Opening a company in Brazil is notoriously difficult: Brazil is recognized, globally, as one of the most complex countries in terms of legal and tax requirements.
In this article, GM Venture explains the main steps to take into account from foreign companies wishing to invest in Brazil.
Step 1 – In order to invest in Brazil, keep in mind the main types of companies
The limited liability company (LTDA) is the most common legal entity in Brazil. The bylaws must state clearly the share capital and participation of each partner’s worth. This previously agreed on shareholding limits both the partner’s profit and its liability in the company’s debts. The establishment of the LTDA does not require the presence of foreign members in Brazil, nor does it require that its members are necessarily Brazilian. In fact, a Brazilian legal entity can be wholly owned by foreign investors (corporate or individual).
Brazilian legislation requires every nonresident that holds quotas, capital or shares of a Brazilian company appoints an attorney-in-fact, with powers to receive service of process. In addition, it is mandatory to appoint also a legal representative. Both of whom must reside in Brazil. GM Venture provides this type of service in order to facilitate the establishment and management of foreign companies in Brazil.
For the purposes of setting up a limited company in Brazil, the documents to be submitted are as follows:
- a certified power of attorney from each foreign partner (corporate or individual);
- evidence of the grantor’s representation powers;
- copy of passport
All these documents are required to have the Postille of the Hague certificate.
Normally at least two members are required to compose the corporate framework however since 2012 the single-holder limited-liability company (called EIRELI) is permitted. EIRELI company consists of a single shareholder who holds 100% of the shares with limited liability to the capital subscribed.
The statement “Opening a company in Brazil takes a long time” is just a legend. To open a company in Brazil takes a business week, you just need all the documents in order.
Step 2 – Learn about taxation in Brazil
There are two tax option for companies held by foreign investors in Brazil: real profit and presumptive profit.
Before you open a company in Brazil, you need to choose the tax regime that best suits your company because you can only change it once a year. GM Venture supports and provides a free study to help companies choose the right tax regime.
In the Lucro Real regime, the ordinary system of accounting with the balance sheet, records and regular accounting records apply. In addition, taxes affect the economic outcome of the budget. The advantage of the real profit, while having a higher tax rate, is that if there is no actual profit there will be no taxes to pay. Therefore, if there is a loss, it can be reported as a passive element in the next budget. The Lucro Real is certainly the most suitable regime for large companies or companies that plan to invest in Brazil and foresee the first year at a loss.
The other type of regime is the Lucro Presumido. With this type of tax regime, the payment of taxes is based on a fixed percentage having as the only taxable the gross turnover of companies. This regime is recommended for those with high EBITDA or for those who are convenient to pay a certain percentage of their total turnover.
Step 3 – Inbound and Outbound Flows from Brazil
Once foreign companies have followed all the procedures listed above to open a company in Brazil, the next step will be to open a bank account at a Brazilian bank (which typically GM Venture performs in 5 business days). Subsequently, the share capital will be paid and registered at the Central Bank as RDE Register (Declarative Register of Foreigners).
The company will also be able to finance itself using normal shareholder financing practices and thin capitalization rules in Brazil respecting the 1/2 proportion (out of every 100,000-capital paid, interest deductibility is allowed on a maximum shareholder loan amount of 200,000). In this case, the loans will be registered at the Central Bank as ROF Register (Financial Operations Register).
In the case of companies wishing to open an import license, another practice in which GM Venture has a great deal of experience, it is necessary to subscribe a larger share capital and prove to the Brazilian tax authorities that the company will have enough capital to proceed with future imports.
In regard to flows abroad we always suggest the distribution of dividends because in Brazil they are subject to the zero rates in terms of withholding tax (a wire transfer of 100,000 USD means the investor will receive abroad 100,000 USD).
Even in the case of imports between the parent company and the Brazilian subsidiary, we suggest keeping the import cost reduced in compliance with transfer price regulations. Therefore the subsidiary will produce a profit in Brazil and then will distribute off shore (even several times a year).
See the complete guide on how to do business in Brazil.