Netmidas Legal Snapshot (Last 120 Days, as of January 1, 2026)

Executive Summary

Brazil continues to be one of the most strategically important nearshore markets for remote IT talent in Latin America. In the past 120 days, there have been no new federal statutes that directly regulate freelancers or independent contractors in the IT sector. However, significant judicial developments, digital enforcement reforms, and tax updates have shifted the compliance landscape for foreign companies engaging Brazilian contractors.

The most important ongoing development is the Supreme Federal Court (STF) case on “Pejotização” - Theme 1389, which is expected to establish binding national parameters on the legality and classification of individuals engaged through service-provider entities (Pessoa Jurídica or PJ). A public hearing was held on October 6, 2025, signaling that a final decision could set nationwide precedent and reshape how contractor relationships are evaluated in practice.

At the same time, Brazil’s digital compliance infrastructure, including eSocial and FGTS Digital, is evolving, increasing the operational complexity and cost associated with misclassification events. Although these digital systems apply formally to employees under Brazil’s Labor Code (CLT), they still materially raise risk for contractors when relationships blur into employment-like patterns.

From a nearshore hiring perspective, independent contractor engagement remains legal and viable, but it now requires greater discipline, documentation, and operational clarity.

Brazil’s Legal Framework for Remote Work and Contractors

Understanding Brazil’s Dual Legal System

Brazil has two parallel legal regimes:

Employment Relationships (CLT)

Under the Consolidation of Labor Laws (CLT), an employment relationship is defined by:

• Subordination
• Personal service
• Habituality
• Employer control
• Economic risk assumed by the employer

When these elements are found, mandatory labor obligations apply, such as FGTS, social security, paid leave, 13th salary, overtime, and other statutory benefits.

Civil and Commercial Service Provision

Independent contractors, freelancers, and service-provider companies (PJs) operate outside the CLT framework. In the IT sector, PJ contracting is widespread and lawful, with most freelancers opting to incorporate for tax efficiency and commercial flexibility.

However, Brazil’s courts apply substance over form when evaluating relationships. This means that even if a contractor is engaged through a commercial entity, courts may reclassify the engagement as employment based on factual indicators.

Why Remote IT Work Increases Classification Risk

Remote and distributed work arrangements can inadvertently create conditions akin to employee relationships. Key factors that Brazilian courts tend to evaluate include:

• Fixed daily schedules
• Continuous supervision
• Integration into internal teams
• Exclusive service relationships
• Employer-provided tools
• Employee-style performance reviews
  

When these elements are present, the risk of judicial reclassification, even for PJs, increases meaningfully.

Recent Changes Impacting Contractor Risk

Supreme Federal Court, Theme 1389 (“Pejotização”)

The Supreme Federal Court (STF) has been considering Theme 1389, a case that will clarify whether labor courts can adjudicate fraud allegations related to civil/commercial service contracts and how misclassification disputes must be handled nationwide. A public hearing was held on October 6, 2025, and although the final ruling is still pending, the direction of the debate suggests increased scrutiny on PJ arrangements.

The effect of this ongoing development includes:

• A nationwide suspension of thousands of labor claims challenging contractor arrangements
• Accumulation of latent litigation risk
• Anticipation that the STF’s future decision will be binding and retroactively apply to existing cases

eSocial Technical Update (S-1.3 No. 05/2025)

Brazil’s labor and social-security reporting platform, eSocial, implemented updated XML schemas and new validation rules in late November 2025. While eSocial formally applies to employment payroll, any reclassification event for contractors triggers immediate compliance obligations under this framework, increasing operational risk and audit exposure.

FGTS Digital Developments

Recent ordinances affecting FGTS Digital operations illustrate the broader trend toward centralized and automated enforcement of labor compliance. While some provisions were geographically limited or situational, the trend underscores Brazil’s stronger compliance infrastructure.

