The taxation of stock purchase rights in Brazil is subject to controversy due to its similarity to stock options, which case some practitioners sustain that any gain realized should be subject to capital gains tax because of the uncertainty of the triggering event, whereas others sustain that it should be taxed as ordinary income as part of an employee's compensation plan.
Therefore, employers and employees are encouraged to consult with their own tax advisors regularly to determine the consequences of taking or not taking any action concerning stock purchase rights.
Generally, if stock purchase rights utilize the employee's own funds, any gain will be subject to capital gains tax. However, if there’s a discount on the purchase price, then such discount may be viewed as compensation and subject to ordinary income taxation.
If employees sell any shares acquired upon exercise of purchase rights, gains will be subject to capital gains tax.
Employees may be exempt from capital gains tax if the gross proceeds from the sale of any stock during a particular calendar month are below a designated threshold. If the threshold is exceeded for the relevant month, the entire gain is subject to tax (ie, not just the amount exceeding such threshold).
Withholding & reporting
Reporting is required if the employer makes deductions from the employee's payroll to fund the employee's stock purchase plan.
Generally, withholding is required, if it is treated as compensation. If treated as an investment made by the employee, no withholding is required.
So long as purchase rights are offered to all employees in Brazil and the subsidiary reimburses the parent company for the cost of benefits, the subsidiary should be able to deduct such cost from its income taxes. However, reimbursement could cause purchase rights to be deemed employment income subject to social insurance contributions.