The continuous improvements on Brazil’s legal framework have made the Brazil company registration process smoother and more streamlined. But before your set out to incorporate a business in Brazil, here are a few things that you need to consider:
What type of Brazil business structure will your company assume upon company registration?
The two primary business structures in Brazil are as follows:
- Sociedade Limitada or Limited Liability Partnership
The simple and straightforward nature of limited liability partnerships make it a popular choice among foreign investors looking to do business in Brazil.
- Sociedade anônima or Corporation
A corporation in Brazil enforces a bureaucratic approach, making it an attractive business structure for foreign legal entities.
In both corporate structures, shareholders are not required be legal Brazilian residents or obtain a Brazilian citizenship, with the exception of specific industries.
Are you done with the process of choosing a Brazilian representative who will assume the executive director position in your company? If so, did you launch a background check and defined the terms and conditions of appointment?
In the past, Brazilian executive directors were required to hold permanent residency status in Brazil. It was only recently that the Corporations Law was modified, giving non-residents such as foreigners the right to assume the executive director role for Brazilian corporations. Despite this, banking and Board of Trade have yet to be adjusted to reflect these changes. To that in mind, foreign legal investors are required to appoint an individual holding a permanent residency status in Brazil as their company’s executive director. In a limited liability partnership, the Board of Trade only allows permanent Brazilian residents to assume the executive director position.
After you’re done selecting an executive director for your company, experts recommend performing a background check on your chosen candidate. As Brazil is known to be a very litigious country, information from court documents and public databases are easily accessible to anyone who needs them for background check purposes.
Lastly, it is crucial to draft a create a comprehensive and highly detailed agreement when appointing an individual for an important function in your company. It is imperative to make sure the agreement is tailored to prevailing Brazilian laws.
Are you done finalizing the list of the shareholders list for your Brazilian company? Are you considering on establishing one or more companies for the sole purpose of shareholding in Brazil?
At present, Brazilian only has a few double tax treaties with other countries. Additionally, the country does not assess taxes on payments of dividends. Depending on the current taxation regime applied to parent companies and beneficial owners, choosing the right legal form to hold shares in a Brazilian subsidiary setting offer major benefits.
Despite the limited liability nature of Brazilian companies, certain Brazilian laws may allow the courts to hold company shareholders accountable for their respective company’s liabilities. Thankfully, the Law of Economic Freedom enacted in 2019 delivers greater shareholder protection.
Setting up one or more legal entities with no substantial assets to function as vehicles for holding Brazilian shares is permitted by the Brazilian law. This approach reduces the risks involved in operating a business in Brazil.
Are you done with process of choosing a Brazilian resident to assume power of attorney on behalf of the shareholders of your Brazilian company?
Foreign shareholders of businesses incorporated in Brazil are required to appoint a natural person to hold their power of attorney. This person must meet the permanent residency requirement in the country, and will hold the follower powers:
- Be served on behalf foreign shareholders; and
- Oversee the company’s assets and rights while doing business in Brazil
Although not required by law, an attorney will have continuous role of representing foreign shareholders before tax authorities, the Central Bank, and Boards of Trade. From a corporate governance perspective, this is a complex situation as an individual holding a company’s power of attorney has absolute powers over the company. There are many strategies that can be implemented to reduce governance risks, such as:
- Appointing third parties, typically lawyers, with no direct involvement in a company’s daily operations should hold the powers of attorney
- Selecting two persons who will jointly exercise powers
In some cases, foreign legal entities prefer appointing accountants to be be on control of the powers of attorney on behalf of foreign shareholders. This can be problematic as inherent conflict of interest may arise, especially during instances when tax authorities inform accountants about issues relating to a Brazilian company’s tax matters. For example, conflict of interest may arise when foreign shareholders are provided early notice as a result of non-compliance with existing tax duties.
Have you chosen a registered Brazilian accounting firm?
Brazilian law expects strict compliance to its laws. All Brazilian companies with foreign shareholders are required to have an accountant stationed on Brazil to perform the preparation of its accounting books and performing all mandatory filings on their behalf.
Finding a reputable accountant registered in Brazil entails research. Pick an accounting firm with extensive knowledge and familiarity with international legal matters, as well as excellent proficiency in English to ensure clear communication lines between all involved parties. Once you’ve chosen an accountant to work with, it is highly recommended to set a comprehensive agreement following existing Brazilian laws.
Are you done finalizing where you company will be doing business in Brazil?
Tax obligations such as state sales tax and municipal service tax tax rate will be calculated based on the state and municipality where you decide to operate as a business.
