Likely no tax on discount at purchase, unless the subsidiary reimburses the parent for the cost of the awards or the awards are otherwise treated as part of local compensation.
Tax on sale
Generally allowed, if subsidiary reimburses parent under a written agreement and the discount at purchase is treated as compensation to the employee and is subject to withholding and social insurance contributions.
Reimbursed amounts may be treated as service fees and subject to additional taxes.
Reimbursement may be difficult to implement due to exchange control considerations.
Income Tax:
Likely no, unless the subsidiary reimburses the parent for the cost of the awards or the awards are otherwise treated as part of local compensation.
Social Insurance Contributions:
Uncertain due to evolving case law, but may be due if local subsidiary reimburses parent or award income otherwise considered to be part of local compensation. If due, employer must pay employer social insurance contributions and withhold employee portion of social insurance contributions (employee portion is subject to monthly contribution ceiling while employer portion is uncapped).
If no reimbursement and income not considered part of local compensation, social insurance contribution obligations uncertain due to conflicting case law.
Employees may be required to provide local entity with separate authorization form regarding payroll deductions made under an ESPP to enable local entity to remit payroll deductions out of Brazil.
Reimbursement of costs by Brazilian subsidiary may be difficult to implement because commercial bank chosen to handle the remittance may question the transaction and/or request that Central Bank approval be obtained.
Cash-netting to remit payroll deductions under ESPP or reimbursement of ESPP costs is permitted but also requires approval by commercial bank.
Employees may be subject to reporting of shares or other assets held abroad if certain thresholds exceeded.
Significant likelihood of vested rights/entitlement claims for ESPP.
Employees should sign specific labor disclaimer and compliance language.
Brazilian labor regulations arguably do not permit payroll deductions under an ESPP, but risks are relatively low assuming employee has authorized the payroll deductions.
In any case, payroll deductions (in the aggregate) may not exceed 70% of an employee's monthly salary.
Under data protection legislation adopted in 2020, a valid basis (e.g., necessity for performance of a contract) is needed for the collection, use, storage, and processing of personal data as well as the transfer of personal data out of Brazil. Accordingly, companies should review their approach to data privacy compliance in the context of equity plan administration and consider on which basis they may be able to rely to collect, process and transfer data.