Viva Brazil! Legal Pitfalls for U.S. Multinationals Seconding Expats to Brazil

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Contributed By Ute Krudewagen, Baker & Mckenzie And Leticia Ribeiro, Trench, Rossi E Watanabe Attorneys At Law, Associated With Baker & McKenzie

With the booming Brazilian economy, the migration of foreigners to Brazil also is constantly on the rise. In order to mitigate against labor liabilities and an unnecessary labor and tax burden, before seconding expats into Brazil, companies should thoroughly analyze how to best structure the arrangement. This article highlights matters to be addressed, and legal pitfalls to be avoided, when transferring employees to Brazil, and discusses issues that arise upon termination of an expatriate assignment.

Considerations when Structuring Expatriate Assignments to Brazil

Impact of Immigration Requirements on the Assignment Structure  

To second a foreign citizen to Brazil, a visa will be required. Foreign executives/employees entering Brazil to promote business or work in Brazil are entitled to one of three different categories of visas: (i) business visa, (ii) temporary visa/work permit or (iii) permanent visa/work permit. Each category differs depending on the length of validity, type of work the foreigner may engage in and the company that will fund and support the foreigner during his or her stay in Brazil.

Only the temporary V visa/working permit, which is valid for up to 2 years, requires the execution of a local employment agreement with the Brazilian host company, and registration as an employee of the Brazilian subsidiary with the Brazilian authorities. Business visas or permanent visas do not require a local employment agreement, although a permanent visa does require a local corporate sponsor (typically, a Brazilian subsidiary). Accordingly, if a foreign company simply wishes to scout the Brazilian market without having a corporate presence in Brazil, it can only do so within the confines of a business visa.

The 2/3 Rule  

While applying for visas in Brazil, foreign companies must also comply with the Brazilian 2/3 rule, provided in Article 354 of the Labor Code. According to this rule – whose constitutionality is still questioned in Brazil – the Brazilian company applying for the visa must have at least two Brazilian citizens in its payroll for each expatriate employee. This rule does not only apply to the total number of employees on the payroll, but also to the total amount of compensation paid through payroll, so that engaging a highly compensated foreign executive may cause concerns. Although many consider this provision illegal and discriminatory, the Immigration Division of the Labor Department enforces this rule in practice and regularly denies visas to companies that do not fulfill these requirements.

Brazilian Employment Law Protections  

Another important aspect to be observed is that the foreign executives/employees with a local employment agreement are entitled to all the protections contained in Brazilian laws. According to Precedent No. 207 of the Superior Labor Court (the highest labor court in Brazil), the employment relationship must be governed by the laws of the country where the activities are performed (lex loci executionis), even when the employment agreement is executed in a different country or provides otherwise.

Furthermore, as a general rule, when a foreign employee is working in Brazil, the Brazilian labor courts will have full jurisdiction to settle any dispute regarding the relationship related to the period he or she worked in Brazil. Labor laws and labor courts in Brazil are also highly protective of the employment relationship, and, therefore, they tend to overprotect the employee, who is viewed as the weaker part of the relationship.

Finally, in Brazil the employment relationship results from the factual circumstances and not from what may be written in an agreement executed between the parties. In other words, although companies may execute services agreements with an employee in Brazil (whether a Brazilian national or an expatriate) with clauses stressing that the relationship is governed by foreign law and there is no local labor relationship, it is the actual situation that really determines the employment relationship.

Income Tax & Social Security / FGTS Considerations  

In all expatriate assignments to Brazil, it will be important to consider whether and how to collect payroll taxes – income tax, social security (INSS) and severance fund (FGTS) contributions – over the amounts paid to the expatriate.

Under Brazilian laws and court decisions, any compensation paid abroad to foreign employees for services that are being performed in Brazil should also be considered for the purposes of withholding income tax and calculating social security and severance fund contributions. Compensation for whatever the expatriate receives for his or her services in Brazil – whether locally or abroad – is part of the expat’s pay and, thus, should be considered for the purpose of calculating payroll taxes.

To further stress this position, the Labor Department issued a ruling on the collection of FGTS over compensation paid abroad to foreign employees working in Brazil (IN 84, dated July 13th, 2010). This ruling is clear and express in the sense that the companies must also collect FGTS over the amounts paid abroad, under a split payroll arrangement, to expatriates working in Brazil.

Since there is no social security totalization agreement between the U.S. and Brazil, there is no way to offset payments due in Brazil against U.S. social security payments.


Expatriates working in Brazil typically receive an enhanced benefit package as additional compensation. Depending on the types of benefits provided, however, they can trigger additional payroll costs, including requirements to pay severance fund contributions (FGTS), vacation and Christmas bonuses, etc. Thus, it is very important to review the benefits granted on a case-by-case basis and assess the related financial impact.

Related thereto, if an employment relationship with the home company is maintained, most expatriate employees will continue receiving home country benefits, such as participation in a U.S. 401(k) plan.

Taxable Presence  

To date, there is no dual taxation treaty in effect between the United States and Brazil (in fact, to date, Venezuela is the only South American country that has a tax treaty with the United States). Accordingly, whether or not engagement of a U.S. expat employee into Brazil creates a taxable presence in Brazil for corporate income tax purposes depends on Brazilian local tax laws Article 539 of the Brazilian Income Tax Code provides that a foreign resident will be subject to income tax in Brazil if (i) it sells in Brazil through an agent, and (ii) it directly invoices the buyer. Accordingly, there will be a taxable presence of the foreign company seconding the expatriate into Brazil is the expat has the authority to contractually bind the home company vis-à-vis Brazilian customers. Secondment documentation should thus carefully limit the expatriate’s authority.


Against this backdrop, there are three main ways in which to structure secondments into Brazil, with additional variations depending upon the needs of the parties.

Termination & Rehire  

Termination by the U.S. home company and re-engagement by the Brazilian host company is one of the easiest ways to implement an expatriate assignment into Brazil. In this arrangement, the expat will be engaged under a Brazilian employment agreement with Brazilian payroll and all the rights and protections of Brazilian labor laws. From a Brazilian labor and employment law perspective, termination & rehire is the safest option, because it recognizes that Brazilian laws do apply and ensures that withholdings and contributions are properly made on the full compensation. The expat will typically not be able to continue participation in U.S. benefit plans, however, which is often not a desired outcome for expats in Brazil.

Also, when the expatriate is retained as a local employee, Brazilian equal pay laws provided in the Brazilian Labor Code must be observed. Under these rules, employees who perform the same job in Brazil are entitled to the same pay. Engaging expatriate employees with higher salary and/or allowances than local hires can create legal claims by such individual under the equal pay for equal work doctrine.


For U.S. multinationals, the more common way of structuring expatriate assignments is the secondment option, pursuant to which the expat employee remains engaged by his or her home country employer, and is temporarily loaned to the Brazilian host company. This arrangement would typically be documented through a secondment letter by the U.S. parent, and an intracompany secondment agreement between the U.S. home company and the Brazilian host company.

As mentioned above, secondment in the narrow sense is not an option where the employee will be obtaining a temporary V visa, which requires a local employment agreement. Also, while in the secondment letter, great care should be taken to maintain the home company employment relationship under U.S. federal and state laws, in case of dispute, Brazilian labor and employment laws will typically be deemed to apply. Finally, as discussed above, secondments can trigger a taxable presence of the U.S. home company in Brazil.

There also is a possible pitfall insofar that a permanent visa requires the appointment of the employee in the articles of organization of the local company, as the company’s officer. To reduce the related employee costs, the host company often decides to have the expatriate appointed as a non-employee officer of the local limited liability company (diretor estatutário). However, the contracting of executives of limited liability companies as non-employee statutory officers poses employment misclassification risks that must be reviewed on a case-by-case basis.

