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:
Death benefits pensions
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.
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.
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.
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
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 global managed payroll can help you stay compliant and on top of your payroll needs.