If we hire workers abroad, we must ask ourselves what the INSS tax is in Brazil. Brazil’s social security system is a mandatory program that raises money to support retired, sick, and disabled Brazilian citizens.
Brazil is one of more than 30 countries in the world that apply a mandatory social security system to cover the basic needs of its population. Multinational employers looking to hire Brazilian employees must thoroughly understand the INSS tax.
What is the INSS tax?
The National Social Security Institute, or INSS, is located within the Ministry of Social Security while having its autonomy. The ministry is responsible for overseeing the administration of social benefits.
This tax-based system collects small contributions from employees and employers throughout employment. The funds cover the material needs of those unable to participate in the labor force.
The workforce continually ages, resulting in a transition cycle of years of contributing to the fund as an employee and then retirement. These funds will pay for:
- Death pensions.
- Permanent illness.
- Permanent disability.
- Other situations that the law requires.
How does social security work in Brazil?
The INSS tax is mandatory in Brazil, and global employers must consider this when hiring such personnel. Social security will work as follows:
For employers hiring Brazilian workers, the obligation to be assumed is 20% as a general rule. This percentage will be calculated based on each employee’s monthly salary and processed through payroll.
But, certain industries are required to add between 1 to 2% to this rate. The apparel manufacturing and textile workers sectors are among these. Also, the IT sector must use the company’s net income to calculate the liability instead of using payroll figures.
Brazil has a significant tax burden because employers can pay almost 30% in taxes. In addition, small employers also have to pay contributions for the administration of various federal services.
It makes Brazil one of the countries with the highest payroll burdens in the world. However, it is still a country that attracts many global companies because of its welcoming behavior towards global companies.
Brazilian employees will be required to contribute at a variable rate of between 7.5% and 14% depending on their monthly salary. These contributions will be BRL 828.38.
The employer will collect these taxes directly on the payroll to ensure that the employees will pay taxes and avoid worker problems.
Workers linked to social security may begin to receive their benefits when they reach the minimum age. This age may vary depending on where the beneficiary lives.
For urban workers, the minimum age is 65 for men and 60 for women, while in rural areas, it will be five years less for each. On the other hand, for Long-Term workers, a minimum age of 53 years and 35 years of service is required for men, and 45 years and 30 years of service for women.
How does the tax work for temporary workers?
Brazil’s social security system benefits permanent residents who will retire. However, labor participation is required, so for temporary immigrants or unemployed spouses, participation may be optional.
On the other hand, temporary workers don’t have a cover by the Brazilian Labor Code. However, we must consider that misclassification of employees intentionally or unintentionally may result in fines.
One of the most common misclassifications used to avoid paying taxes is the misuse of temporary workers. However, Brazil is a strict country when it comes to the misuse of temporary workers, and for this reason, they are subject to intense scrutiny.
Importance for companies to get the INSS registration right
When a company starts operating in Brazil, it is imperative to open bank accounts and obtain tax identification from the Brazilian government. However, we must take enough time to do the INSS registration to avoid having fines for our company.
Despite being a country with a friendly labor market, we should note that they receive more than 2 million lawsuits each year. These will range from compensation disputes to wrongful benefit payments. For this reason, it is always essential that all processes carry out correctly to avoid sanctions by the Brazilian government.
For years I have studied American finance regulations. All the information in this blog is sourced from official or contrasted sources from reliable sites.
Salesforce Certified SALES & SERVICE Cloud Consultant in February 2020, Salesforce Certified Administrator (ADM-201), and Master degree in “Business Analytics & Big Data Strategy” with more than 13 years of experience in IT consulting.