Around the region in Latin America - · PDF fileAround the region in Latin America. October, 2016. 2016 KPMG Global Mobility Forum

Around the region in Latin America

October, 2016

2016 KPMG Global Mobility Forum

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2© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Agenda

01 Welcome

02 Introduction

03 Presentation of client speaker

04 Discussion of Argentina, Brazil, Chile and Mexico main topics

05 Questions


Panel discussion

Partner, KPMG in ArgentinaAdriana Laurino

Partner, KPMG in MexicoNora Solano

Partner, KPMG in BrazilValter Shimidu

Director, KPMG in ChileAngelo Adasme

CPD/BT Americas Manager, Siemens CorporationKatja Hoeniger


Types of International assignments at Siemens

Duration of assignment

Purpose

Special requirement

Typical case

From 1 day to max. 4 years, determined by the duration of the customer project

— Technical or commercial project management

— Installation — Maintenance — Modification — Consulting— Commissioning— Servicing

A CPD applies only to employees, whose primary job responsibility is to work outside their specified employment location and perform any of the above tasks for a specific internal or external customer order / project, including software orders.

CPD Home with active home employment, CPD Host only if required by tax concept, immigration or labor law

Construction Project Delegation

From 6 months to max. 4 years

— Know-How Transfer— Execution of a specific function— Personnel development— Further education measure

Host based delegation with active host employment and considering family relocation

Host / Home Based Delegation

From 1 day to 6 months

— Coordination / synchronizationmeetings, conferences, events

— Project work1

— Servicing1

— Supervisory / board memberactivities

— Training— Marketing / sales, contract

negotiations— Audit, …

International Business Travel

1 In case the CPD definition applies, the CPD prevails over business travel


Recharge process and remittance of income tax and SS


Recharge process and remittance

Why does it matter?— The intention of the assignment is a key factor.— Cost allocation is important to determine the method to remit income tax and social security.— Effects for the home and host entity if a recharge is made (planning opportunities).— Risks involved if scheme is not managed correctly.


Recharge processWould the assignee’s work will be in benefit of the host

entity?

ServiceAgreement

No

Secondment agreement

Employment relationship remains with home country

Compensation remains with home country

Yes

Compensation is paid by home entity?

Service charge (mark-up)

— Analyze corporate taximplications (e.g. “PE”)

NoYesIs a recharge made

to host entity?

Yes No

Host Payroll

Assignee?Shadow Payroll?

Assignee? Shadow Payroll?

— Analyze corporate deduction of the salary expense for home entity

Assignee?Shadow Payroll?

Employment relationship is with host entity


Recharge process and remittanceFrom the perspective of the host company regarding payments made in home company:

Argentina Brazil Chile MexicoIncome

taxSocial

SecurityIncome

taxSocial

Security (5)Income

taxSocial

SecurityIncome

taxSocial

SecurityWith a

charge-back Shadow payroll

Shadow payroll

Assignee “Carnê-

Leão” (1)(4)

Shadow payroll

Shadow payroll

Shadow payroll

Shadow payroll

Shadow payroll

No charge-back (6)

Shadow payroll (2)

Shadow payroll (2)

Assignee“Carnê-

Leão” (4)

Shadow payroll

Assignee N/A Assignee (3) N/A

(1) Corporate withholding obligation up to 40%.(2) Exemption: No economic employer and less than 6 months in Argentina (service agreement in place).(3) Exemption: Less than 183 days in any twelve month period and home entity without a PE in Mexico.(4) Exemption: Less than 183 days in any twelve month period and visa without a labor contract.(5) Not applicable if the individual has a visa without a labor contract.(6) Review tax treaties since the individual could be fully exempt.


Shadow payroll

What is a shadow payroll?— Does not imply the payment of the salary in the host company.— Generally triggered by a charge-back of the cost of the salary to the host entity.— Mechanism by which companies comply with a country’s tax laws requiring tax withholding and

reporting, independent of where actual pay is delivered.— Minimize the risk of a permanent establishment for the home company in the host country.


Recharge process and remittanceWhat happens in the home country for payments made by the home country?

