In Brazil, incentive arrangements are significantly more commonly structured as short-term, cash-based incentives offered to employees in general. Long-term incentive plans, particularly those linked to equity or equity-like instruments, are typically reserved for key individuals, such as C-level executives, statutory officers and senior directors. This distinction reflects both market practice and employers’ sensitivity to labour and social security risk exposure.

Short-term cash incentives are widely used across sectors and organisational levels, while long-term incentives have increased in importance in recent years as companies seek to retain senior leadership and align them with long-term business objectives. The expansion of long-term incentive plans has been particularly notable in multinational groups and larger Brazilian companies adopting international compensation models.

The Brazilian market shows a clear distinction between short-term cash incentives for the general workforce and long-term incentives aimed at key employees. Employers typically tailor each structure to balance talent retention, corporate governance, tax and regulatory risk. Alignment between contractual design and practical implementation remains a decisive factor in the legal classification and effectiveness of incentive plans.

Short-Term Cash Incentives for Employees in General

• Performance bonuses and prizes: Cash bonuses and performance-based awards are the most common incentive mechanisms in Brazil and are typically linked to individual or collective performance targets. These payments are generally discretionary and assessed over short cycles, such as monthly, quarterly or annual periods. From a legal perspective, the level of predictability and habitual payment are critical in determining whether such amounts may be treated as part of ordinary remuneration.
• Profit sharing: Profit-sharing plans (Participação nos Lucros e Resultados – PLR) are widely adopted in Brazil and regulated by specific legislation, allowing employers to reward employees based on company performance. When properly structured, PLR payments are not characterised as salary and are not subject to social security contributions. In practice, these plans are often used as a tax-efficient incentive for the broader workforce, subject to compliance with applicable formal negotiation and governance requirements.

Long-Term Incentive Plans for Key Employees

• Stock option plans: Stock option plans (SOPs) are the most common form of long-term equity incentive offered to executives and senior management in Brazil. They grant participants the right to acquire shares at a predetermined price once vesting conditions are satisfied, typically linked to tenure and performance criteria. These plans are generally structured to emphasise their investment nature, to distinguish them from direct remuneration for services.
• Restricted share units: Restricted share units (RSUs) provide beneficiaries the right to receive shares, or their cash equivalent, upon the fulfilment of vesting conditions. Unlike stock options, RSUs do not require the payment of an exercise price, which enhances their perceived retention value. In Brazil, RSUs are less common than stock options but are increasingly used within multinational compensation frameworks.
• Phantom share plans: Phantom share plans are cash-settled long-term incentive arrangements linked to the notional value of company shares or to predefined valuation metrics. They do not involve actual share ownership and are therefore more frequently adopted by privately held companies. Despite their equity-like economics, phantom shares are generally treated as cash-based incentives, which requires careful structuring to manage labour and tax exposure.

The differences between incentive plans offered by listed and private companies are better understood by distinguishing between short-term and long-term incentives, rather than focusing solely on the company’s corporate status. Short-term incentives are predominantly cash-based, while long-term incentives may be structured in cash and/or equity, depending on governance constraints and market access.

This distinction applies to both listed and private companies, although the available instruments and their practical implementation vary significantly between them.

The choice between cash and equity-based long-term incentives is strongly influenced by corporate governance and tax considerations. Listed companies operate under more stringent disclosure and approval requirements, while private companies often prioritise shareholder control and liquidity management. In both cases, incentive plans are typically designed and implemented through a multidisciplinary approach, integrating labour, corporate and tax expertise to ensure consistency between legal structuring and business objectives.

Short-Term Incentives: Cash-Based Arrangements

Short-term incentives in Brazil are almost exclusively cash-settled and are widely used by both listed and private companies. They are typically linked to short-term performance cycles and are designed to reward results achieved within a defined financial year. Common short-term incentive models include:

• performance bonuses or awards linked to individual, team or company-wide targets; and
• profit-sharing plans, which, when properly structured, benefit from a specific legal and tax framework.

In listed companies, these incentives tend to be more standardised and embedded in formal remuneration policies, while private companies often retain greater flexibility and discretion in their design.