A branch office will need to be registered for companies that primarily sell goods and plan to have distribution centers in multiple states. By rule, different tax rates will be applicable for interstate transactions. States and municipalities may grant tax breaks (with some jurisdictions offering free land), for specific operations with substantial investments.
Have you finally chosen a physical location where your company will be incorporated and registered? Is the physical location suitable for your goods?
Unlike the United States and other jurisdictions, Brazilian law does not permit registered agents. This means that Brazilian companies should have a registered office with a distinct address in Brazil. In some cases, a company may enforce a virtual office set-up for administration purposes, or service providers that function for this specific purpose. Companies that sell goods may lease their warehouses or create a lease agreement with a third-party physical location. A warehouse must match the company’s nature of operations, routinely inspected by tax authorities to confirm its suitability for a Brazilian company’s business activities.
Are you willing to disclose information about the full chain of command of your Brazilian company to the Federal Tax Department and banks in Brazil?
As per Brazilian law, foreign shareholders of Brazilian businesses must disclose the ultimate beneficiaries down to specific individuals or public listed holding companies. As per internal bank rules, all Brazilian banks require disclosure of full chain of ownerships of Brazilian entities as a prerequisite to opening a bank successfully.
Have you decided on a name for your Brazilian company?
By rule, company names in Brazil must feature one word or expression that clearly indicates a company’s nature of business. Company names must not include expletives which may be immoral or offensive in naturel. Foreign words may be included in the company name.
Your chosen legal form must be integrated into the company name. For instance, Ltda or Sociedade Limitada should be included in a limited liability partnership company name, while Companghia, SA, or Sociedad Anônima for corporations.
Did you conduct a trademark search before company registration in Brazil?
Brazil’s National Institute for Intellectual Property or INPI allows public access to its massive, integrated database of all registered trademarks. You can check for trademarks by logging in the INPI website.
In Brazil, the first-to-file principle prevails. It is recommended that Brazilian companies file their trademark applications once you finally decide to sell your products and services in the country. Trademark applications can be done by Brazilian individuals, companies, and foreign entities. There are certain tax consequences associated with trademark registration in Brazil.
Have you checked on what licenses are required for your Brazilian company to commence operations in the country and the processing time for these licenses take?
Different business operations require different licenses in order to operate. For instance, food and agricultural operations, and mining have their own procedures for applicants to obtain licenses. Some license applications can take months to be approved of a license to operate by licensing authorities. It’s important to prepare all the necessary requirements beforehand so as not to delay the commence of your business operations.
Will your Brazilian company import goods? Have you analyzed the necessary import requirements for the importation of goods?
Not all Brazilian companies will be automatically permitted to import goods from overseas. Before a Brazilian company can be granted permission to import goods, it must first obtain the necessary registration with the Foreign Trade Integrated System (Siscomex). These are the three types of registrations for the importation of goods in Brazil:
- Express, which allows importation of goods up to US$50,000 every six months
- Limited, which allows importation of goods up to $150,000 every six months
The Brazilian Federal Revenue (RB) will conduct an analysis on a Brazilian company’s financial competency upon evaluation of the type of registration granted to them. Analysis and evaluation are conducted bi-annually and is primarily based on the company’s total corporate income tax (IRPJ), social contribution on net profits (CSLL), levies (CIS and COFINS), and the amount of social security a company has paid for its workforce in the last five years.
For companies who have been doing business for less than five years, they may apply for a license with a higher amount limit if it can prove it has sufficient net assets to meet its import-related obligations.
Apart from Siscomex, other licenses may need to be obtained and based on the type of goods you plan on importing. These license registrations may be under the jurisdiction of other agencies, including the Ministry of Agriculture (MAPA), Ministry of Defence, Foreign Trade Chamber (Camex), and National Health Registry Agency (ANVISA), to name a few.
Which bank will hold your business account in Brazil?
The process of opening a Brazilian bank account may take one to two months, or even longer in some cases. It is imperative to confirm with your bank of choice their timeline for approvals to manage possible delays. Some banks may run their own registration process to open a current account and for the company to be allowed to perform foreign exchanges.
In cases where a company is compelled to start operating soon, smaller banks are used to open a company bank account. It is uncommon for companies to hold a bank account with foreign exchange specialist banks as their system is compliance extensive, especially for small to medium-scale companies and those not listed on the stock exchange.
Establishing a Brazilian company carries a host of risks and consequences for foreign legal entities. Seeking professional advice before pushing through with your decision to do business in Brazil will help you avoid delays and significant costs over time. If you need to learn more about the business formation process in Brazil, contact our Damalion experts today.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.