greece, Italy, Japan, Luxembourg, Portugal, Quebec and Switzerland.

Currently pending ratification by the Brazilian Congress are the international agreements with Austria, Bulgaria, India, Israel, Mozambique and the Czech Republic.

There are also multilateral treaties signed with other Mercosur countries (Argentina, Paraguay, and Uruguay) and with Ibero-American countries (Argentina, Bolivia, Chile, El Salvador, Ecuador, Spain, Paraguay, Peru, Portugal, and Uruguay).

Another multilateral agreement, with the Community of Portuguese Speaking Countries (Angola, Cape Verde, Guinea-Bissau, Mozambique, Portugal, São Tomé and Príncipe, and East Timor), is at the ratification stage.

See also: Expatriates: companies can benefit from social security agreements

Planning is a must

Tax treaties share many similarities with one another, but specifics may vary. Therefore, a thorough case-by-case analysis should be conducted taking into account each country involved in the relocation of workers.

On the other hand, social security rules are more complex and the process entails requirements and formalizations that should be carried out in advance with each country’s tax authorities, before the worker is relocated to its destination.

Planning and guidance for expatriate management

At DPC, we have specialists in analyzing agreements for tax and social security purposes. Our team provides assistance to companies in relocating workers abroad as well as to employees eager to reap the countless benefits of their global mobility. You can rely on this support: dpc@dpc.com.br.