Long-Term Incentives: Cash and Equity-Based Structures

Long-term incentives are predominantly offered to key employees, such as C-level executives and senior directors, and are designed to promote retention and alignment with long-term value creation. Unlike short-term incentives, they may be structured either in cash or through equity participation.

Equity-Based Long-Term Incentives

Equity-based long-term incentives are more common in listed companies, where access to liquid shares facilitates their implementation. The main models include:

• SOPs, which grant the right to acquire shares at a discounted or predetermined price, reinforcing their investment nature.
• RSUs, which involve the grant of shares subject to vesting conditions and restrictions on political and economic rights during the vesting period.

Cash-Settled Long-Term Incentives

Cash-settled long-term incentives are more frequently adopted by private companies, although they are also used by listed entities in specific circumstances. The most common model is phantom share plans, under which the beneficiary receives a cash amount indexed to the value of the company’s shares or to predefined valuation metrics, without any actual equity transfer.

No major statutory reform concerning employee incentives has been formally announced in the short term. In practice, the most material developments continue to be driven by case law and tax enforcement activity on the line between (a) equity plans structured as a genuine investment and (b) disguised remuneration.

A key recent development is that the Superior Court of Justice (Superior Tribunal de Justiça – STJ) has consolidated the view that SOPs with genuine investment features may have a mercantile nature, with personal income tax generally arising upon the resale of the shares (as capital gains), rather than at grant or exercise. This has steered market practice towards an “investment-style” approach to plan design, including stricter eligibility criteria, clearer vesting mechanics and, critically, a defensible exercise price and economic risk allocation.

Looking ahead, the most significant uncertainty is payroll-related taxation. Administrative case law at the Federal Administrative Council of Tax Appeals (Conselho Administrativo de Recursos Fiscais– CARF) has not been fully consistent on whether equity gains should be subject to social security contributions, and the matter remains under judicial review. Any alignment of payroll treatment with the STJ’s income tax approach would materially reduce employer payroll exposure; the opposite outcome would increase the cost of equity incentives.

Separately, scrutiny remains high in relation to RSUs, restricted shares and cash-settled equity-linked plans, which are more readily characterised as remuneration. In this environment, robust governance (approvals and disclosure for listed issuers), consistency between plan documents and actual practice, and defensible valuation support are increasingly critical to mitigate audit and litigation risk.

In Brazil, incentive plans are commonly differentiated according to the employee’s role within the organisation. Executives typically participate in the same cash-based incentive programmes offered to the general workforce, while also benefiting from additional long-term incentive arrangements. As hierarchical seniority increases, a greater proportion of total remuneration is generally delivered through long-term incentives, including equity-based plans.

This structure reflects the expectation that senior executives have a direct influence on the company’s long-term growth and strategic performance. By contrast, non-executive employees typically perform operational or execution-focused functions, with a less direct connection to long-term value creation.

Cash Incentive Plans

Cash incentives for all employees

For employees in general, cash incentives represent the primary form of variable remuneration. These typically include annual bonuses, performance-based awards and profit-sharing arrangements linked to short-term results. From a behavioural perspective, cash payments tend to be perceived as having immediate and tangible value, which contributes to their popularity at operational levels.

Cash incentives for executives

Executives usually participate in the same cash incentive arrangements available to the broader workforce, but with higher potential payout levels and more sophisticated performance metrics. These incentives are commonly linked not only to operational results, but also to broader financial and strategic objectives. Despite their importance, cash incentives typically represent a declining proportion of total compensation as seniority increases.

Share and Long-Term Incentive Plans

Long-term incentives for executives

Long-term incentive plans are predominantly offered to executives and key members of management. The most common models include SOPs, restricted shares or RSUs, and, in some cases, phantom share plans. As executives move into more senior roles, a greater share of their variable remuneration is allocated to equity or equity-linked incentives rather than cash.

This reflects the close relationship between executive decision-making and the company’s long-term growth. Equity-based incentives are therefore used to align management’s interests with those of shareholders and to foster a sense of ownership.

Share incentives and the general workforce

Share incentive plans covering all employees are relatively uncommon in Brazil. Legal complexity, tax uncertainty and governance concerns often limit their adoption beyond executive populations. Moreover, employees in non-managerial roles generally attribute greater perceived value to immediate cash payments than to deferred or equity-based incentives.