Argentina Brazil Chile MexicoIncome

taxSocial

SecurityIncome

taxSocial

SecurityIncome

taxSocial

SecurityIncome

taxSocial

SecurityWith a

charge-backWithholding obligation

while resident

Payment obligation

Withholding obligation

Payment obligation


Payment obligation

No withholding obligation

N/A

No charge-back (2)


while resident

Payment obligation


Payment obligation


Payment obligation


(1)

Payment obligation

1) Except if the individual is non-resident without Mexican working days.2) Need to analyze corporate deduction.


Chile

Brazil

Country Service Payment Withholding Issues

Brazil 0% 50% 25% rate x 50% No credit available for the tax paid in Chile

Chile 100% 50% 40% rate x 100% No credit available for the tax paid in Brazil

End of assignmentAssignmentStarts (paid from Brazilian payroll but cost is charged-back and assignee

stops to be a resident in Brazil)

Planning opportunities

Double tax for the Brazilian withholding. Analyze reducing payment in Brazilian payroll.


Host Country (HC): no treaty with Chile

Chile

Country Service Payment Withholding Issues

Chile 0% 50% 40% rate x 100% No credit available for the tax paid in HC

HC 100% 50% 35 % rate x 100% No credit available for the tax paid in Chile

End of assignmentAssignmentStart (paid 50% from Chilean payroll.

Cost is charged-back)

Planning opportunities

Double taxation.Analyze remove assignee from Chilean payroll to stop Chilean tax

residence.


International Social Security (SS)


International social security

Why does it matter?— SS generally represents an important cost of the assignment.— SS rates and caps (if applicable) change substantially from one country to another within the

LATAM region.— It is normally one of the assignees concerns since it could be problems when applying for SS

benefits.— Cost optimization VS the employee´s interest must be managed.— It is important to avoid making payments to the wrong SS authority, or duplicating SS

contributions. That is why:— It is necessary to analyze if there is a Totalization agreement in place between the home &

host.— If there is no Totalization agreement, it is necessary to analyze domestic rules in the host

location. — Also voluntary payments should be evaluated.


International social security rates

0

5

10

15

20

25

30

35

40

Employer Employee

Assumption: Annual Compensation US$ 100,000Source: KPMG Network


International social security rates

0

5

10

15

20

25

30

35

40

Employer Employee

Assumption: Annual Compensation US$ 300,000Source: KPMG Network


SS General Principle

Territoriality:—Generally, a person is subject to the SS legislation corresponding to the country in which services

are rendered.—However, there could be double taxation issues to be analyzed, when the assignee remains in the

home country payroll.

To be analyzed:—Application of Totalization agreements signed between two/various countries.—Local regulations that allow the possibility of maintaining the home country´s SS legislation for a

certain period of time.


What should be asked when analyzing an assignment?

Have the home and host countries signed a Totalization agreement?

If YES…

—What is the maximum period of time authorized by the exception regulated in the agreement? —What are the contingencies covered by the agreement (sickness & maternity? Accidents at work?

Old age pension? Unemployment benefits?). If any contingency is uncovered, must the company cover it?

—What documentation must be filed in each country to apply for this exemption?—Do the social security authorities allow the application of this exemption?—How are the totalization agreements rules be applied by the two signatory countries when

determining future benefits/pensions?


LATAM Totalization agreement matrix

HOME

COUNTRY

H O S T C O U N T RYARGENTINA BOLIVIA BRAZIL CHILE COLOMBIA COSTA RICA DOMINICAN

REP. ECUADOR EL SALVADOR GUATEMALA MEXICO NICARAGUA PANAMA PARAGUAY PERU URUGUAY

ARGENTINA 3 2-3 1-3 3 3 2-3 1 2-3

BOLIVIA 3 3 3 3 3 3 3

BRAZIL 2-3 3 1-3 3 3 2-3 2-3

CHILE 1-3 3 1-3 1 1-3 3 1-3 1 1-3

COLOMBIA 1

COSTA RICA

DOMINICAN REP.

ECUADOR 3 3 3 1-3 3 3 3

EL SALVADOR 3 3 3 3 3 3 3

GUATEMALA

MEXICO

NICARAGUA

PANAMA

PARAGUAY 2-3 3 2-3 1-3 3 3 2-3

PERU 1 1

URUGUAY 2-3 3 2-3 1-3 3 3 2-3


What should be asked when analyzing an assignment?

