There are no legal obstacles but the tax treatment of stock options is not clear because there’s no specific legislation dealing with stock options and equity awards in general.
As a result, it’s difficult to tell how and when stock options are going to be taxed by the Brazilian tax authorities (because the gains realized could be considered as either income similar to a business income or something closer to capital income).
For this reason, it’s recommended that the grantee consults with a personal tax advisor, in particular at the time of exercise of the stock options and upon sale of the shares.
Even though taxation isn’t clear, there shouldn’t be any taxation at the time of grant.
The taxation at the time of exercise is unclear and there are 2 positions seen in practice:
- Position 1 (the prudent one): There’s a taxation at exercise, on the difference between the fair market value (FMV) of the shares at the time of exercise and the exercise price, which is taxed as any professional income.
- Position 2 (the bold one): There’s no taxation at exercise, but only when the grantee sells the shares.
Regardless of which position is taken, there would be a taxation at the time of sale, either on the difference between the sale price and the fair market value (FMV) of the shares at the time of exercise (Position 1), or on the difference between the sale price and the exercise price (Position 2).
In both cases, the sale would be subject to capital gains tax.
You can grant non-qualified stock options (NSO) to Brazilian residents.
In a scenario where the stock options are offered to employees of a local subsidiary (and not, for instance, simply to a few local contractors or employees employed via an Employer of Record), Easop's local lawyers recommend taking a prudent approach and consider that there should be a taxation at the time of exercise.
Employee via EoR
You can grant non-qualified stock options (NSOs) to local residents employed via EoR in Brazil.
You can grant non-qualified stock options (NSOs) to local residents employed as contractors in Brazil.
The company won’t legally have to do anything vis-à-vis the local authorities at any time of the stock options lifecycle as it will be the grantee’s responsibility to report the taxable gains and pay the taxes.
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