Insights

Court Confirms Stock Options Exempt from Social Security Contributions

Editorial Team 29 Oct 2026

An analysis from Demarest Advogados, Taxand Brazil

Brazil’s Superior Court of Justice (STJ) has unanimously ruled that stock option plans (SOPs) are commercial in nature and are therefore not subject to social security contributions, bringing greater certainty to businesses offering long-term employee incentives.

The decision, issued under Topic 1,379, confirms that qualifying stock option plans do not constitute employee remuneration, provided participation is voluntary, employees pay to acquire shares and assume genuine financial risk. The ruling is expected to have significant implications for businesses reviewing their incentive arrangements and may create opportunities to recover previously paid contributions. However, other incentive schemes, including restricted stock units and phantom shares, are not covered by the decision.

Marcello Pedroso Pereira and Henrique Wagner de Lima Dias from our Brazilian member firm, Demarest Advogados, examine the ruling and its practical implications for businesses:

Background

Stock option plans grant employees, officers and statutory directors the right to acquire, after a vesting period, shares of the company at a price fixed on the grant date.

In Brazil, although there is no specific statutory provision, the instrument has a corporate law basis in Brazilian Corporations Law, which allows a company, within its authorized capital and under a plan approved by the shareholders’ meeting, to grant purchase options to its officers, employees and service providers.

Alongside SOPs, companies also adopt other long-term incentive (“LTI”) models, such as Restricted Stock Units (shares delivered without any payment, upon satisfaction of certain conditions), Matching Shares (additional shares granted to those who acquire shares of the company), Phantom Shares (cash payment equivalent to the value of notional shares, without transfer of ownership), Stock Appreciation Rights (SARs) and Stock Grants, among others.

The distinguishing feature between SOPs and the other models mentioned is, essentially, the existence of a financial outlay and of risk borne by the beneficiary.

For example, under RSUs, Stock Grants and Phantom Shares there is neither payment of a price nor real exposure to losses, which brings these models closer to the concept of remuneration/salary, the calculation base of social security contributions.

This is because, where there is no financial outlay, there is no risk, so that the amounts received under such arrangements are remuneratory in nature, as they are paid in consideration for the work performed. Conversely, for SOPs involving an actual, non-nominal financial outlay, the payment derives from a commercial relationship, since the beneficiary has no guarantee of gain but effectively shares in the Company’s risk, which rules out the remuneratory/salary nature of the amount.

In the absence of specific regulations of SOPs, the debate over the legal nature of these plans lasted for years before both the judicial and the administrative courts.

The Road to STJ Topic No. 1,379

Administrative Proceedings

Before the Administrative Council of Tax Appeals (“CARF”), case law was inconsistent. Several decisions upheld tax assessments issued against companies that had not included in the payroll tax base the amounts corresponding to the shares, or their sale value, on the grounds that the difference between the market value and the exercise price constituted remuneration for work.

The tax authorities’ argument rested essentially on the fact that the grant of options arises from the employment relationship and that any discount granted on the price would represent a gain for the employee.

On the other hand, there are precedents recognizing the commercial nature of the plans where there is payment of a (non-nominal) price and market risk voluntarily assumed by the SOP beneficiary.

In summary, the outcome before CARF depended on the model adopted: for purchase options with a price paid and real risk, assessments were being cancelled, whereas shares granted free of charge continued to be taxed.

Judicial Proceedings

In the judicial sphere, we highlight the case involving Skanska do Brasil, which had obtained a favorable decision from the Federal Regional Court of the 3rd Region (“TRF-3”).

The Court had issued a judgment in favor of the Company, holding that, in that specific case, the SOP was established as a legal relationship distinct from the employment relationship, participation in which depended on the voluntary decision of employees willing to assume market risk, and did not constitute a form of consideration for work.

The Federal Government appealed to the STJ but, even before the case was judged, withdrew the appeal, thereby abandoning the dispute before the Superior Court of Justice.   As a result, the TRF-3 ruling excluding social security contributions on the SOP became final.

In this regard, it is worth noting that the Federal Government’s withdrawal was read by the market as a clear signal that the tax authorities anticipated an unfavorable outcome.