Cash incentives remain the most popular form of incentive across all employee levels in Brazil. Share-based and long-term incentives are more selectively adopted and are primarily associated with executive remuneration. Their growing use at senior levels reflects not only retention and alignment objectives, but also the expectation that senior management will share in both the risks and rewards associated with the company’s long-term performance.

Employee share plans are typically implemented in Brazil without requiring a local prospectus or prior regulatory approval, provided they are structured as private, employment-related programmes rather than as public offerings of securities.

• Foreign parent plans: Where the shares are issued by a non-Brazilian parent and offered only to employees or directors in Brazil, the arrangement is usually treated as an offshore plan and does not, in itself, trigger registration with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM). Companies typically mitigate any “public offering” risk under CVM rules by limiting communications to eligible participants, avoiding public marketing, and including “No public offering in Brazil” legends and disclaimers in plan documentations.
• Brazilian issuers: For listed Brazilian companies, grants made under an SOP approved by the board and/or shareholders are generally addressed within the company’s remuneration and corporate governance framework (corporate approvals and ongoing disclosure obligations), rather than through public offering documentation.

A prospectus and related filings may become relevant where the structure resembles a public offering (eg, where it is marketed to the wider investing public, extended to non-employees, or combined with broader capital-raising activities). In such scenarios, the CVM rules on public offerings (including CVM Resolution 160 and related regulations) should be assessed on a case-by-case basis.

The communication and promotion of share plans to employees in Brazil are generally not subject to the same restrictions applicable to public offerings of securities. Employee share plans are typically treated as private, employment-related arrangements, provided participation is limited to employees, officers and directors and the plan is not marketed to the public.

Although no prior regulatory approval is required, communication materials must be factual and avoid promotional or investment-driven language. Unlike jurisdictions with specific employee share plan disclosure rules, Brazilian law relies on general securities law principles to prevent public solicitation.

Careless communication may therefore increase the risk of the plan being classified either as a public offering or as a remunerative benefit.

In cross-border plans, Brazilian employees usually participate under the issuer’s home jurisdiction disclosure framework, without triggering additional local filings. In practice, the absence of a specific statutory regime increases the importance of consistent drafting and multidisciplinary review to preserve regulatory exemptions and mitigate labour and tax risks.

The local employer in Brazil may fund the costs of an employee share plan, including (a) payments to acquire shares in the market and/or (b) reimbursements or contributions to the parent company related to the plan costs attributable to Brazilian employees.

There is no specific legal prohibition under Brazilian labour, corporate or securities law preventing such funding. These payments are generally treated as intercompany charges or employment-related expenses, provided they are properly documented, accounted for and supported by a valid contractual arrangement between the local employer and the parent company.

From a corporate perspective, no prior regulatory approval is required. However, internal corporate approvals may be necessary in accordance with the local employer’s by-laws or articles of association (for example, approval by management or the board, depending on the amount and nature of the expense).

From a tax and labour perspective, care must be taken to ensure that the funding mechanism does not characterise the plan as a guaranteed or mandatory benefit, nor as direct remuneration. In practice, companies typically mitigate this risk by clearly allocating costs as discretionary expenses and maintaining the plan as voluntary and subject to vesting conditions.

In cross-border structures, transfer pricing rules and withholding tax implications may apply depending on how the costs are allocated and reimbursed, but these do not affect the legal validity of the funding itself.

For an issuer incorporated in Brazil, the grant of share-based incentives typically requires formal corporate approval, usually by means of a board of directors’ resolution (or, where applicable, a quotaholders’ and/or shareholders’ resolution, depending on the company’s corporate governance structure). The resolution generally approves the terms of the plan and authorises the grant of awards to eligible participants.

The grant itself is commonly implemented through an individual grant instrument (such as a grant letter) executed between the issuer (or the plan sponsor) and the participant, setting out the specific terms of the award, including vesting conditions, the exercise price (if any) and forfeiture provisions.

No notarial acts, governmental filings or regulatory approvals are typically required for the grant of awards under share incentive plans, provided the plan is structured as a private corporate arrangement and does not involve a public offering of securities.

Brazil does not impose exchange control restrictions specifically targeted at equity or incentive plans. However, cross-border cash flows arising from such plans are subject to foreign exchange regulations and reporting obligations overseen by the Central Bank of Brazil (Banco Central do Brasil).

