Frequently asked questions: Doing Business in Brazil

Interested in investing in Brazil but you do not know how? We interviewed Pedro Franco Mourão and Luis Nankran Rosa Dias, founders of Nankran & Mourão Sociedade de Advogados, to find out answers to some frequently asked questions on Doing business in Brazil and how to enter the Brazilian market in a seamless manner.

1. How do you assess the current economic situation and investment climate in Brazil?

Brazil has just ended a 14-year cycle of socialist economy known for its huge inefficient and corrupt state. The new economic program is supporting market freedom and competition, the smaller state, less taxation, entrepreneurs and businesses and social security reform

As a consequence, Brazil has been experiencing a great investment climate and became the 4th top ranked country in foreign investments, among the top 15 economies in the world.

2019 was the most significant year ever in foreign investments for Brazil. Around 1,231 transactions were made, which 449 were cross-border ones.

Despite the economic crises caused by the Covid-19 Pandemic, according to IMF Brazil’s external position remained strong thanks to its abundant reserves, a flexible exchange rate, and a contained current account deficit fully financed by large FDI inflows.

2. According to you, what are the top reasons for a company to invest in Brazil?

In the last 20 years, Brazil has improved its business environment and it has been experiencing significant increases in foreign investments.

According to World Bank, Brazil is the 9th biggest economy in the world, and it is the 5th considering its surface and population. Brazil is a gate to Latin America, and it is the biggest GDP of it, representing 1/3 of the Latin America’s GDP. São Paulo is not only the biggest city of Brazil, but also the biggest city of the Latin America.

Brazil is one of the greatest producers and exporters of agricultural products, fruit, coffee, sugar cane, ethanol, soy, meat, leather, chicken, and iron of the world and has a highly developed industrial sector, with self-sufficient renewable energy production.

Brazil’s consolidated democracy and its improvements in the infrastructure sector provides many growth opportunities for local businesses, countrywide and Latin America’s wide.

3. What are the different types of business entities one can establish in Brazil?

Brazil’s legal system recognize the major existing types of business entities in the modern western world in addition to several unincorporated entities and partnership-like organizations.

The most common business entities established by local and foreign investors are:

  • Limited Liability Company (“Sociedade Limitada” or “LTDA”)

A business entity established by individuals or capital. The corporate capital is divided into quotas and the liability of each holder is limited to the amount of capital that has been paid in, but all partners are jointly liable for paying in the corporate capital. There are no legal minimum capital requirements, except in the case of financial institutions and certain other legal entities with specific business purposes.

  • Corporations (“Sociedades Anônimas” or “S/A”)

Most closely resembles a corporation in the United States and other countries and a public limited company (PLC) in the United Kingdom. Can be formed by either public or private capital. The Corporate capital is divided into shares and the liability of each shareholder is limited to the issue price of the shares held by them. The corporation is the only type that can have its stock publicly traded.

  • Single Holder Limited Liability Company (“Empresa Individual de Responsabilidade Limitada” or “EIRELI”)

A business entity formed by a single individual. The corporate capital is divided into quotas and requires a minimum of 100 times the current minimum wage. The liability of the holder is limited to the amount of capital that has been paid in. Only Brazilians or foreigners with a permanent residency are authorized to establish an EIRELI.

4. How much does it cost typically to open and maintain a company in Brazil?

The cost typically involved in the process of opening and maintaining a company in Brazil is not easy to find out, as costs can vary greatly depending on the chosen location, industry, entity type, venue and size of the business.

On average, small enterprises budget BRL 2,500 to launch in a big city. This includes only registration and licensing fees, acquisition of certificates and hiring legal and accounting services.

Setting up cost is broken down into BRL 300 for registration fee, BRL 450 for license fee, BRL 250 on certificates and BRL 1,500 on professional services.

Further, the average business spends BRL 114,000 in its first year. This does not include the money spent on business-specific activities, such as buying stock or developing a product.

This figure is broken down into BRL 2,000 for legal services, BRL 1,000 for accountancy, BRL 2,000 for utilities, BRL 500 for IT, and BRL 4.000 for renting an office space.

5. What are the procedures involved in opening a company in Brazil?

Starting a company in brazil has become faster and easier than before, but it is still quite bureaucratic, so it is highly recommended to hire professional services.

  • The first step is to gather the information needed to register a Brazil-based company. This will include choosing a company location, name, and type of business entity.

When most entrepreneurs register a Brazilian company, they opt for a Limited Liability Company (LLC). Anyone can form a Limited Liability Company (LLC) in Brazil, and even foreign citizens and foreign companies. The LLC must have at least one initial member who can be the same as a manager if it is an individual person.

  • Formalizing how the company will be run

There are several information that is necessary to have available in order to register a new company. This requires preparing the Articles of Organization, which is a short document that tends to include the company name, office address, activities, details of the share capital, initial members and managers, and a number of standard clauses.

  • Check the Local availability

Before registering the company, it is required to check that the company’s chosen name, address, and activity is available in the county.

