Daily Allowances – Limits and Current Taxation

Per diems are a compensation mechanism for the Employer to cover expenses incurred by employees on behalf of the Company.

These employees may benefit from exemption from personal income tax (IRS) and social security contributions, if they are within the legally established limits. These limits are set annually.

While in the public sector, legislation regarding per diems is set forth in Decree-Law No.
 

The limits for benefiting from the tax exemption are set forth in the legislation, according to reference values:

The values ​​attributed originate from the following trips:

• Daily rates, in which the employee must travel distances over 20 km from the required home, within 24 hours:
  • 25% – Travel period between 1:00 PM and 2:00 PM
  • 25% – Travel period between 8:00 PM and 9:00 PM
  • 50% – Travel period after 10:00 PM (includes overnight stays, or not returning before 10:00 PM)

• Consecutive, when the employee travels more than 50 km from the required home, in a period longer than 24 hours:
  • 100% – On the day of departure until 1:00 PM, and on the remaining days spent away from the required home
  • 75% – On the day of departure between 1:00 PM and 9:00 PM
  • 50% – On the day of departure after 9:00 PM, as well as on the day of return after 8:00 PM
  • 25% – On the day of return between 1:00 PM and 8:00 PM
  • 0% – Until 1:00 PM on the day of arrival

Regarding transportation vouchers, the exemption limits are as follows:

When these charges and compensations are not invoiced to customers, they are still taxed at the autonomous rate of 5%, except for the portion subject to taxation, according to article 88 no. 9 CIRC.

The IRC Code provides for a ten percentage point increase in the autonomous tax rates for companies that report losses.

However, if the per diems are taxed under the employee’s income tax, the entity is exempt from the application of autonomous taxation on these amounts.

For the per diems to meet both accounting and tax requirements, it is mandatory to submit a statement of expenses and travel with the information defined in Article 36, §5, of the CIVA (namely, include the reason, travel itinerary, departure and arrival dates and times, and amount).

In the case of expense presentation, the invoices must include the Employer’s taxpayer ID and be attached to the expense statement.

 
If expenses are not in compliance, they are not accepted as a deductible charge for IRC, article 23ºA CIRC, paragraph h) of no. 1. In addition to these employee compensations, the law provides for an exempt meal allowance:

Employees should not receive meal allowances if lunch expenses are offset. If offset is provided, any excess over the reference amount is subject to INSS (Social Security) and income tax.