• Employee remitting funds abroad to acquire shares or exercise options: Employees may freely remit local currency abroad to pay an option exercise price or acquire shares, provided the transaction is executed through an authorised financial institution. The remittance must be properly classified for foreign exchange purposes, and the underlying transaction documented. There are no quantitative limits, but the transaction may trigger tax reporting obligations depending on the amounts involved.
• Employee selling shares and remitting funds into Brazil: Proceeds from the sale of shares abroad may be freely repatriated to Brazil through the official foreign exchange market. The inflow must be reported to the financial institution processing the transaction, with appropriate classification. Employees remain responsible for complying with income tax and capital gains reporting obligations in Brazil.
• Local employer funding the plan abroad: Where the local employer sends funds abroad, whether to purchase shares in the market or to reimburse the parent company, the remittance must follow standard foreign exchange procedures and be supported by contractual documentation. Depending on the structure, such payments may also need to be reflected in cross-border services or cost-sharing arrangements, with potential tax and accounting implications.

Although Brazil has progressively simplified its foreign exchange regime, accurate classification and reporting remain essential, as failures may result in administrative penalties rather than the invalidation of the transaction itself.

The tax and social security treatment of share option plans depends on whether the structure reflects a genuine investment arrangement or remunerative compensation.

Grant of Options

No tax applies at grant, as the employee receives only a contingent right, with no immediate economic benefit and no measurable taxable base.

Exercise of Options/Acquisition of Shares

Tax consequences arise at exercise, when the employee acquires the shares.

If the exercise price corresponds to fair market value, the transaction is generally treated as mercantile, and no income tax or social security contributions apply, as there is no economic gain at the time of acquisition.

Where the exercise price is significantly below fair market value, tax authorities may treat the discount as remuneration. In such cases, the taxable base is calculated as the difference between the fair market value at exercise and the exercise price, with:

• withholding income tax on the discount; and
• employee social security contributions calculated on the same amount.

Sale of Shares

Upon disposal, the employee is subject to capital gains tax calculated on the positive difference between the sale price and the acquisition cost.

The acquisition cost corresponds to the exercise price plus any amount previously taxed as remuneration, ensuring that the same economic benefit is not taxed twice.

No social security contributions apply at this stage.

Restricted shares are commonly granted free of charge and are therefore generally treated as remunerative compensation, with tax and social security consequences assessed at different stages.

Grant

No tax applies at grant, as there is no transfer of shares and no measurable economic benefit to the employee at this stage.

Vesting/Delivery of Shares

Taxation arises upon vesting, when the employee effectively receives the shares.

The taxable base corresponds to the fair market value of the shares at vesting, as this represents the full economic benefit received at no cost.

On this amount:

• withholding income tax applies, calculated on the gross fair market value; and
• employee social security contributions apply, calculated on the same value, as the benefit is treated as salary-related remuneration.

Sale of Shares

Upon disposal, the employee is subject to capital gains tax calculated on the positive difference between the sale price and the acquisition cost.

For this purpose, the acquisition cost is the fair market value used as the taxable base at vesting, preventing double taxation.

No social security contributions apply at this stage.

The local employer’s obligation to withhold income tax and to pay employer social security contributions depends on whether the share-based incentive is characterised as remunerative compensation or as a genuine mercantile arrangement.

Where share awards, RSUs or restricted shares are treated as remunerative, most commonly because they are granted free of charge or without meaningful investment risk, the local employer is required to withhold income tax at source and to pay employer social security contributions. In such cases, the taxable base corresponds to the fair market value of the shares at the relevant taxable event (typically vesting or delivery), reduced by any amount paid by the employee.

By contrast, in properly structured SOPs that reflect a true investment, particularly where the exercise price is aligned with fair market value, no remuneration is deemed to arise at grant or exercise. As a result, the local employer generally has no withholding or social security obligations, as no taxable employment income is recognised.

As a general principle, corporate tax deductibility is linked to the remunerative nature of the expense. Where the plan is treated as compensation and the employer bears the cost, whether by purchasing shares on the market or reimbursing the parent company, the expense may be deductible for corporate income tax purposes, subject to the ordinary deductibility requirements.

