Likely no tax at exercise, 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 spread at exercise 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 remitting bank with documentation to evidence the nature of the remittance of funds out of Brazil but this should not be particularly burdensome.

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 reimbursement of option 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 options. Options with performance vesting conditions (based on employee's performance) create an even greater risk.

Employees should sign specific labor disclaimer and compliance language.

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.