  • Register the company

After the availability of the company is approved in the county, we can file for registration with the state.

To officially file a company registration, we need to enter the company information and submit the documents of the company to the secretary of state (“Junta Comercial”) where it is located.

The forms and other requirements for forming a business entity vary somewhat by state. This procedure is made online in the main states of Brazil, so the company might need a digital certificate as a Virtual ID.

  • Get an EIN (“CNPJ”)

An Employer Identification Number (Cadastro Nacional da Pessoa Jurídica”) is necessary not just to hire workers, but to open a bank account, pay taxes, and get a business license.

The company can apply for the EIN for free directly with the IRS (“RFB”), in the end of the registration procedures.

  • Apply for business permits and licenses

Local governments determine registration, licensing, and permitting requirements, so the new company might need to file for licenses and permits from the county.

These requirements and fees vary, depending on where a business is located, what industry it is in, and the agency issuing the license or permit.

6. What are the tax aspects of imports of services and products in Brazil?

In order to protect the national industry against the effects of the world economic crisis and the boom of imports from Asian countries, imports of services and products are subject to high rates of import duty and taxes in Brazil.

These import duty and taxes rates are set according to the government’s current plan to promote or protect the domestic market and its foreign-trade balance.

Import duty (Imposto de Importação” or “II) is owed when importing goods or services into Brazil. The valuation method is CIF, and the duty rates can be ad valorem or specific in order to protect national products. Duty rates vary from 0.00% to 35%, according to the main criteria of how essential goods are in the domestic market. Import duties must be paid before customs clearance is given.

In addition to duty, imports may be subject to other taxes and customs fees levied on behalf of other federal agencies and the state, depending on the type of product or service being imported.

Federal Excise Tax (“IPI”) is set from 0.00% to 60% of the value of the good.

Social Contributions (“PIS” and “COFINS”) are set at 9.25% of the price of the service and set at 11.75% of the value of the goods. 

State VAT (“ICMS”) is also charged on imported goods and vary according to each state rate.

Harbor Maintenance Fee (“AFRMM”) is levied at the rate of 25% of the freight price.

Furthermore, Brazilian entities may be subject to the Contribution for Intervention in the Economic Domain, at the typical rate of 10% of the value of the product or service.

It should also be noted that transfer pricing rules apply to the export and import of services to or from related companies, except for operations involving royalty agreements.

7. What tips would you have for a foreign investor venturing into Brazil?

A foreign investor must be aware that opening a company in Brazil can be more challenging than in many other countries. Due to some domestic cultural differences and legal and regulatory barriers, a foreign investor should consider a “soft-landing” model of venturing in Brazil.

Acquiring a shelf company or become a partner with national entrepreneurs might save a lot of time and money in the domestic market entry process.

The investor has to check the track record of the national company before the M&A, just like in any Foreign Direct Investment worldwide. The chosen company in Brazil must have a reliable history of tax, labor, legal, and regulatory compliance.

8. Which strategic sectors that an investor must consider before venturing into Brazil?

Brazil is one of the greatest producers and exporters of agricultural products, fruit, coffee, sugar cane, ethanol, soy, meat, leather, chicken, and iron of the world. Brazil is also self-sufficient in renewable energy production, so there are some strategic sectors that an investor must consider before venturing into Brazil in order to be successful.

The Covid-19 Pandemic caused an economic crisis in some sectors such as leisure and travel, restaurants and other non-essential retails, like in most of the countries.

Despite of the Covid-19 pandemic crises, some sectors like I.T., online retail, food stores, delivery and health are experiencing exponential growth. M&A and other FDI activities has increased as several entrepreneurs are taking the opportunity to venture into complementary deals.

The most active sectors in M&A and other FDI models are at Online Companies, IT, Health, Real State, Food, Energy, Oil and Gas, Financial Institutions, Insurance, Advertising, Telecom and Media, Mining, Metallurgy, Construction and Construction Products.

Many investors have been venturing into those sectors by acquisitions, global and local funds and opening a company in Brazil.

9. At Nankran & Mourão Sociedade de Advogados, what services do you offer and what sets you apart from other agencies?

At Nankran & Mourão Sociedade de Advogados we offer specialized M&A legal advice services such as NDA signing, Legal Negotiation, Due Diligence, and Sales and Purchase Agreement for the foreign investors.

Nankran & Mourão Sociedade de Advogados also provides the Soft-Landing program services, to solve the bureaucracy of the procedures involved in opening a company in Brazil.

Our Soft-Landing program optimizes the fulfillment of the steps of opening a company, saving time and money during the procedure. We take care of the whole procedure of opening a company in Brazil before the foreign investor becomes a member. That strategy reduces the costs and makes the procedure faster than conventional foreign ventures. When the company is established in Brazil, the foreign investor can start doing business and doesn’t have to wait for the conventional compliance approvals.

Interested in doing business in Brazil, then contact us at info@d-b-in.com

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