How to set up a company in Brazil

Practical Guide

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Which corporate form is recommended for setting up a sole shareholder subsidiary company in Brazil and why?

If you are planning to set up a sole shareholder subsidiary in Brazil, the most recommendable corporate form is the Limited Liability Company, as this kind of company may have one or more owners. The Ltda. has a few advantages, as fewer disclosure requirements, a simpler and cheaper organization, registration of corporate documents is quicker, and, most importantly, allows for a faster decision-making process.

On taxation aspects, the chosen corporate form will only impact small companies that may opt to a tax assessment based on the “Simples” taxation system, which, among other restrictions, is not applicable to corporations. Otherwise, the corporate form chosen does not impact taxation of the subsidiary.

The liability of a shareholder of a Ltda. (the “Partner”) is limited to its respective participation in the company’s capital, except when the company’s capital is not fully paid-up. In such case, the Partner is liable, with its own assets, for the total amount of the company’s capital.

In certain cases of disregard of the corporate veil, activities against the law and acts performed without proper authority, the Partner may be unlimitedly liable, especially in tax, labour, and environment areas.

What are the requirements for capital and ownership of quotas or shares by foreign companies in Brazil?

First, there is no minimum capital requirement for a Ltda., except for few regulated activities and when a visa is required for Directors.

Foreign companies and foreign individuals may hold quotas of a Ltda. in Brazil without restrictions in most sectors of economic activity. Some economic sectors are prohibited to foreign companies, as nuclear energy, aerospace industry and mail services.

Other sectors, as coastal navigation, fishing; broadcasting, news media and telecommunications, are subject to restrictions in the participation of the company’s capital and corporate control, so a sole limited liability company would not be allowed. Foreign investments in health-care services are also prohibited, except when authorized by law. Private health plan operation, research, general hospitals, clinics, among others are currently authorized.

In some sectors the restrictions are to foreign direct participation, so the incorporation of a holding company in Brazil, also adopting the form of a sole limited liability company may solve the issue.

Moreover, direct foreign investment, whether in cash, goods, reinvestment, or capitalization of credits, is subject to a mandatory electronic registration at the Central Bank of Brazil. The registration under the Central Bank Electronic System “Sisbacen” RDE-IED module is mandatory to allow the inflow of capital, the distribution of profits abroad, the return of the investment, and conversion of credits into capital. This registration must be made within 30 days as of the date the capital enters the country, and non-compliance with the deadline may subject companies to payment of a fine.

What are the requirements for the corporate governance of the company in Brazil?

A Ltda. must have at least one Director (technical term is the law being “Administrator”) who can be appointed in the Articles of Association or by a separate Resolution. The Director(s) shall represent the company before any third parties for the performance of any and all acts. The Articles of Association may foresee the granting of powers of attorney for representation of the company jointly or not with the appointed Director(s), and may restrict the representation powers listing acts which performance require prior approval of the shareholder.

In general terms, the Director shall not be personally liable for the obligations assumed in name of the Company during its regular management; however, he/she can be deemed liable (on a civil liability basis) for damages and losses arising from either transgression of Articles of Association or the law, or in cases they have wilfully or culpably used their powers. Also, a Director can be held liable for another Director’s illegal acts should he consent with such illegal acts, neglects to detect them, or, once aware of them, fails to prevent them.

The Director must be resident in Brazil, whether a Brazilian citizen or an expatriate bearing a visa for such purpose. The main requirement for such visa is a foreign direct investment of a minimum amount of BRL 150,000.00. In such case, the Brazilian company is obliged to commit to create at least 10 work positions for Brazilians within a 2 (two) year term, and the validity of the ID Card (“CRNM”) shall be 2 (two) years. Failure to comply with the required job creation shall impede the renewal of the term.

If the foreign investment is higher than BRL 600,000.00 and not job creation is required. In such case, the validity of the CRNM shall be of 9 years.

A Ltda. may also have a Board of Directors upon its shareholder sole discretion.

What are the legal requirements a foreign company should comply with when incorporating a subsidiary in Brazil?

When incorporating any type of company in Brazil, foreign companies must appoint an attorney-in-fact resident in the country (a foreigner bearing a permanent visa or a Brazilian citizen effectively resident in Brazil) with mandatory powers to receive service of process and to represent Grantor before the Federal Revenue of Brazil and the Central Bank for obtaining a federal taxpayer number (“CNPJ”) for controlling purposes only, not for payment of taxes.

Corporate documentation of the foreign company, as an updated Certificate issued by the Board of Trade of the company’s head offices, should be presented. Such document shall attest its existence and good standing and contain its legal representatives for the purposes of evidencing that the company was duly represented in the above-mentioned Power of Attorney to be granted.

All documents issued abroad need to be duly notarized and apostilled. Once they arrive in Brazil, they will undergo sworn translation and will be registered at the Public Registry Office to be valid.

Ultimate beneficial owners (“UBO”) of all companies must be disclosed and kept updated at the Federal Revenue. UBO is defined as all individuals directly or indirectly holding 25% or more of a company or exercising preponderance in the corporate resolutions and the power to elect the majority of the managers of the entity, even if not controlling it.

Certain regulated activities, as insurance, banking, and pharma, among others, may require the prior approval of and/or post communication to the competent regulatory agency.

What is the process for the incorporation of the subsidiary in Brazil?

A Ltda. is incorporated by signing the Articles of Association and presenting it for registration at the Board of Trade with jurisdiction over its head offices. At the time of the incorporation, the documents mentioned in the above Answer shall be presented. The Articles of Association must also be signed by a local lawyer, who is responsible for the contents of the document.

The registration at the Board of Trade is unified with Federal, State and Municipal revenues for the purposes of obtaining all relevant taxpayer inscriptions, and environmental licensing, when required. Federal Taxpayer inscription is mandatory to all companies, State inscription is mandatory for the sale of goods, and Municipal inscription for the rendering of services. At the time of the incorporation the required inscription will be applied for. Once you start the registration procedure, the company will be registered with all relevant inscriptions.

For import/export goods the company will need another license called RADAR that may be applied for after the company is incorporated.

The Articles of Association may be drafted according to the foreign shareholders needs and subject to the applicable legislation. It must contain the company’s name, the head offices address, the activities to be developed, the amount of the company’s capital with a deadline for paying it up, the corporate governance structure, among others.

What are the usual challenges for foreign companies setting up a subsidiary in Brazil?

Bank account: commercial banks have increasingly been requesting a series of complementary documents for compliance reasons, and may be stricter than the Federal Revenue’s mandatory UBO declarations. Also, at the chosen bank’s own discretion, other documents may be necessary, as balance sheets, statements and corporate documentation for the opening of a bank account, and banks have been taking quite some time to open the account. Without a bank account the capital cannot be paid up and loans cannot be received, consequently, the company cannot start its operations.

Accountant: another challenge is to find a good accountant fluent in English.

Appointing a Foreign Director: As mentioned in the respective question above, the Directors of the Brazilian subsidiary must be resident in the country. When the foreign shareholder wishes to appoint an expatriate as Director of the company it must also appoint a Brazilian resident as interim Director until the competent visa is issued, the Articles of Association is amended and registered at the Board of Trade.

Labour: Labour in Brazil is highly regulated and protective of employees not granting too much room for negotiations. The total cost of an employee may be twice the remuneration paid. Companies must be under a single Labour Union according to its main activity and must comply with Collective Agreements and additional rights established therein.

Tax Issues: Brazil has a very complex and regulated tax system with different Federal, State and City taxes. Foreign investors are eligible for most available fiscal incentives, including tax deductibility of goodwill under certain conditions. Distribution of profits is not subject to taxation, even when remitted to foreign shareholders.

Technology and IP Licensing: Technology transfer agreements and IP licensing agreements must be approved by and registered with the National Institute of Industrial Property (INPI), and certain requirements must be met. In case of royalties, registration of an agreement also requires proof that the related patent or trademark has been duly registered in Brazil and is still valid.

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