STJ Repetitive Appeals Topic No. 1,226

Subsequently, the Superior Court of Justice decided to submit to the repetitive appeals procedure the dispute concerning the legal nature of SOPs for Individual Income Tax (“IRPF”) purposes.

In judging Topic No. 1,226, the STJ, by majority vote, recognized the commercial nature of SOPs and held that IRPF on these assets is levied upon resale, that is, when the increase in value is effectively incorporated into the holder’s assets, which does not occur upon the mere exercise of the option to purchase shares under the SOP.

In assessing whether the SOP would represent a form of employee remuneration, the Reporting Judge, Sergio Kukina, cited scholarly opinions and positions of the CARF rejecting its salary nature.

According to Mr. Kukina, the employee pays to exercise the option rights, that is, receives nothing free of charge from the employer.

Accordingly, only SOPs in which the exercise of the option and acquisition of shares is demonstrably onerous will be considered commercial in nature. Otherwise, they will be classified as remuneration/salary, subject to the applicable taxes and labor charges.

After the STJ judgment became final and unappealable, the Superior Chamber of Tax Appeals (“CSRF”) instructed the CARF panels to apply the precedent whenever the plan in fact presents onerousness, voluntariness, and risk, regardless of the name adopted.

STJ Repetitive Appeals Topic No. 1,379

The question submitted to the STJ was whether the gain obtained by the beneficiary upon acquiring the shares, after vesting, constitutes remuneration for purposes of social security contributions levied on payroll.

The Federal Government argued that it does, since the grant arises from the employment relationship and the price discount would represent an economic benefit granted by the employer.

The STJ unanimously rejected this argument, since both the Federal Constitution and Law No. 8,212/1991 limit these contributions to amounts intended to remunerate work.

Under an SOP, the relationship is one of purchase and sale: the company transfers shares and the beneficiary pays the price, voluntarily assuming the risk of loss arising from market volatility.

Indeed, any gain results from market performance and does not derive directly from the work performed.

The effects of the ruling apply to all proceedings addressing the same issue and bind CARF and the Federal Revenue Service (“RFB”) to that understanding.

For ease of reference, the table below summarizes the requirements that may be required to demonstrate that an SOP is commercial in nature.

Table 1 – Requirements for the commercial nature of SOPs

Please note that the tax authorities tend to examine the actual mechanics of each program, rather than merely the name given to the plan.

Practical Impacts

• Pending litigation: tax assessments and lawsuits concerning SOPs that meet the requirements identified above are likely to be resolved in favor of taxpayers, including before CARF.
• Recovery of amounts: companies that paid contributions on SOPs should assess the feasibility of refund or offset claims, subject to the five-year statute of limitations and any limitation of the temporal effects of the ruling.
• Plan review: hybrid programs or programs with beneficiary protection mechanisms should be revisited, as they may compromise their commercial nature.
• Other incentives: Phantom Shares, RSUs, SARs and stock grants are not covered by the ruling and remain subject to the risk of tax assessment.

Conclusions

Topic 1,379 brings to an end one of the longest-running disputes over the taxation of remuneration in Brazil and provides the legal certainty the market had been awaiting.

Nevertheless, the outcome should not be read as a broad authorization, and the publication of the judgment will be decisive in defining the exact scope of the thesis and any limitation of its temporal effects.

Accordingly, we recommend that companies: (i) map their existing incentive plans; (ii) confirm that their SOPs preserve onerousness, voluntariness and risk; (iii) assess opportunities to recover contributions paid; and (iv) treat with caution models without financial outlay or without risk, particularly Phantom Shares, whose nature is likely to be considered remuneratory.

Marcello Pedroso Pereira – Partner in the Social Security Law practice at Demarest Advogados.

mppedroso@demarest.com.br

+55 11 3356 1818

Henrique Wagner de Lima Dias – Associate in the Social Security Law practice at Demarest Advogados.

hwdias@demarest.com.br

+55 11 3356 1568

Article tags

Brazil | Employee | Case Law | Remuneration | Share Options | Long Term Incentives