Navigating the opportunities and challenges of incorporation and expansion into Brazil.
Bordering almost all other South American countries, Brazil is an emerging economic powerhouse and a gateway to Latin America.
As a member of the so-called BRICS economies – along with Russia, India, China and South Africa – Brazil is expected to develop into one of the world’s top economies in the 21st century. The federal presidential republic comprises 26 states plus a federal district that is home to the capital city, Brasilia.
Brazil is the world’s 12th-largest economy and the biggest in Latin America. It boasts one of the most sizable mining industries in the world, a huge agricultural sector and a thriving services sector that makes up over two-thirds of the country’s gross domestic product (GDP).
The Brazilian government generally welcomes and actively seeks foreign investment, especially if it fosters new technologies and job creation. However, the structure for incorporation can be complex and there are a number of different options open to investors doing business in Brazil.
Although Brazil is generally open to foreign investors, certain strategic sectors remain either restricted to Brazilian investment or subject to governmental authorisation. These include media, postal services, private security and transport, nuclear energy, rural real estate, activities in international border areas and cabotage (domestic air transport operated by foreign airlines).
Foreign direct investments must be registered with the Central Bank of Brazil and investments in the securities market must also be registered with the Brazilian Securities Commission. Foreign investments in Brazilian companies and loans granted to Brazilian companies or individuals must be registered with the Central Bank.
The most common forms of business entity in Brazil are:
The first two vehicles require only one shareholder, while limited companies require at least two. Although shareholders are not required to be Brazilian residents or citizens, only permanent residents can be appointed as executive directors.
Any company in Brazil needs at least 30 days to get incorporated. Limited liability companies and limited companies are required to file formation documents with the commercial registry of the state in which they are establishing their headquarters.
Entities must also register with the national taxpayers’ registry and apply for any licences required by their sector.
Choosing the right entity option depends on your business plans in Brazil.
Limited liability company: requires no minimum capital and is simple to establish, with few formalities for operations and financial reporting.
Sole shareholder limited liability company: this combines the advantages of a separate legal entity – such as a limited liability company or a limited company – with the benefit of allowing a single shareholder. However, this business vehicle requires a minimum capital of at least 100 times the minimum wage in force, which must be paid in full upon incorporation.
Limited company: due to their extensive compliance requirements, limited companies are considered a more complex form of legal entity and as such are preferred for businesses that need a more sophisticated corporate structure or alternative fundraising options.
Foreign investors who do not wish to set up a standalone business in Brazil may opt to open a branch or representative office instead. Setting up a branch requires lengthy approval from the federal government that is granted for only 12 months, during which the company must develop its activities or lose the authorisation to operate.
Before entering the Brazilian market, foreign investors should rely on professional advice to navigate these complex matters. Working with a trusted partner is therefore essential to avoid common pitfalls in this exciting country.
Our team in Brazil includes experts specialising in administration services dedicated to multinational, private equity and fund clients. We are able to help corporate clients looking to expand there with a full suite of services from our office in São Paulo.