One of the many ways to expand a business is to contract sales representatives to operate in the new markets to be explored. In this article, we will explain the sales representation laws in a nutshell, and give information about some obligations regarding this kind of working agreement in Brazil.
According to the Brazilian Law 4.886/65 further amended by Law 8.420/92, the sales representation may be understood as an intermediation activity, in which the sales representative (entity or individual), not on a sporadic basis and without employment ties, is a client prospector, negotiating proposals and orders to forward them to a represented entity or individual.
Assuming no employment ties, the sales representation will be, of course, defined as an autonomous activity, and as such, will be regulated by the rules that govern the work of autonomous professionals in Brazil. But even though the commercial representation does not assume the existence of employment ties, the representatives must obey the clauses of the providing services agreement and the instructions of their represented.
In Brazil, the sales representatives professionals are organized in the Core (Regional Commercial Representation), an institution present in almost all the Brazilian states responsible for regulating and protecting the workers of this category. The sales representative will be inscribed as autonomous associated with the INSS (when private person or equated to it), which means that this professional is registered at the state Finance Secretariat, contributing to the local Core.
Types of sales representation
Foreign companies (installed or not in Brazilian territory) can appoint a sales representative in the country in either three ways, foreseen by law:
- Contracting an autonomous sales representative as a private person
- Contracting a sales representative constituted in a legal entity Sociedade Limitada or Sociedade Anônima
Contracting a sales representative constituted as a legal entity Empresa Individual de Responsabilidade Limitada.
In general, the companies have been requiring the sales representatives to set up or be part of a legal entity, or to be registered employees from a sales representation company. Hiring an autonomous sales representative has been avoided because it generates risks to the contractor regarding the Labor Laws.
That is because an autonomous professional normally works sporadically, what does not happen with the autonomous sales representative, who is constantly looking for buyers and sending proposals. That way, the employee can affirm that he did not work as a service provider, but on a daily basis like a regular registered employee, but without the proper registration and benefits. This situation allows him to file for a labor grievance against the company they represent.
Therefore, the companies contracting sales representatives are showing a preference for the sales representatives who have constituted themselves as companies (legal entities).
Taxes and contributions involving sales representation activities
The taxes and contributions involved in the sales representation operations are the same as the ones required for other autonomous working activities. Benefits, such as meal and transportation tickets, health insurance and so on are not mandatory.
If the foreign company is not installed here in Brazil, no taxes will be required involving the sales representative's services. The procedures stated below only apply for companies (foreign or national) that are located in Brazilian territory
- Sales representative constituted in a legal entity Sociedade Limitada:
In this case, the contractor will deduct IRRF (Income Tax Withheld at Source) at a rate of 1.5 %. Besides, the company has to pay ISS at a rate of 2% to 5% depending on the municipality.
- Sales representative as a private person and sales representative constituted as a legal entity Empresa Individual de Responsabilidade Limitada
In both the cases above, the contractor will have to deduct the IRRF (Income Tax Withheld at Source) from the representative's commission (the rate will depend on the value of the commission, following a table of percentages). Also, the Federal Revenue will require the employer to pay 20% of the representative's total commission value to INSS. The representative have to pay by himself 11% of his earnings for INSS either and 2% to 5% of his commissions for ISS.
It is important to emphasize that the contractor have to pay INSS from his own purse and cannot deduct it from the representative's commission.
In the case of Empresa Individual de Responsabilidade Limitada, the sales representative is considered autonomous and is equated with a private person to the Federal Revenue, no matter if he has a CNPJ and is registered at the Board of Trade (Junta Comercial). That is why they have the same taxation rules applied as the sales representative as a private person.
Looking at the ways the taxes and contributions are charged it is conclusive that contracting a sales representative from a Sociedade Limitada is a more advantageous option for both the contractor and the representatives. It is possible to compare the differences in the net income of the three types of sales representatives in the table below (regarding the IRRF deduction).
|Sociedade. Limitada||Empresário||Private person|
|IRRF||1,5%||progressive table||progressive table|
|Net income of the representative||9.850,00||7.798,82||7.556,46|
The sales representation agreement
As stated above, the sales representation activities must be formalized in a written agreement. Special care must be taken when drafting a sales representation agreement in order to avoid the characterization of labor relationship between the contracting parties, or a permanent establishment of the foreign represented party. It is recommended that a sales representation agreement comprise, among other provisions:
- A description of the products object of the representation
- The period or term of the representation
- The indication of the territory such as a state or region
- The total or partial guarantee of exclusivity on the representation territory, if applicable
- The conditions for the payment of the commissions
- Exclusivity, or not, in the given territory
- Indemnification payable to the sales representative for the termination of the agreement without legal cause, which amount cannot be lower than one‐twelfth of the total remuneration earned, during the period when the representation was performed.
The legislation that regulates the activity of sales representation establishes a series of obligations for both the representative and the companies represented, among which is worth mentioning:
There should be no employment ties between the sales representative and the company represented, which means that the sales agent has the autonomy to exercise other sales activities for other companies. The existence of subordination or command power of the company represented by the sales representative can create an employment contract between them, transforming the commercial representative into an employee of the company represented, and therefore, requiring all the rights and guarantees established by Labor Laws in force.
as we have seen, the sales representation activities may be provided either by individuals (privates) or by a legal entity (company). In both cases, it is mandatory for the professional to be registered at the Regional Commercial Representation (Core) of the state where he/she will operate.
There must exist a written contract between the sales representative and the company to be represented.
Other important point to be highlighted is that the sales representative is entitled to special compensation in case of contracts broken by the company represented without a valid cause. The value of the reparations shall not be less than 1/12 (one twelfth) of the total amount of the commissions received by the sales representative during the time he exercised his representation.
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