A company formation, also commonly known as a company incorporation or a business registration is simply the establishment of a commercial presence in a new environment through the creation of a legal entity. This local legal entity is then used to conduct business activities. A company formation is the best way to experience the commercial opportunities that a particular jurisdiction has to offer. As many foreigners have already experienced here, a company formation is a great way to break into your desired Latin America market and begin business operations. Nevertheless, it has to be taken into account that there are various types of legal structures in Latin America.
There are many advantages to company formation in Latin America, some include:
- Gaining access to diverse, unexplored and opportunity-filled markets.
- Profiting from an increasingly educated, talented and often bi-lingual workforce, and at a much cheaper rate than in North America or Europe.
- Taking advantage of government incentives, designed to attract foreign investment.
The mission of Biz Latin Hub is simple and straightforward: we strive to do everything we can to promote a healthy and fruitful relationship between investors and the remarkable, ever-evolving and emerging economies of Latin America. In just over 4 years, we have seen first hand the growing business opportunities developing across the region.
In our professional experience, company formations are the most effective way to tap into these unexplored opportunities.
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Essential guide – Why form / incorporate a company in Latin America?
Right now, Latin America is experiencing something of a golden age. Taking the time to truly appreciate and understand the magnitude and rate of economic growth and potential in the region may be the smartest business decision an investor can make. Listed below are a few reasons you should consider forming a company in Latin America:
An emerging middle class and GDP growth: A strong trend of GDP growth has swept the region. Consistently positive figures are forecasted for the continent and are indicative of the remarkable transformation and positive measures being adopted by governments. The World Bank estimates that regional growth for Latin America and the Caribbean should reach an average increase of 2% in 2018, rising to 2.6% in 2019. Certain countries are developing a way ahead of the pack. For example, Peru will grow at a rate of around 3.8%.
As well as regional growth, real term wealth is improving, with more and more people benefitting from national growth in the economy. According to a study conducted by the World Bank, moderate poverty in the region fell by 10% in the decade 2000-2010; this translates to nearly 50 million people escaping poverty and entering the rapidly emerging middle class.
A long list of attractive sectors and opportunities: Traditionally, Latin America has renowned for its abundance of natural resources, and rightly so. However, whilst still constituting a major part of the regional business conducted, natural resources make up just some of the wide range of industries flourishing in Latin America. Fascinating niches and expertise are being developed across the nation, placing the region at the forefront of many exciting industries. From the medical marijuana sector in Colombia to the astonishing boom in fintech start-ups in Mexico, the opportunities have become more varied and easier to access in recent years.
A magical region, perfect for living: Tourism is growing year on year in the Latin American region, and for a very good reason. Aside from the traditional powerhouse attractions such as Machu Pichu and Copacabana, fascinating facets of Latina culture are attracting millions of tourists, and are great reasons to settle in the region and incorporate your company. To name a few, we have:
- the rich, avant-garde gastronomic movements in Mexico and Peru.
- the infectious football cultures of Brazil and Argentina.
- the overwhelming beauty of the Amazon rainforest in Brazil, Colombia and Peru.
What are the principle types of legal structures in Latin America?
There are four main company types embedded in the types of legal structures in Latin America. The requirements, characteristics and how they operate differ slightly between countries, however, there are some commonalities:
- A Branch Office of a Foreign Company (Sucursal de Sociedad Extranjera)
- A Corporation (Sociedad Anónima – ‘S.A’)
- A Simplified Shares Company (Sociedad por Acciones Simplificadas – ‘S.A.S’)
- A Limited Liability Company (Sociedad de Responsabilidad Limitada – ‘SRL’ or ‘LTDA’)
In most cases, and where permissible under local laws, a simplified shares company is the best legal structure for most business applications
The key steps of the incorporation / registration process
Although costs, time periods and levels of stress involved in setting up a company vary between each type of legal structure in Latin America, nearly all of them share key procedural elements.
PRO TIP: It is highly recommended that you partner with local experts who can manage the incorporation process and can ensure that your company is correctly structured based on your business activities.
A good service provider can support you throughout the entire company incorporation process. Some invaluable incorporation services include:
- confirm the most appropriate legal structure
- complete a company name search
- prepare the company bylaws
- obtain the official company books
- register the company with the local authorities
- obtain the company tax ID
- open a corporate bank account
From Our CEO: “During the process of securing your company Tax ID, some countries allow the company to be registered under different taxation regimes, which can lead to significant financial savings. For example, in Peru, a company can register as a ‘Small Business’, which in turn rewards the company with a number of fiscal advantages. This is why it is so important to ensure that you are working with local experts who can guide you through the process and to ensure its done right”. – Craig Dempsey
Legal compliance requirements of a company in the complex types of legal structures in Latin America
Most countries in Latin America required local companies to meet some minimum statutory requirements. While these vary from country to country, the region shares some commonalities. See below some of the basic legal compliance requirements in Latin America.
- Appointment of a company legal representation (‘local director’) – This person is the legal face of the company in front of the Governmental authorities, and in turn, is responsible for the good standing of the company. This person must be a national of the country or be a foreign national with the right to live/ work in the country.
- Register a legal/fiscal address – This is the registered legal address of the company and will be used for the filing of taxes, mailing purposes and for other official communication. This must be a physical address within the country, and in most cases, it must be a registered office location.
- Tax declarations – Every legal entity within Latin America must file monthly and annual tax declarations with the national tax authority.
Note: Depending on the value of business activities and/or the type of legal structure, some countries may also require the appointment of an external and independent auditor for the company.
Local support in Latin America – company registrations
In order to undertake most business, financial and hiring activities within the types of legal structures in Latin America, you will need to establish a local legal entity, and in doing so, it is very important that you correctly identify the correct legal structure for your business. Equally important is that the incorporation process is completed correctly.
Biz Latin Hub can be the perfect partner to help you navigate your way through this challenge. We offer a full, multi-lingual suite of back-office services in over 11 Latin American countries, boasting local expertise in each jurisdiction. If you have any queries about the business opportunities in your country of interest, the company formation steps or anything to do with a specific Latin American industry, do not hesitate to get in touch with our team.
To find out more about doing business in Latin America, check out the video below: