How to form a corporation in Brazil?
Although there are many options for those interested in opening a company in Brazil, the most common and effective type of company a foreigner can open in the country is the equivalent of a Limited Liability Company, here called “Sociedade de Responsabilidade Limitada”.
This type of company is used by the large majority of Brazilian business owners, not only because it is simple, easy and inexpensive to operate, but because it protects its owners personal capital by limiting their liability to the amount contained in each of its shareholders quotas.
Any foreigner person or company can be a shareholder and owner of a limited liability company in Brazil. Also, even if the company is composed solely by foreigners, it still will be considered a Brazilian company under the Brazilian legislation.
Starting a Limited Liability Company in Brazil
The general approach for opening the company is by first performing a viability study before the municipal agencies in the city the company will be located. This viability study will verify if the name to be used by the company is available, as well as if the address is compatible with the company’s business purpose. The investor needs to be aware for example, of business activities which cannot be part of companies owned by foreigners, for example: Cable TV services; newspapers; mining, hydraulic power, road transport, national airlines and others according to the specific legislation.
When the study is approved, the requesting person will be informed of the basic permits and regulations the company will need to obtain after being opened.
After the procedure abovementioned, the next step is to submit a company formation contract to the respective commercial board, or “Junta Comercial”, of the state in which the company will be located. The company formation contract is called “Contrato Social”, and it contains most of the company’s data and its business guidelines.
Generally, the “Contrato Social” contains the following clauses:
- Personal identification of each shareholder, such as nationality, marital status, profession, ID document, address and CPF nº (which is the Brazilian tax identification number, which must be obtained by the foreigner partner).
- Definition of the company’s business purpose, which must be in accordance with Brazil’s CNAE system, where each business activity has a corresponding descriptive code.
- Definition of the company’s capital and each shareholder’s quota, where the value of one quota is informed, as well as the percentages applied to each owner.
- Definition of the company’s representative, who must be a Brazilian citizen or a foreigner with permanent resident status. Foreigner shareholders who do not have a permanent cannot be an administrator.
The Individual Corporation
Since the “Sociedade Limitada” company requires at least two shareholders to be created, many foreigners who wanted to bring their businesses to Brazil and be its sole owner faced a difficult situation: either they would use their spouse or a Brazilian resident to be a partner. This situation often resulted in problems and conflicts because the other partner would have at least one percent of the company’s capital, thus being entitled to corporate rights and disputes.
To solve this problem, in 2011 a federal law created the “EIRELI” company model. This company model permits a person to be the sole owner of a limited liability company, but with a few restrictions:
- The company’s capital must be equal to at least a hundred Brazilian minimum wages, which for this year amounts to R$ 78.800,00.
- The owner of the company cannot own another Eireli.
- The general rules for a “Sociedade Limitada” company will also be applied to the Eireli.
Opening a Branch in Brazil
It is usually not recommended to open a company branch in Brazil. The reason for that is because the procedure involved is extremely complex, involving for example the necessity to obtain prior approval from the Federal Government though a presidential decree. Also, the liability of the branch is extended to the capital of the head office located overseas.
Because of the bureaucracy and negative aspects, many foreigners prefer to open their limited liability company as a simple subsidiary, to avoid any further complications with the Brazilian government.
Investing Foreign Capital
Once the company format is chosen and the opening procedures are finished, the foreign investor will be able to send his/her investment to Brazil. The investor will now be able to fulfill the company’s capital by adding monetary resources, assets, machines or equipments and anything related with the company’s business activities.
When bringing monetary resources from overseas, the investor must be aware that the investment must be properly registered at the Brazilian Central Bank. The registration of the foreign investment is an obligation both for the company which receives the investment and the foreign investor who wishes to bring business to Brazil. The procedure is done through the SISBACEN (Central Bank Information System), using the IED (Foreign Direct Investment) module of the RDE (Electronic Declaration Register). If this registration is not done by the legal timeframe, or if it’s done incorrectly, the investor and the company will be subject to penalty fees imposed by the Brazilian Government. Also, this process can affect the evaluation of a potential Investor Visa, if this is the visa is a need of the investor.
The abovementioned registration procedure is also important if the foreigner investor needs to repatriate his/her investment. The amount registered as RDE investment in the Central bank can be repatriated on its entirety by the investor without having to pay any income tax. However, the amount that surpasses the original investment value is taxed.
The investor also needs to analyze the taxation impacts of opening a company in Brazil, especially if the company is receiving dividends, profits or remittances from abroad. This can be planned by using the double taxation treaties signed between Brazil and many countries.
After the approval of the respective commercial board, the company will be officially open by being attributed a CNPJ number. The CNPJ is the Brazilian tax identification number for companies in Brazil. This is the most important aspect of having a legitimate business in the country, because for virtually everything your company does in Brazil, its CNPJ number will be requested for validity reasons.
Another important aspect of having an active company in Brazil is accounting. Even the simplest company in Brazil, such as a “Limitada” or “Eireli”, will be required by law to issue many tax declarations and forms during a year, as well as keeping a complete track of fiscal and tax records. The accountant will instruct the business owner on these matters, as well as which taxation model to apply and how to avoid government penalty fees.
Finally, there are many other aspects that can be discussed regarding the theme of this article. Subjects such as capital and business limitations, requirements for specific activities purchasing of real estate and income taxation for companies require a more profound analysis. If you would like to know more about companies in Brazil or if you are interested in bringing your business to the country, please contact us, we from Botinha & Cabral have large experience on this subject and would be glad to assist you on your endeavors.
Read more here: Opening companies in Brazil
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