Everything you need to know and if you’re thinking of opening a business in Brazil

Jul 17, 2020

Opening a business in Brazil is already the addition of a goal, and many times it means realizing an entrepreneurial dream.  Throughout the process, however, you may encounter several problems that will need analyses. It is important to remember that projects shouldn’t be thrown away by the difficulties that might arise.

aprire attività in brasile-1

Here’s what you need to know before opening a business in Brazil

First thing you need to know the territory where you want to invest, known and especially its main features. It’s also good to choose correctly the partners that will support your business. Finally, it is necessary to establish a business plan, define objectives, predict upfront costs, plan a capital reserve and choose the appropriate tax regime.

Entrepreneurs must be cunning and must be good at pulling out their entrepreneurial vein. And one of the most important things is to remember that learning from the mistakes of others is more beneficial than learning from one’s own.

Another point to always remember is the following: getting to know the customer is more important than knowing the product. It means being ready to monitor the competition. It is also necessary to establish a collaboration with industry experts. In this regard, a  partner like GM Venture who knows the Brazilian market is fundamental to the administrative and financial sector or the company.

Tips for opening businesses in Brazil

aprire attività in brasile-2Here are all the tips to help you to open a business in Brazil:

– Analyze the market as a whole, looking for opportunities that the reference sector offers and imagining how far it can bring value to your business;
– Design what the initial investment will be, which is the amount you’ll need to invest so that your business can start with the right security.
– Identify the profiles of your future customers, including information about age, social class, monthly income;
– Be aware of what may be the weaknesses of your possible customer;
– Quantify how your business and business can add value to your future customer;
– Always look at innovation and modernization, keep up to date with new industry trends.  Always be informed to apply all new knowledge within the company. Another essential feature is the ability to change direction if necessary, and have an open mind for changing.

Se bellow the main steps to take into account from foreign companies wishing to invest in Brazil.

Step 1 – In order to open a company 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 Apostille 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 business in Brazil takes a business week, you just need all the documents in order.

Step 2 – Learn about taxation in Brazil

There is two tax option for companies held by foreign investors in Brazil: real profit and presumptive profit.

Before you open a business 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 business 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 offshore (even several times a year).

See the complete guide on how to do business in Brazil, here.

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