With an improving legal framework, company registration in Brazil is getting easier. Below are the key issues you will need to consider once you decided to register a Brazilian company:
1. Have you decided on the type of company you would like to register?
The two main types of corporate structures in Brazil are the limited liability partnership (sociedade limitada) and the corporation (sociedade anônima). The first two require only one shareholder and the last requires at least two.
Sociedades limitadas are the simplest to maintain, while the sociedade anônima is more bureaucratic. Neither of these companies require shareholders to reside in Brazil or hold Brazilian citizenship (except in some specific sectors).
2. Have you selected a Brazilian resident to act as the company’s executive director? If so, have you undertaken a background search and decided on the terms of appointment?
Until recently, all executive directors of Brazilian companies had to be permanent residents of Brazil. However, the Corporations Law has been changed and non-residents (including foreigners) now can be appointed as executive directors of Brazilian corporations. However, the banking and Companies Registries’ (Boards of Trade’s) rules have yet to be amended to reflect the changes, thus, as things currently stand, you will need to select a permanent resident of Brazil to act as the corporation’s executive director. Unfortunately, for sociedades limitadas it appears that the Companies Registries (Boards of Trade) will only allow permanent residents can act as executive directors.
Once the individual is selected, it is strongly recommended that you obtain a background search on the person. Brazil is a very litigious country, so you can generally find a lot of information about a person by undertaking court searches and checking public databases.
Finally, it is important to ensure that you have a detailed agreement in place for the appointment of the individual and that the agreement be customised for Brazilian law.
3. Have you chosen the shareholders for the Brazilian company? Have you considered setting up one or more companies just for this purpose?
Brazil does not have many double tax agreements and currently does not impose taxes on the payment of dividends. Depending on the taxation rules that apply to the parent company or ultimate beneficial owners, selecting the right entities to hold the shares in the Brazilian subsidiary can have major tax benefits.
Moreover, despite the supposed limited liability that Brazilian companies offer, there are Brazilian laws that allow courts to hold shareholders liable for the company’s liabilities (note, however, that the Law of Economic Freedom which became law on September 2019 has provided greater protection to shareholders).
Registering one or more legal entities that do not hold substantial assets to act as vehicles for holding the Brazilian shares is often a valid strategy to minimise the risks involved in operating a business in Brazil.
4. Have you selected a Brazilian resident to hold a power of attorney for the foreign shareholders of the Brazilian company?
All foreign shareholders of companies registered in Brazil must appoint a person to hold their power of attorney. The individual must permanently reside in Brazil and have at least the powers to:
- be served on behalf of the foreign shareholder; and
- “manage the entity’s assets and rights in Brazil”.
While not mandatory by law, invariably the attorney needs to have the power to represent the foreign shareholders before the Central Bank, tax authorities and the Companies Registries (Boards of Trade). This is often a thorny issue from a corporate governance point of view, as the person has almost absolute powers over the company. Strategies to minimise corporate governance risk include:
- having third parties (often lawyers) who are not involved in the day-to-day activities of the Brazilian company to hold the powers of attorney; and
- appointing two individuals who need to exercise their powers jointly.
At times, foreign companies choose to appoint accountants to hold the powers of attorney for the foreign shareholders. This is far from ideal, as when tax authorities notify accountants for issues relating to the Brazilian company’s tax matters an inherent conflict of interest arises (for instance, where the foreign shareholders are given notice due to non-compliance with tax obligations).
5. Have you selected an accounting firm registered in Brazil?
Brazilian tax law is very compliance-heavy. All Brazilian companies with foreign shareholders must have a Brazilian accountant responsible for preparing its books and making all required filings.
Finding a suitable accountant who is familiar with international issues and speaks English well is often a challenge, especially for those companies on tight budgets. Once the accountant is selected, it is strongly recommended to have a detailed agreement customised for Brazilian law in place with the chosen accountancy firm.
6. Have you ascertained where the company will be operating in Brazil?
State Sales Tax (“ICMS”) and Municipal Services Tax (“ISS”) rules and calculation bases will vary depending on the State and the Municipality where the company will operate. Click here for further information on Brazilian taxes.
For businesses that sell goods, if the company is to have a distribution centre in more than one State, then a branch office will need to be registered. Different tax rates will apply for interstate transactions.
States and Municipalities often also offer tax breaks (and, in some cases, free land) for certain activities where the investments are substantial.
7. Have you selected a physical location where the company will be registered? Is the location suitable for the company’s objects?