Dual employment  

If there is a strong desire to maintain home company benefits, it is common to implement a split payroll arrangement, pursuant to which the expatriate continues receiving compensation abroad (in foreign currency) and also receives a local payment that is at least in the amount required by the immigration authorities for the position.

The existence of two simultaneous agreements can, however, later create added costs to the company. This is because if the expatriate’s original agreement remains intact, the employee will be covered by two different agreements at the same time (the Brazilian one and the foreign one). As Brazilian laws are already very protective and beneficial to the individuals, having two simultaneous agreements may require that some rights (such as vacation and year bonus payments) are paid twice.

Also, in case the total compensation is paid in Brazil under a local employment agreement, there are no discussions about potential detrimental currency exchange variation and all the local labor charges are automatically collected over the payments paid through payroll. This significantly mitigates against the range of claims that can later be brought by the foreign expatriate employee against the local entity.


Once the international assignment comes to an end, the Brazilian employment agreement (if applicable) needs to be terminated before repatriation. There are three legal alternatives for ending an employment relationship in Brazil: (i) resignation; (ii) dismissal without cause; or (iii) dismissal with cause. Dismissal with cause is limited to very narrow situations of misconduct, and mere lack of performance, or lack of work (redundancy), do not qualify. Accordingly, in most instances, the relevant termination options are resignation or dismissal without cause.

In case of resignation, the company will not have to pay any severance indemnity in Brazil, except for prorated and accrued remuneration (e.g., accrued bonuses, accrued vacation and vacation bonus). While the employee can receive payout of all accrued payments in his or her FGTS account, there is a three year waiting period to do so, during which the employee may not have worked in Brazil.

In case of a dismissal without cause, the company will have to pay all statutory severance indemnities, including a 40% surcharge of funds accrued in the FGTS account to be paid to the employee (who will receive immediate access to his or her FGTS account) and a 10% surcharge to be paid to the government, in addition to prorated and accrued remuneration.

While resignation is thus preferable from the employer’s perspective, under Brazilian labor laws, there is no lawful way to agree with the expatriate in advance (contractually or otherwise) and thus guarantee that he or she will ask for resignation at the end of the assignment, to avoid the need to pay severance.

In case of involuntary termination of an expatriate assignment, Brazilian labor and employment laws will need to be observed, in addition to foreign labor and employment laws if the foreign employment relationship remained in effect, or extraterritorial application of foreign laws (such as Title VII, the Age Discrimination in Employment Act and the Americans with Disabilities Act for U.S. citizens engaged by a U.S. company or company controlled by a U.S. company). For an expatriate employee who is an employee of the Brazilian host company, the argument that this individual remained an employee of his home country company or that he or she does not have an employment relationship with another company of the same group will not be valid to avoid severance payments in Brazil. As mentioned above, even if there is no formal employment relationship with the Brazilian host company and the expat employee maintained an employment relationship governed by foreign (e.g., U.S. federal and state) laws, the expatriate can likely claim application of Brazilian laws.

In practice, this often means that the involuntary termination of an expatriate assignment in Brazil should be implemented through a negotiated termination, although it is important to understand that Brazilian laws do not enforce releases of claims.

Brazil will continue to be an attractive destination for U.S. multinationals expanding into or continuing operations in Southern America. Unfortunately, like many other Latin American jurisdictions, Brazilian labor and employment laws offer many pitfalls. Risks can be avoided, however, through careful planning of expatriate assignments into Brazil.

Ute Krudewagen is a partner with Baker & McKenzie’s Palo Alto office’s Global Employment & Labor Law practice group, specializing in global employment matters. She can be reached at  

Leticia Ribeiro is a senior attorney in Trench, Rossi e Watanabe attorneys at Law (Sao Paolo office), associated with Baker & McKenzie and advises companies on Brazilian labor and employment matters. She can be reached at  


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