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VMS Advogados. Digital Nomads: Labour and Tax Considerations

Digital nomads are individuals who work with no physical binding to any geographical location, with large flexibility on their professional duties, limited only by the internet connection and the viability of developing their business by digital media.

The COVID-19 pandemic has accelerated global digital mobility, whereby the digital nomads have been part of, in such a way that, according to the Fragoman Migratory Global Tendency Report from 2022, specialized on immigration, 35 million professionals already live as digital nomads around the world.

Like many other countries, Brazil has entered the digital nomad’s route. In January 2021 was published Resolution number 45/2021 from CNIG MJSP, which regulates the concession of temporary visa and residence permits to immigrants, with no labour relations in Brazil, whose professional activities may be remotely developed.

The Resolution defines digital nomads as “the immigrant that, remotely and using information technology, can execute in Brazil his professional activities to a foreigner employer”.

To prove the condition of a digital nomad in Brazil, it is required extensive documentation, among which stands out: “applicants declarations that prove his capacity of executing his professional activities remotely, by using information technology” and “prove of financial support, provide by the foreigner payment source, with the amount of, at least, US$ 1.500,00 or banking resources with the amount of, at least, US$ 18.000,00”.

Even though the increase of digital nomads has achieved an exponential number in the last years, the applicable regulations are still uncertain, especially involving taxes and labour aspects, as we will expose below.

Labour Considerations

Given this growing phenomenon, several questions have arisen about the application of labour law to digital nomads related to Brazilian companies.

First, is important to emphasise that Brazilian Labour Law applies to all labour relations that occur within the internal space of the Brazilian territory.

If the employment contract is executed within Brazilian borders, there is no doubt that it is, in general, subject to Brazilian labour law. This is the incidence of the Sovereignty Principle, allied to the territoriality criterion, to ensure the rule of national legislation of each independent state.

However, regarding to employees who work abroad, for many years the territoriality criterion was applied, recognized by the Convention on Private International Law: Havana Convention, ratified by Brazil and applied by Brazilian Courts.

In Brazil, with the advent of Law number 11.962/2009, which extended the scope of Law number 7.064/82, the criterion of the Most Favourable Rule replaced the territoriality criterion, applying to all workers transferred abroad and to those hired directly at the foreign country.

Therefore, the employment contracts will be subject to the Brazilian legislation - in the matters that are not incompatible with the provisions of Law number 7.064/82 - when more favourable than the foreign territorial legislation, observing the set of rules related to each matter (article 3, II, Law number 7.064/82).

The most favourable rules must be evaluated in a micro and macro context of legal analysis, comparing the two legal systems, both the Brazilian laws and the foreign legislation from where the employee is executing his services.

In this scenario, considering the insecurities that such rules may generate, depending on the specific case, it is recommended to create a contract contemplating all the conditions and particularities that must be observed by the parties.

In the case of a highly-sufficient employee (in other words: a worker who has a college degree and receives a monthly salary equals, at least, two times the maximum benefit limit of the General Social Security System), the legislation grants a larger negotiating power between the parties.

Regarding the migratory situation of these workers, several countries, including Brazil, have been regulating visa modalities to make the temporary stay of the digital nomad feasible.

Therefore, workers hired by foreign companies may apply for a visa or temporary residence in Brazil as long as they fulfil the requirements listed in the Resolution CNIG MJSP No. 45, of September 9, 2021. The initial period of the temporary visa for digital nomads and the granting of provisional residence can be up to one year, renewable for an equal period.

Tax Considerations

The formalization of a work contract for digital nomads implies earning income and will be subject to income tax assessment. Several factors must be considered for determining this tax, such as which country is located the employer, whether the worker is self-employed or hired, whether resident or non-resident, and whether there is a non-taxation agreement between the country of origin and destination, among others.

As for taxation, when a Brazilian employer pays a non-resident, such payment is subject to a 25% withholding income tax rate, except for the amounts paid as royalties, technical services and technical assistance, administrative and similar services, which are subject to a 15% rate.

For workers who have decided to live in Brazil and receive income from abroad, they must calculate and pay income tax on the date they receive the income, using the monthly progressive table according to the month they receive the values.

In the same way that the Brazilian tax legislation will seek to tax income that enters and leaves the country, other nations will do the same. Therefore, the digital nomad should verify if his country has a double taxation agreement with the destination country, which will avoid double payment of tax on the same income.

Brazil has a non-taxation agreement with several countries, in which issues regarding the status of and the rules that will avoid the charge of income tax by both nations involved on the same income.

If there is no agreement between the countries, as occurs between Brazil and the USA, for example, the Brazilian state has recognized the tax paid in the United States and allows its deduction with the tax due in Brazil.

In case of temporary or definitive departure from Brazil, the tax authorities must be informed of this situation, through the Declaration of Definitive Departure from Brazil, under penalty of payment of a fine.

Final Considerations

In summary, even though the globalized and digitally connected world allows more flexible work environments, the tax system is still rigid.

Therefore, before deciding to move temporarily to another country, even if the working conditions are flexible, the digital nomad should check the tax and labour impacts (such as specific visas) that this change may entail, also to understand if it is economically feasible, since simply changing the address to another country may lead to an increase on taxes levied on the income received.

VMS Advogados


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