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Company Registration in Brazil

Healy Consultants
27 October, 2014

Brazil is the world’s sixth largest economy, and one of the top ten fastest growing economies in the world, making it extremely attractive to multinational firms due the extremely large consumer market which is continuously growing.  Brazil is a great location for the incorporation of a manufacturing company.  This is due to the fact that Brazil is the second largest industrial sector in the Americas and has a large quantity of cheap raw materials which include iron ore and coal, along with natural resources such as crude oil.  Along with this, the country boasts one of the largest renewable energy programs in the world.  A quarter of the world’s ethanol is produced in Brazil.  The country also produces 70% of the total wind energy for all of Latin America, along with this the country continuously adding new biomass and wind power plants across the country.  The Brazilian online market is booming with approximately $13 million spent annually online, despite the fact that approximately only 40% of the country’s population has access to the internet.  As internet access increases throughout the country, it is highly likely that this sector will grow greatly.  Also, because of the recent 2014 FIFA World Cup taking place in Brazil, and the upcoming 2016 Olympic Games, there are enormous opportunities for foreign investors especially in the tourism, services and infrastructure sectors.

There are several business entities in Brazil, including: limited liability company, branch and representative office, and a corporation.  A limited liability company in Brazil can be 100% foreign owned, and in order to complete incorporation it requires that there is one director and two shareholders, who can be of any nationality.  However, it is required that a Brazilian permanent resident is appointed as legal representative of the company.  There is a minimum paid share capital of US$ 1 and it is not required the rental of office space.  The company can be fully incorporated within 14 weeks, and it is not a requirement that the company’s investors travel to Brazil in order to completed the company registration.  A branch and representative office can also be 100% foreign owned, so long as there is a local agent or sponsor who has been appointed.  This business entity is prohibited from making direct sales within Brazil.  This type of entity is only allowed to take part in certain activities, such as: developing the business of the parent company through promoting, and market research.  A corporation type of entity is a completely separate legal entity from its owners.  The owners of this type of entity have unlimited liability for any losses. 

There are a number of free zones in Brazil, including: Manaus free trade zone, Macapa free trade zone, Tabatinga free zone, Guajara- Mirim free trade zone, Boa Vista, and Bonfim free trade zone.  These free zones are highly useful for foreign companies who are intending to use Brazil as a manufacturing or import / export base, which a large portion of their business conducted outside of Brazil.  These free zones are also highly useful for foreign investors who wish to use Brazil as a gateway to South America.  These zones usually qualify for up to 75% reduction on corporate income tax, 100% duty exemption for imported products, and 10 years exemption from business licenses fees.  Companies which are operating in the Manaus free trade zone are eligible for: exemption from import tax on goods which are destined for use in Amazonas state, a 88% reduction on import duty for raw materials, and excise tax exemption for good traded within the specific free zone.  This free zone covers an area of 10,000 square kilometers in the capital city of Amazonas State, which allows access from a number of difference sources, include: road, land, and sea transport.  Macapa free trade zone allows for companies which are operating in this location to enjoy exemption from the government free for imported goods.  This free zone occupies approximately 220 square kilometers in the region bordering French Guiana.  The Tabatinga free trade zone offers a reduction of up to 75% on corporate income tax.  This zone borders Colombia and Peru.  This type of zone will only engage in

There are several legal and compliance issues that need to be taken into account.  It is mandatory that each company lodges annual returns which verify relevant details of the company for the public register.  This includes names, addresses of all directors, address of the principal place of business, and details of shareholders and their shareholdings.  It is required that all private Brazil companies maintain a local registered address.  It is required that all public companies in Brazil publish annual financial statements in a national newspaper, however they do not need to be audited.   Also, not all sectors in Brazil allow 100% foreign ownership, there are restrictions in the health services, postal services, and aerospace and nuclear energy industries.  Employers in Brazil need to provide more benefits for employees.  This includes: health benefits, meal allowance, life insurance, dental plan, employee loans, pension funds, medical checkups, and prescription drug benefits.  IT is required that all companies keep accounting records, taxable income control register, and supporting documentation and calculations.  This will allow for a detailed view of the amount of tax due at the end of each year.  In Brazil, there are two types of value-added taxes: 1) a federal VAT on the production and importation of domestic or foreign manufactured products (IPI), levied at a rate or 20% and 2) a state VAT on goods and certain services which is then processed at a rate of between 7 to 25% depending on the state. In order to close the company, you will need to go through a process of company de-registration.  It will be required that the company maintain a resident company secretary and a legal registered office in Brazil. 

There are three tax collection levels in Brazil: federal, state, and municipal governments.  There are also two types of value-added taxes: 1) federal value added tax on the production and importation on both domestic and foreign manufactured products, with a collection at a rate of 20% and 2) a state value-added tax on goods and certain services, with a collection at a rate of between 7 to 25%.  In Brazil, there is no withholding taxes of dividend distributions to non-residents both corporate and individual.  Brazil has bilateral taxations treaties with 28 countries, including: Canada, Chile, China, Japan, Korea, Philippines, and South Africa.

There are several disadvantages to company incorporation in Brazil.  An investor may want to consider the corporate, income, and value added tax.  Corporate tax in Brazil can range from 15% to 34%, value added tax can reach as high as 25%, and income tax falls at 8% to 28%.  Along with these taxes, gross revenue can also be taxed, such as a 2% federal tax which is charged on domestic and foreign manufactured products, and a compulsory social security contribution tax of 7.6%.  It is also highly possible that a foreign investor will face business challenges.  According to the EF English Proficiency Index, Brazil was placed at number 46 out of 50.  Due to Brazil having a low rating in the proficiency of English it is highly advised that if the foreign investor does not speak Brazilian, that he/she hire a translator to ensure all business matters are completed successfully and efficiently.  The country also has a minimal amount of educated skilled labor and only 41% of adults possess a high school degree.  Government agencies may seem inadequate in their procedures as it takes approximately eight weeks just to get an immigration visa, and approximately 14 weeks to fully incorporate a company.  Along with this, you will find that Brazilian laws are often uncertain and due to government red tape, bureaucratic and corruption problem.  In addition, Brazil has previously been ranked the 69th least corrupt country by the 2012 Global Corruption Index.  Due to this you will find at times conducting business efficiently in Brazil is troublesome.  Another free trade zone is the Boa Vista and Bonfim free trade zone.  Companies which operate in the Boa Vista and Bonfirm, which was established in 2006, can be eligible for duty exemption on products which have been imported for internal use in the free trade zone, and exemption from customers and administrative controls for imported and exported goods.



About the Author


Healy Consultants

Healy Consultants Pte Ltd., provides a comprehensive range of business services and has been assisting investors worldwide to set up the optimum structure in Israel and China for many years. The services offered include company registration, banking solutions, accounting and tax and legal services and corporate support services.

To inquire more about Israel and China company setup options and schedule a conference call, email us at email@healyconsultants.com or call us on +65 6735 0120.

Web: www.healyconsultants.com

 

 

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