Conversely, costs associated with mercantile equity plans, including genuine SOPs, are typically not deductible, as they are not regarded as remuneration expenses for Brazilian tax purposes.

In the absence of specific legislation and consistent administrative guidance, the tax treatment of withholding obligations and corporate deductibility remains subject to heightened scrutiny, making robust structuring and clear documentation essential to support the intended characterisation of the plan.

Brazil does not have an “approved plan” regime that grants automatic tax relief for equity incentives. A more favourable outcome generally depends on structuring the plan to support a mercantile and/or investment character (as opposed to remuneration for services), based on a facts-and-circumstances analysis.

In practice, the most common employee-efficient structure is an SOP where:

• participation is voluntary;
• the employee pays an exercise price aligned with fair market value at grant;
• vesting is conditional (typically on time or performance); and
• the employee bears genuine downside and liquidity risk (with no guaranteed gain or exit).

When these elements are present, the prevailing judicial approach is to tax the employee mainly on capital gains upon resale of the shares, which typically avoids employer withholding and payroll charges at grant or exercise.

By contrast, RSUs, restricted shares granted free of charge (or at a nominal price) and cash-settled “phantom” plans are more likely to be treated as salary-like remuneration. This typically triggers withholding and payroll charges, but it may support corporate income tax deductibility if the local employer bears the cost.

Structures designed for employee tax efficiency and reduced payroll exposure are often less favourable from the employer’s deductibility perspective, while salary-like awards can be deductible but are typically more expensive from a payroll perspective and less efficient for the participant.

Separately (outside equity), profit-sharing plans can be tax-efficient for broad-based incentives if statutory requirements are met, including formal negotiation, governance and limits on payment frequency.

Malus and claw-back provisions may be applied to both cash and share-based awards in Brazil, subject to careful plan design. Enforceability depends on the award not being characterised as salary, as Brazilian labour law places limits on the recovery of amounts considered remuneration.

Claw-back mechanisms are more defensible in discretionary and conditional plans, particularly share-based long-term incentives. Their use is increasing among multinational and publicly listed companies but remains uncommon in domestic plans.

Cash or share plans may raise labour law issues if awards are granted regularly and under similar conditions, creating a risk of acquired rights. This risk is heightened for recurring cash bonuses.

If an award is deemed remuneration, it may impact termination-related entitlements, including notice pay, holiday pay, the 13th salary and the Time of Service Guarantee Fund (FGTS). Long-term incentive plans with vesting and forfeiture provisions help to mitigate this exposure.

Brazilian law does not impose a general obligation to consult with, or obtain approval from, works councils or trade unions for the implementation of cash or share plans.

Collective bargaining agreements may, however, contain specific provisions on variable compensation that should be reviewed on a case-by-case basis.

Post-vesting and post-employment holding periods are permitted and enforceable under Brazilian law. These restrictions are most applied in share-based incentive plans.

Such practices are more prevalent among publicly listed companies, financial institutions and multinational groups, particularly for senior executives.

Personal data processing related to cash or share plans may be carried out without employee consent when necessary for the employment relationship or legal compliance.

Employers must comply with transparency and information obligations under the Brazilian General Data Protection Law (LGPD).

Brazilian law does not require cash or share plan documents to be translated into Portuguese. However, a sworn translation may be required in Labour Court proceedings.

From a practical and risk-mitigation perspective, Portuguese-language versions are advisable to support enforceability and ensure employee understanding.

Corporate governance guidelines and disclosure requirements apply to share and cash plans primarily in publicly listed companies. The Brazilian Securities Commission (Comissão de Valores Imobiliários – CVM) and the Brazilian Stock Exchange impose transparency obligations regarding executive remuneration and incentive structures.

Private companies are generally not subject to mandatory disclosure requirements. Nevertheless, companies following best governance practices often adopt internal policies governing the approval and administration of incentive plans.

Regulations and reporting requirements relating to remuneration apply mainly to directors, officers and key management personnel. Public companies must disclose aggregated and individual remuneration data, including fixed and variable components, in their reference forms filed with the CVM.

Additional sector-specific rules apply to regulated industries, such as financial institutions and insurance companies. These frameworks focus on transparency, risk alignment and governance oversight rather than direct regulation of employee-level incentive plans.