Have the home and host countries signed a Totalization agreement?

If NOT…

—Is it compulsory to contribute to both social security systems (home country and host country)?—Is it possible to change the company´s polices to avoid double taxation (e.g. Argentina)?—Are there voluntary schemes to continue contributing (e.g. Argentina, Chile, Mexico)?—What will be the total social security cost, and how can this impact on the total assignment cost? —Could the employee/company recover the social security contributions made during the

assignment period once it ends (e.g. Peru, Chile)?


Domestic LegislationCountry Provision for InboundsArgentina Exemption from SS (employee + employer) as long as:

- The assignment does not last more than 2 years;- The assignee is a professional / technician;- The assignee obtained a temporary visa; and- The assignee is covered against disability or death in his/her country.

Chile Exemption from SS (employee + employer) as long as:- The assignee must be affiliated to a foreign social security system which provides benefits at least equal to those minimum benefits provided by the Chilean social security system, which covers illness, disability, retirement and death; - The assignee must declare his/her intention to keep his/her affiliation to the foreign social security system within the respective Chilean employment contract; and- The assignee must have a technical or professional degree, and this fact must be supported with the corresponding documentation.


Fundo de Garantia do Tempo e Serviço - FGTS


FGTS

Why does it matter?— It represents an additional cost to be considered when sending individuals to Brazil.— Applicable for all assignees with working visa with labor contract (included in Brazilian payroll) and

permanent visa – optional.— No international agreements can be applied to avoid the FGTS payment.— FGTS calculation is based on overall remuneration (Brazil and abroad).— FGTS fund may be treated as taxable income.


FGTS

Eligible— All regular employees;— Statutory Directors: Optional.

Not eligible— Interns;— Independent contractors;— Apprentices.


How it works?— Each month, the employer must contribute the equivalent of 8% of total remuneration of each

employee for FGTS purposes.— This amount is deposited in each employee’s name in a separate account with the public bank

designated by the government (Caixa).— The amount deposited is adjusted monthly by TR – Annual rate is approximately 3%.


When FGTS can be withdrawn?— Dismissal without just cause;

– The employer must pay the employee 40% of the actual balance of the FGTS account – And, an additional 10% to the federal government.

— 3 years without FGTS deposits;— Purchase of real estate;— Retirement;— Death of the employee;— Serious illness;


Where FGTS can be withdrawn?— Caixa’s Agencies in Brazil— Brazilian Consulate:

South Africa Canada JapanGermany Colombia New ZealandArgentina Spain ParaguayAustralia USA PortugalAustria France UKBelgium The Netherlands SwitzerlandBolivia Ireland SurinameCape Verde Italy UruguayVenezuela


What are companies doing to deal with FGTS issues?— Consider FGTS as part of the compensation package.— Change hiring scheme to avoid the FGTS payment: Regular Employee for a Statutory Director.— Add remuneration paid abroad into FGTS calculation.— Require the FGTS reimbursement from assignee: Labor Claim.— Termination of the labor contract - FGTS


Hot topics


Hot Topics

Country Hot TopicArgentina Voluntary Disclosure Regime (Tax

amnesty).Brazil Voluntary Disclosure Regime (Tax

amnesty), e-social (electronic payroll).Chile Tax rates, Stock option treatment.Mexico Inheritances and donations.


Questions

Adriana Laurino

Contacts

PartnerKPMG in ArgentinaT: + 54 11 4316 5784E: [email protected]

Nora SolanoPartnerKPMG in MexicoT: +52 55 5246 8522E: [email protected]

Katja HoenigerCPD/BT Americas ManagerSiemensT: +1 732 429 2140E: [email protected]

Angelo Adasme

Contacts

DirectorKPMG in ChileT: +56 22 798 1435E: [email protected]

Valter ShimiduPartnerKPMG in BrazilT: +55 11 3940 3269E: [email protected]


Thank you

© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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Documents

Around the region in Latin America - · PDF fileAround the region in Latin America. October, 2016. 2016 KPMG Global Mobility Forum