Amid the Zika virus, contaminated water, significant crime, a president facing an impeachment trial and protests by emergency responders, Brazil has major challenges ahead of the official opening ceremony for the Olympic Games. Employers, meanwhile, must meet their own challenges related to the complex nature of processing payroll for employees in Brazil.
Widely seen as having one of the most complex tax systems in the world, payroll processing in Brazil is particularly difficult to master. Some of challenges include:
Extensive and intricate labor laws. Some companies choose to knowingly operate illegally rather than spend time and effort to attempt compliance.
High payroll tax amounts and complex social tax calculations. Brazilian business experts advise companies to expect to pay a Brazilian employee’s salary twice--once to the employee and second time to the government in the form of taxes.
Cumbersome banking regulations. Nonresidents often find it difficult to open bank accounts in Brazil, a problem compounded by banking regulations that may vary from bank to bank.
Expensive wire transfers. High withholding rates on importing and exporting cash can make international wire transfers cost prohibitive.
Currency restrictions. Employers generally are required to pay employees in Brazilian reals, which may be frustrating for foreign workers in Brazil.
Labor Unions. Mandatory employer obligations to labor unions are paid in the form of fees and through negotiations.
In light of all these challenges, the Brazilian government has introduced some reforms in an attempt to simplify the many obstacles to legally operating a business. One notable government effort has been in the implementation of a program called eSocial, a streamlined digital system that simplifies employer reporting requirements and social tax calculations.
Under the eSocial system, information on company employees must be registered online with Brazil's tax department as soon as it becomes available. Newly hired employees must be immediately included in the system and any alterations in their status must be registered within a specified period. The eSocial system requires companies to maintain up-to-date information on their total payroll, tax and social security payments. Company payments for payroll, social security, severance, union fees and income taxes must be entered into the system by the seventh day of the following month.
Certain components of the eSocial system were made available to employers Oct. 1, 2015, but the rollout is still ongoing. Employers that had revenues of at least 78 million reals ($24.3 million) in 2014 will be required to use the system by next month. Some employers initially reported that they were concerned that with this wealth of information provided to government agencies in real time they will face increases in tax and labor assessments but early reports have shown it to be an improvement over the previously more onerous system by not creating as new obligations as much it does unify and simplify diverse previous ones.
The eSocial system is but one step that Brazil has taken to improve the country’s notoriously difficult business climate. Unfortunately, it does not appear that it will help address the many challenges plaguing the Summer Olympics.
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