Whether you’re considering expanding into Latin America or you already have a presence in LATAM and want to move into more countries, Brazil is an attractive country to consider. As well as being home to the largest workforce, Brazil boasts the highest GDP in Latin America and the ninth most prosperous economy in the world.
Many label Brazil ‘the country of the future.’ With several high-tech business hubs in key cities such as São Paulo, investment and innovation in Brazil work together hand in hand. With significant opportunities in industries such as construction, infrastructure, finance, technology, energy, oil, care, and housing, few businesses would struggle to succeed with the right strategy.
Below, we offer an introduction to business compliance in Brazil, pulling together important legal and accounting information for businesses looking to expand into the territory in 2019.
Brief overview of foreign direct investment
With a truly diversified economy and an endless pool for skilled, educated workers, Brazil is a key area of growth in terms of foreign direct investment (FDI). FDI reached an eye-watering US$10,273.94 million in November 2018 alone.
The appointment of Jair Messias Bolsonaro as the new Brazilian President in January 2019 is expected to further increase economic growth. Bolsonaro is a strong advocate for foreign direct investment, and will likely be looking for ways to improve the market entry process to encourage new investment.
Forming a business in Brazil makes sound economic sense, but there are several loopholes you must jump through before you make a success of a venture.
Accounting compliance information
Taxes in Brazil
Brazil’s tax legislation is complicated, and taxes are levied across three levels: federal taxes, state taxes, and municipal government taxes. As a business owner in the country, it’s important to understand all three and pay necessary taxes on time.
All businesses – resident and non-resident – must pay an average corporation tax of 34%, depending on turnover size. This tax is levied across all assets including local income, and income from other territories repatriated to Brazil.
On your gross revenue, you’ll pay two types of taxes. The first is a federal tax that is levied on both domestic and foreign manufactured products, which is currently set at 1.65%. The second is a mandatory social security contribution, currently set at a rate of 7.6%.
Businesses must also withhold personal income tax that is paid by their employees.
Withholding Taxes in Brazil
Businesses do not pay withholding taxes on dividend distributions to non-residents. However, interest and royalties paid to non-residents are subject to a 15% withholding tax.
Brazil’s withholding tax rate is 25% for payments made to ‘tax haven’ companies.
Value Added Tax in Brazil
Brazil has two types of Value Added Tax (VAT). The first is a federal VAT that is levied on the production and import of domestic or foreign manufactured goods. The rate is currently set at 20%.
The second VAT tax is a State VAT tax, on good and certain services, known as ICMS. This tax rate is between seven and 25%, depending on the Brazillian state.
Additional tax and accounting information
Companies must keep their accounting records as well as an income control register and documentation so that they can demonstrate how much tax is owed.
Unlike in some countries, Brazil’s tax year operates on the calendar year (Jan-Dec). Businesses must file tax returns before the last working day of April every year.
The country has bilateral taxation treaties with 28 countries around the world, including Canada, Japan, Korea, and South Africa. This means you can avoid double taxation with these countries, lowering your tax bill considerably. Be aware that tax extensions are not possible in Brazil, so effective budgeting is critical.
Businesses must report payroll and VAT filings to the Brazilian Government monthly.
Legal and compliance requirements
According to Brazil’s Companies Act, new companies must have at least one director and two shareholders. These people can be of any nationality, demonstrating a push from Brazil to encourage FDI.
Currently, there is no minimum share capital requirement when incorporating a Brazilian Limited Liability Company. This simplifies the incorporation process and makes it easier for investors to get started.
Private companies in Brazil must identify and maintain a local registered address when operating. Foreign companies must appoint a Brazilian legal representative to act as a sponsor during incorporation.
Complying with business law in Brazil
All companies must lodge annual returns that verify the relevant details of their company, which will be added to a public register. Names and addresses of all directors will be accessible, as well as the principal place of business in the country.
In some sectors, such as health services, aerospace, and nuclear energy, 100% foreign ownership is banned in Brazil. Investors must therefore partner with a local firm in order to operate in these sectors.
All public companies are expected to publish their annual financial statements in a national newspaper, but these statements do not need to be audited. Limited Liability Companies, on the other hand, are not required to publish their financial statements.
Finally, companies looking to wind down must maintain a company secretary and registered office in the country until the process has been completed.
Employment law in Brazil
Employers must provide additional benefits to employees, such as a meal allowance, life insurance, dental allowance, loans, pensions, medical checkups, bonuses and prescription drug allowances. Assistance via a legal representative is recommended to ensure all elements are accurately included in employee contracts.
Employers must hire at least one individual that is a resident in Brazil. Foreign investors who incorporate in the country are protected under Brazilian law.
Get started in Brazil
With so many startups showing potential in Brazil across a whole host of sectors such as construction, technology, and finance, there has never been a better time to get involved and capture some of the lucrative opportunities that await.
With the right strategy and product, your Brazilian expansion can achieve success. In order to get started, you need to seek accounting and legal support from knowledgeable experts.
At Biz Latin Hub, our experienced Brazil team offers comprehensive market entry and back-office services, including accounting, legal and recruitment support. To find out more, contact our Brazilian business experts today on [email protected], and a member of the team will get back to you.
Watch our short video below for more information on why Brazil is a great place to do business.