Covid-19: Consequences for companies invested in Brazil

published on 7 April 2020 | reading time approx. 2 minutes

As expected, the covid-19 panic wave hit in the meantime Brazil and drastic measures being taken. Accordingly, extraordinary situations concerning employment and commercial relationships arise.

  
 
In particular, in these days next to financial concerns, the management of employment relationships, tax measures and corporate impacts are in the focus: Does the employer have to pay the quarantined employees? Are taxes due in this period of quarantine? Will the companies be able to register any association changes in the Company?

Learning also from our invaluable experiences of our Asian and European colleagues, with this newsletter we are starting to clarify the principal situations that could arise and where we can help you to overcome Covid-19 with the least damage possible for your company and your employees:

• Relevant labor law aspects
• Special tax easements
• Corporate concerns

As the situation is constantly evolving, we will guide you via relevant updates.

Labor aspects

WORKING ACTIVITY SUSPENDED OR REDUCED

Some of the states in Brazil have already determined that public services would be reduced and events canceled  (for example, Paraná, Santa Catarina). For each state the rules must be analyzed. We clarify that some states has already determined the closing of shopping malls, gyms, part of public transportation and schools, states are publishing new measures in a daily basis.
 

In addition, we would like to inform that 927/2020 was published providing for measures such as the reduction of salaries by the daily workload in order to reduce the cost of companies and maintain jobs.

To provide support to our clients, we would like to inform five valid explanations:

1. Sickness Leave: the usual treatment must be applied and the employee who has got a medical certificate will continue to receive the salary regularly until the 15th day, after this period the salary will be paid as health benefit established in the rules of Social Security (INSS).
2. Adoption of bank of hours – According to rules stipulated by MP 927/2020, Labor Law and Collective agreements.
3. Anticipation of vacations and collective vacation –  it is possible for the employees to be on vacation due to reduction of activities in the Company.
4. Adoption of home-office for a fixed time. It must follow rules according to what is stipulated by MP 927/2020.
5. Voluntary Demission Program – this modality must be done together with the Labor Union where companies are able to reduce their workforce and, consequently, payroll costs, with greater legal certainty than a simple collective dismissal.

Economy Minister Paulo Guedes announced on Monday night (16/3) a set of emergency measures to protect the population most vulnerable to the coronavirus pandemic. For more information please check our Tax impacts below.

QUARANTINED/ISOLATED EMPLOYEES

Employees with symptoms attributable to the Covid-19 disease are placed under observation and in this case, since they are absent from work for medical treatment, their absence is regulated according to the ordinary legal and contractual provisions (sickness leave). The same applies to the case of an employee quarantined even if without symptoms but with a medical certificate.
For the purpose of the law, it is considered:

 
I - isolation: separation of sick or contaminated persons, or luggage, means of transport, goods or affected postal, from
others, in order to avoid contamination or the spread of the coronavirus; and

II - quarantine: restriction of activities or separation of persons suspected of being infected by persons who are not sick, or of luggage, containers, animals, means of transport or goods suspected of being contaminated, in order to avoid possible contamination or the spread of the coronavirus.
Finally, according to law 13,979/2020, only public officials may require examinations, however, the employer, in case of suspicion of an employee's infection, may inform the municipal health secretariat to carry out the necessary steps. 

SAFETY AT WORKPLACE

In any case, if employers do not opt for the suspension of their working activities or do not allow home office, it is required to carefully assess the risks to the health and safety of their employees, providing them – whenever the risk assessment shows a concrete risk and on the basis of the indications of the relevant health and safety officer  – with all the necessary personal protective equipment (such as – for example – disposable masks, latex gloves, disinfectants, etc).

Tax aspects

In order to alleviate the cash flow and provide liquidity to companies, in line with measures adopted by other countries, such as China which exempted small taxpayers from VAT in Hubei province until May 2020, the Brazilian government is studying postponing the collection of federal corporate taxes, which are normally collected on a monthly basis, for a limited period (but for payment still in 2020).  The main concern would be to prevent that the impact on companies' cash flow, could lead them to bankruptcy.

 
Among the measures announced, there will be for at least three months i) payroll relief, with suspension of the payment of the Severance Premium Reserve Fund (FGTS) and contributions to the National Social Security Institute (INSS); ii) deferment of the payment of taxes due to the Federal Government under  Simples Nacional for small and medium-sized companies iii) a 50 per cent reduction in contributions from the S System (Sesi, Senai, Sesc, Senac and others); iv) reduction of the Tax on Industrialized Products (IPI) for domestic and imported products that are related to the Covid-19 confrontation; v) reduction to zero, of the import tax (II)  rates of products for medical use until the end of the year.

The economic team is also studying to provide additional tax reliefs to the sectors most affected by the crisis, such as the aviation sector, where the postponement of PIS/COFINS collection, for the issuance of airline tickets, and reduction of PIS/COFINS tax rates on aviation kerosene are being structured.

 
Regarding the reduction of the II rate, there was the publication of the Ministry of Economy/COMEX Resolution No. 17, of March 17, 2020 while the temporary reduction of the IPI rates was granted by Decree 10,285 of March 20, 2020.  On the other hand, the extension of the deadline for payment of federal taxes under the Simples Nacional was granted by Resolution 152 issued by Simples Nacional Management Committee.

 
In addition, on March 18, it was disclosed that based on Provisional Measure No. 899/2019, the Ministry of Economy has allowed the adoption of measures to suspend collection acts and facilitate renegotiation of debts due to the Covid-19 crisis, such as i) suspension, for 90 days, of deadlines for taxpayers to file administrative appeals and ii) reduction of down payments and payment deadlines of up to 184 months for companies in general and 100 months for individuals, microenterprises or small companies, after deferment of 90 days from the first installment.

 
For the other measures, the publication of the relevant regulations is still pending.

Corporate aspects

According to the information currently available, the tax authorities, notaries and the Board of Trade will not cease their activities for the time being, but the processing of requests will most likely take longer due to the reduction in personnel.

Our Corporate Services department is structured to assist you during the Covid-19 crisis with all areas and aspects of corporate matters such as establishment and closure of companies, amendments to the Articles of Association, registrations before the Board of Trade and the Central Bank. Since many Brazilian subsidiaries will not be able to overcome the financial challenges resulting from the crisis on their own, capital injections by the parent company will be unavoidable. We may also assist you in the realization of such capital injections, e.g. capital increase or intercompany loans.

We are monitoring the situation and inform you of any changes that might affect your business in Brazil.