Bilateral social security agreement now in effect

IMPACT – MEDIUM

What is the change? A bilateral agreement between Brazil and the United States on mutual recognition of social security benefits took effect Oct. 1.

What does the change mean? Under the US-Brazil Social Security Totalization Agreement, U.S. and Brazilian nationals sent to each other’s country on temporary assignment may have their social security contributions and benefits from their home country recognized, thereby eliminating double taxation on the same earnings.

• Implementation time frame: Immediate.
• Business impact: Business costs will be reduced for temporary assignees between the two countries, as employers will no longer be required to contribute to both countries’ social security schemes.
• Next steps: Employers should assess which employees are affected and consider applying for certificates of coverage, which are valid for five years. A certificate of coverage verifies the assignee’s coverage under the home country’s social security scheme and avoids taxation under the host country’s scheme. Additionally, under transition rules, the agreement may cover current employees who were assigned before the Oct. 1 effective date, and employers should also consider applying for certificates of coverage for these individuals. 

Background: The agreement was signed June 30, 2015 but only ratified by both countries in August 2018 with a confirmed implementation date of Oct. 1. Under the agreement, employees of a U.S. entity who are temporarily assigned to Brazil for up to five years would continue to be covered by the U.S. social security system. Assignees working for a foreign affiliate of a U.S. entity may also retain U.S. social security coverage if the U.S. entity agrees to treat these individuals as their employees for social security purposes. The agreement also provides special exceptions for U.S. and Brazilian employees assigned to a third country temporarily.

Analysis & Comments: The agreement is expected to facilitate U.S.-Brazilian professional mobility, business travel and investment. Employers should work with their tax and immigration advisors to determine the best options in individual cases under the new rules.

Source: Deloitte LLP. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 1 New Street Square, London EC4A 3HQ, United Kingdom.