Federal Revenue Service (RFB) Income Tax Update

In December 2025, the Receita Federal emphasized that:

• Payments to non-resident individuals for labor income are subject to a 25% withholding tax
• Determining tax residency is increasingly relevant for remote professionals
  

This affects Brazilian freelancers who relocate abroad as well as foreign companies engaging Brazilian nationals with changing residency status.

How This Impacts Foreign IT Companies and Nearshore Staffing

Contractor Engagement Is Still Legal, But Standards Have Risen

Brazil has not banned freelancers, PJs, or independent contractors. However, companies cannot rely on contract formality alone. They must be able to demonstrate genuine commercial independence, absence of subordination, and lack of economic dependence.

Misclassification Costs Are Increasing

The consequences of misclassification go beyond retroactive labor benefits. They now include:

• Mandatory payroll onboarding
• Immediate eSocial reporting
• Detailed audit trails
• Heightened litigation leverage for contractors

High-Risk Engagement Patterns

Certain contractor engagement models face elevated scrutiny, including:

• Long-term staff augmentation
• Core engineering roles embedded in internal teams
• Exclusive service arrangements
• Open-ended contracts without defined deliverables

Key Compliance Indicators

Indicators That Increase Classification Risk

• Fixed working hours
• Direct supervision
• Mandatory availability
• Exclusivity clauses
• Employer disciplinary control
• Employee-style performance evaluations
  

Indicators That Reduce Risk

• Clearly deliverable-based contracts
• Methodological autonomy
• Freedom to serve multiple clients
• Project-based scopes
• Independent invoicing systems
• Lack of managerial hierarchy

Remote Work and Contractor Implications

Brazil’s discussions around the “right to disconnect” and remote work governance apply directly to employees but may also influence how contractor relationships are assessed. Practices such as constant availability expectations, after-hours communication, and monitoring software can be used as evidence of control and subordination, even for contractors.

Tax and Social Security Considerations

Most IT freelancers in Brazil operate as PJs or under Microempreendedor Individual (MEI) structures. Regardless of format:

• Contractors are responsible for managing their own taxes and contributions
• Clients should avoid patterns of economic dependency

Remote mobility also increases exposure to:

• Residency misclassification
• Incorrect withholding
• Double taxation risks

Periodic review of tax and residency status is essential.

Immigration Context

Brazil’s Digital Nomad Visa allows foreign nationals to work remotely from Brazil for foreign employers. While this does not directly apply to Brazilian nationals working as contractors, it reflects Brazil’s broader regulatory engagement with cross-border remote work.

Compliance Best Practices for Clients

To protect contractor engagements and mitigate risk:

• Conduct contract audits to confirm deliverable-based, autonomous arrangements
• Avoid attendance tracking, fixed schedules, or internal HR policies typical of employees
• Ensure service contracts include independence, no exclusivity, and contractor tax responsibility
• Maintain a reclassification contingency plan, including EOR conversion triggers and budget planning
• Align internal management practices with compliance standards
• Engage local legal counsel to interpret STF Theme 1389 once issued

Brazil in 2026 will reward companies that demonstrate compliance maturity, documentation discipline, and contractor-management clarity.

Outlook for the Next 3–6 Months

The STF’s decision on Theme 1389 is expected to provide the first binding national standard on contractor classification. Once issued, labor courts will adjust their analysis accordingly, potentially reshaping litigation strategies and compliance expectations across the Brazilian labor ecosystem.

Key Takeaways

• Independent contracting and PJ engagement remain legal
• Misclassification risk remains high and is becoming more consequential
• Judicial developments, not statutes, are shifting the risk environment
• Digital compliance platforms (eSocial, FGTS Digital) amplify enforcement impact
• Brazil remains an attractive nearshore destination with proper compliance discipline

Disclaimer

This briefing is a high-level informational summary based on publicly available sources. It is not legal advice. NetMidas and its clients should consult qualified local counsel in Brazil before making legal, tax, or employment decisions.