Companies in sectors benefiting from payroll tax relief can choose to abandon the regime before its expiration date, scheduled for 2028. The gradual reintroduction of taxes, which begins in 2025 and extends until 2027, is making the regime less advantageous for many sectors, according to Pedro Ackel, Legal and Tax Director of the Brazilian Association of Administrative Support Service Providers (Abrapsa).
“The law approved this year proposes a transition process that, year after year, will make the payroll tax exemption regime less attractive to many companies,” says Ackel. The main advantage of the payroll tax exemption regime has been the replacement of the 20% social security contribution on payroll with a contribution calculated on companies' gross revenue, called the Social Security Contribution on Gross Revenue (CPRB), with rates ranging from 1% to 4.5%. This modality has been particularly beneficial for companies with large payrolls, such as those in technology, construction, and 17 other sectors of the economy.
However, starting in 2025, companies will face a hybrid taxation system, in which the tax rate on gross revenue will be progressively reduced, while the payroll tax will be gradually reintroduced. In 2025, for example, the CPRB (Social Security Contribution on Gross Revenue) rate will be reduced to 80% of the current value, and companies will have to pay a 5% contribution on payroll. In 2026, the payroll tax contribution rises to 10%, and in 2027, it reaches 15%, while the CPRB rate continues to fall. This transition model has generated concern in labor-intensive sectors, which are already considering the possibility of leaving the system before 2028.
Financial impact on affected companies and sectors
“The proposed hybrid taxation system may cause companies that already have high payrolls relative to revenue to see their costs increase starting in 2025,” explains Pedro Ackel. He notes that the projection of payroll costs and revenue will have a decisive weight in companies' choice between remaining in or abandoning the payroll tax exemption regime. “For those companies whose payroll represents a significant portion of their revenue, the new regime may prove financially unviable, encouraging them to leave the program before 2028 and return to the conventional payroll tax regime.”
Some sectors, such as technology and construction, are particularly affected by this transition, since salaries represent a large proportion of gross revenue in these sectors. Many companies in these sectors may choose to abandon the tax exemption as early as 2025, due to the increased tax burden that the new rule brings.
Possible return of "pejotização" (the practice of hiring workers as independent contractors rather than employees)
One possible consequence of this tax increase is the return of the practice of "pejotização" (contracting employees as independent contractors), which allows companies to avoid labor costs such as FGTS (Brazilian severance fund), 13th-month salary, and vacation pay. With the new scenario of progressive taxation, it is possible that companies will begin to develop "pejotização" projects for high-salary positions, seeking to minimize the costs that will be caused by the tax increase.
The practice of "pejotização" (a form of disguised employment), which has lost momentum in recent years due to conflicting case law, could regain traction if payroll tax relief becomes financially unviable for large companies. "Professionals in strategic positions and with high salaries will be the most affected, since 'pejotização' is an alternative to reduce labor costs for these roles," adds Ackel. He also indicates that before making any decision in this regard, it is advisable to analyze the labor and tax risks.
The future of tax breaks and payroll tax reform
The payroll tax reform, scheduled for 2025, could directly impact the future of the payroll tax exemption regime. "There are ongoing discussions for a broader reform of payroll taxation, which could make the payroll tax exemption unnecessary even before 2027," he states. He emphasizes that the reform under study aims to create a more efficient and less burdensome tax system for companies, which could accelerate the end of the current exemption regime.
Nevertheless, Pedro emphasizes that, although it is too early to say for sure what the impact of this reform will be, it will bring significant changes to the Brazilian tax landscape, and companies need to be aware of possible alterations to the contribution regime. "The early end of the payroll tax exemption could become a reality if the reform brings more advantageous or simplified alternatives for payroll taxation," he concludes.
With the gradual reintroduction of payroll taxes planned between 2025 and 2027, the payroll tax exemption regime, which currently benefits labor-intensive sectors, may become less attractive. Companies in sectors such as technology and construction are already considering abandoning the regime, opting for a return to the traditional payroll contribution model. Furthermore, the use of independent contractors (known as "pejotização" in Brazil) for key professionals is emerging as an alternative to reduce labor costs. The payroll tax reform, scheduled for 2025, could define the future of this regime and the viability of its continuation.