Unfortunately, Brazilian law does not accommodate for registered agents as in the United States and other jurisdictions.
Brazilian companies generally must have a registered office with a unique address. In some circumstances, a company may use a virtual office for administrative purposes or if it is a service provider. Companies selling goods can lease their own warehouses or have a lease in place with a third-party warehouse. The warehouse needs to be suitable for the company’s operations and may be inspected by tax officers to confirm that it is suitable for the company’s operations.
8. Are you willing to disclose the full chain of control of the Brazilian company to the Brazilian banks and Federal Tax Department?
Brazilian law requires that foreign shareholders of Brazilian entities disclose the ultimate beneficiaries to (ultimate beneficial owners or “UBOs”) all the way to the individual or publicly listed holding company – see further here).
Additionally, due to internal bank controls, all Brazilian banks demand that the full chain of ownership of the Brazilian entity be disclosed as a condition to opening a bank account.
9. Have you selected a name for the Brazilian company?
In general terms, company names in Brazil must include at least one word or expression indicating the company’s main activity. Company names cannot include swear words or expressions which may be offensive or immoral, among other things. Foreign words can be used.
The selected type of legal entity also needs to be shown in the company same – for instance, “Ltda” or “Sociedade Limitada” for limited liability partnerships, and “Companhia”, “S.A.” or “Sociedade Anônima” for corporations.
10. Have you undertaken a Brazilian trademark search?
The Brazilian National Institute for Intellectual Property (“INPI”) has a unified database of all trademarks registered publicly available. Conducting searches on the INPI database is fairly straight forward and can be done online at any time.
Brazilian law follows the first-to-file principle. Thus, it is strongly recommended that you file trademark applications as soon as you form a view that you may sell products or services in Brazil. These applications can be made by the Brazilian company, or by any individual or foreign entity (and there are important tax consequences to this). For further information, click here.
11. Have you considered what licences will be required for the Brazilian company to operate and how long it will take to obtain them?
Different businesses and activities require different licences to operate. Food, agricultural related activities and mining are well known for the various steps required to be taken to obtain their respective licences.
Some types of licences can take some months to be granted by authorities. Hence, it is very important that you ascertain the requirements and allow for reasonable estimates when planning the start of your Brazilian operations.
12. Are you planning for the Brazilian company to import goods? Have you checked the applicable import requirements?
Not all Brazilian companies are allowed to import goods from abroad. Before a company can import goods, it must obtain registration with the Foreign Trade Integrated System (“Siscomex”). In broad terms, there are three types of registration available:
- express, which only allows for a total of US$50,000 worth of goods to be imported every six months;
- limited, which allows for a total of US$150,000 worth of goods to be imported every six months; and
The Brazilian Federal Revenue (“RFB”) will analyse the Brazilian entity’s “financial capacity” when deciding which of the three types of registration will be granted. This analysis is undertaken by the RFB every six months and is based on the sum of corporate income tax (“IRPJ” ), the Social Contribution on Net Profits (“CSLL” ), PIS and COFINS (these being levies), as well as the amount of Social Security that the company paid for its employees in the previous five years.
Where a new company has been operating for less than five years, it may apply for a licence with a higher threshold if it can establish that it has sufficient net assets to meet its import-related obligations.
In addition to Siscomex registration, different licences may need to be obtained depending on the type of product to be imported. These licences may be under the jurisdiction of different bodies such as the Ministry of Agriculture (“MAPA”), the National Health Registry Agency (“ANVISA”), the Ministry of Defence and the Foreign Trade Chamber (“Camex”), among others.
13. Have you decided on the bank that will hold the company’s account?
Opening a bank account in Brazil may take between one to two months (even longer in some cases). Hence, it is important to confirm with your bank of choice the timeframe required for approvals and allow for possible delays.
Some banks require different registration processes to open a current account and for the company to be able to buy and sell foreign exchange. In some cases, depending on how quickly the company needs to start operating, smaller banks are used. Also, it is not unusual for companies to hold an account with a foreign exchange specialist bank, as the larger banks tend to be very compliance-intensive for small and medium-sized companies (especially those that are not listed on any stock exchange).
Final words of warning
Setting up a company abroad invariably has various consequences and risks. Seeking advice before making a decision will avoid many pitfalls and costs down the track. The questions above are just some of the many issues that you will need to consider before registering a company in Brazil.
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Last modified: October 8, 2021