For a brief but comprehensive lawyer’s guide to Brazil, we coordinated with our Country Manager for Biz Latin Hub in São Paulo, Gabriel Zago. Gabriel has over 10 years’ experience advocating for multinational companies, with extensive knowledge of Brazilian corporate law.
Gabriel has rendered legal services to a number of multinational companies coming into Brazil. Here he offers invaluable legal insight into supporting foreign company formation in Brazil.
Lawyer’s Guide: what types of legal entities are there in Brazil?
Categorically, there are 5 types of legal entities in Brazil. However, I would consider 2 types as the most pertinent for foreign investors to understand, as these are the ones used in more than 99% of cases.
Limited Liability Company (LLC): These are by far the most common legal entities and definitely recommended for foreign investors setting up in Brazil. They are the cheapest option; they are easiest to constitute and easiest to administrate.
Corporations: This is the most complex form of legal entity. These are generally very large companies that have a complex shareholder structure and are often listed on the stock exchange. They are more restrictive on corporate governance and have legal requirements that must be fulfilled throughout the year. We recommend this option for larger companies only.
What key steps are involved in company formation and incorporation?
- The first step is determining who the shareholders are. If they are not Brazilian, then they must assign the Power of Attorney to a Brazilian legal representative
- Decide on type of legal entity they want to incorporate. Within this decision, the owners must define the activities of the company. This helps to define what types of registrations will be required
- Inform the Central Bank of operations
- Define who will be the local director of the company. Like the Power of Attorney, this person must also be a Brazilian resident
- Following that, the articles of incorporation must be drawn up. including bylaws
- The Power of Attorney document must be professionally translated into Portuguese
- The certified translation is then registered at a notary
- The company is then ready to be filed in front of a state trade board
- Following that, the registering at a state trade board automatically triggers a nation-wide registration before all of the other national authorities, such as the Tax Board, the State Trade Board and other activity relevant licensing committees
- Open a bank account by depositing capital. There’s no minimum capital requirement for this step.
Who are the local authorities responsible for managing these processes?
This is dependent on the activities the business is seeking to perform. For a services company, only the state trade board, the federal tax authority, and local licensing authority need to be involved.
However, if the company is looking to perform importing, exporting, manufacturing or mining activities, for example, there are a number of other bureaucratic boards that must be involved for licensing purposes.
Are there any corporate regulations that differ significantly in Brazil compared to the rest of Latin America?
Those who have done business in the rest of Latin America, as well as Brazil, will tell you that Brazil has a comprehensive bureaucratic system. The company formation process and tax system is more complex, and there are licenses that need to be obtained for nearly every form of business. Overall, it is a more regulated country. It’s therefore essential for businesses expanding into Brazil to consult local legal experts to ensure they meet all compliance requirements.
What tax or commercial incentives should prospective investors consider for Brazil?
There are 3 authorities that can charge tax: local authorities (the municipalities), state authorities, and the federal authorities. Each authority charges certain taxes. For example, income tax can only be charged by the federal authority.
Tax compliance requirements in Brazil are very detailed, however, the most common consideration businesses should take into account is with regards to services.
Businesses that offer services are partly taxed by the city, and partly taxed by the state depending on the nature of the services. This creates competition between the state and the city as to who can charge the least and collect the most taxes. Before setting up in Brazil, it’s worth considering which state and/or city offer the most competitive tax rates.
Certain states with a large manufacturing base offer competitive tax incentives in order to further develop the industry there. For example, in the city of Manaos, where there is a large industry sector, the city offers competitive tax rates to large factories in order to keep them.
Where the state loses out on taxes, they make up in strong employment figures. It is unlikely the state would offer tax incentives to businesses rendering services as the upside is not beneficial enough.
Are there any changes or further reforms in the future that will make doing business easier?
The government in Brazil is currently discussing two major reforms: social security reform and tax reform. Social Security reform will be made more rigid, making for a steadier flow of income into the country and hence creating a more stable economy for foreign investors to come into.
The second reform is extremely significant and could radicalize business in Brazil. It is to simplify the tax regime. As it currently stands, the tax system is complex, unclear and in some cases, unfair. The current system is good for tax lawyers but no one else! If an overhaul of the current system transpired and a more transparent one was put in place, I am sure Brazil would be a far more attractive place to foreign investors.
On business relations, what crucial business tips should foreign investors be mindful of?
One area which many foreign businesspeople note when doing business in Brazil is there is a different concept of time. For instance, a meeting at 9am can mean 9:30am in Brazil time. It is important that foreigners are mindful of this before they come.
Similarly, Brazil, with the nature of its history, is a very multicultural country made up of a huge variety of cultures and nationalities. This makes Brazil an accepting and friendly place.
On top of that, with its extremely complex political system, tax system, and business system, Brazil requires adaptability from its investors. Being adaptable with your decision making is a prerequisite in Brazil – plans do not always go to plan!
Expand to Brazil with the Biz Latin Hub team – Our Lawyers are here to help!
At Biz Latin Hub, we support local and foreign business with their company formation and other regional expansion needs. Our Brazil team delivers a full suite of market entry and back-office services that are tailored to the needs of each individual client. If you want to expand into Brazil, and aren’t sure how to navigate local corporate and legal requirements and processes, we can help.
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