The INSS tax is Brazil’s social security scheme. It’s a mandatory program
that collects money from the workforce to support Brazil’s retired, ill and
disabled citizens.
Brazil is just one of more than 30 countries
around the world that enforce a mandatory social security system to fund the basic
needs of their population. But not all countries approach social security in the same way.
Here’s what multinational employers need to know about INSS tax in Brazil.
What is the INSS tax?
The Instituto Nacional do Seguro Social, or INSS is an independent
enforcement sector within the Ministry of Social Security that oversees the
administration of social benefits. It’s a tax-based system that collects small
contributions from employees and employers throughout the duration of
employment.
These funds are pooled to cover the material needs of those who can no longer
participate in the workforce.
This framework is based on the idea that the workforce continually ages,
producing a cycle of transitioning from years of contributing to the fund as
an employee to years of drawing on the fund as a retiree.
Specifically, Brazilian social security funds pay for:
- Retirements
- Death benefits pensions
- Permanent illness
- Permanent disability
- Other situations as the law requires (such as an imprisonment allowance)
How Brazilian social security works
Most importantly, the INSS tax is mandatory. Global employers should factor
these contributions into the total cost of employing workers in Brazil.
For employers
If you employ Brazilian workers, your INSS tax obligation is generally 20%,
calculated based on each employee’s monthly salary and processed through your
payroll.
However, certain industries may have additional obligations
that add 1 to 2%
to that rate. For example, industrial sectors, like clothing manufacturers and
textile workers, might pay up to 22.5%. And IT or communications sectors might
be required to use the company’s net revenue to calculate their obligation
instead of payroll figures.
Multinational employers should take note of the significant tax burden in Brazil. While
INSS receives 20%, the total employer contribution for various other forms of social
taxes can drive your obligation up to nearly 30%.
In Brazil, employers also pay small contributions for the administration of
various federal services like:
- CAGED (General Registry of Employment and Unemployment)
- GFIP (Monthly Administration of INSS Reporting)
- RAIS (Annual Submission of Employee Information)
- DIRF (Annual Income Tax Reporting)
- PAT (Workers Food Allowance Program)
It might sound a little high—because it is—Brazil has one of the highest
payroll burdens in the world.
Despite the long list of mandatory benefits, Brazil still attracts many global
companies. A large economy, diverse workforce and a notably welcoming demeanor
towards global companies entering the country help.
For employees
Brazilian workers are obligated to contribute a variable rate between 7.5% and
14% calculated by their wages. Employee contributions are capped at
BRL 828.38. As with other withholdings, the employer is responsible for
collecting INSS payroll taxes through payroll withholdings.
For beneficiaries
Workers who have been linked to the social security system may begin drawing
benefits once they reach the designated age or minimum length of service
. This can vary
depending on where the beneficiary lives.
What about INSS taxes and temporary or non-traditional workers?
The social security fund in Brazil is designed to support permanent residents
who will retire in the country. Since it’s a benefits system that is based on
minimum years of service or contributions, employment participation is
generally required to receive benefits.
This means participation may be optional for:
- Temporary, non-citizen immigrants
- Unemployed spouses
- Temporary workers not covered under the Brazilian Labor Code
Keep in mind that employee classification is as important in Brazil as it is
in many other countries. Misclassification—intentional or not—can result in
fines. One of the most litigated misclassifications in Brazil is the misuse of
temporary workers to avoid paying certain taxes and benefits.
For example, independent contractors are required to pay INSS taxes directly.
Since the employer is not burdened with the additional contribution or the
hassle of withholdings, classifying employees this way may seem like a good
idea.
But when it comes to compliance, shortcuts are always shortsighted.
Brazil is strict when it comes to the misuse of temporary workers and these
arrangements are heavily scrutinized.
Starting off on the right foot with the INSS tax in Brazil
Getting set up to legally employ workers in Brazil begins with typical steps like
setting up bank accounts and obtaining a tax ID from the Brazilian government.
But it also includes INSS registration. You’ll want to take the time to do this right.
Brazil is an employee-friendly labor market with relatively high turnover
compared to most standards. The labor board sees more than 2 million
lawsuits every year ranging from disputes over severance and
other benefits payments to moral distress and wrongful termination.
Recent reform is helping bring that number down, but there is still an uphill
battle for new employers trying to get established in Brazil. This is an ideal
opportunity to rely on the expertise of a global payroll provider to protect you from
missteps that could land you on the wrong end of a lawsuit.
Safeguard Global can provide the local expertise you need to start things off
on the right foot as you expand your business into Brazil’s attractive
economy.
Learn more about how Payroll 360 can help you stay compliant and on top of
your payroll needs.