The Brazilian law provides support for various types of enterprises. The most frequent are the Corporations (S.A.) and Limited Liability Companies (LLC.) in the establishment of subsidiaries and joint ventures. This is due to the fact that, in both cases, participants have limited responsibilities. The law provides legal status to these companies as entities that are separated from its participants. Brazilian law also provides for other forms of corporations, such as consortia or special types of partnership that do not have legal status. In this case, the parties have individual rights and obligations for the common benefit of the group. These contractual structures are usually adopted to meet specific purposes or for non-corporate businesses.
Another type of company included in the Brazilian law comprises General Partnerships (partnerships), which imply unlimited liability of the partners. These companies are uncommon nowadays, since certain tax benefits from which they historically benefited from have been extended to other types of companies.
You can download a summary of the main regulations of foreign capital in Brazil here.
Foreign capital may freely enter Brazil and is not subject to prior approval by the government and there are no conditions in respect of the total amount of investment that can be made in Brazil, with a small number of exceptions:
- Activities involving nuclear energy;
- Healthcare services (unless an exception is expressly provided for by law);
- Mail and telegraph services; and »» Aerospace (launch and deployment of satellites, vehicles, aircraft or the commercialization of these goods, but the prohibition does not apply to manufacturing or trading these goods).
Restrictions - in the following sectors, foreign capital may be subject to limitations or may require preauthorization from public authorities:
- Acquisition or rental of rural property (may require authorization from the National Institute for Colonization and Agrarian Reform - INCRA4 or, in the case of large purchases, the National Congress);
- Financial institutions;
- Air transportation companies (the operation of passenger air transportation services is subject to concession – under current legislation a concession contract can only be awarded to Brazilian-registered companies in which at least 80% of the voting capital is in the hands of Brazilians – entry of foreign capital is capped at 20% of ordinary shares in the company);
- Media, including television networks, magazines, newspapers and radio broadcasting stations (the government prevents foreign investment in the ownership and administration of media – legislation stipulates that at least 70% of the total capital of media companies must be owned directly or indirectly by Brazilians born in Brazil or naturalized for more than ten years); and
- Mining sector.
Investors are required to register all inflows of foreign capital into Brazil with the Brazilian Central Bank within 30 days of the funds entering Brazil.
This can only be done online through the Brazilian Central Bank's e-registration tool, RDE-IED (Electronic Declaration Registry), which is part of the Brazilian Central Bank's Information System (SISBACEN).
The recipient company of FDI and the foreign investor (through a representative) are responsible for registration. More information on registering foreign capital can be found in Portuguese from the Brazilian Central Bank's website: http://www.bcb.gov.br/pre/bc_atende/port/investimento.asp#2
An unregistered investment is not eligible for repatriation and dividends or profits generated by it cannot be remitted abroad through the commercial foreign exchange market.
However, it is important to note that nothing prevents the foreign investor from repatriating or remitting dividends or profits abroad through the floating exchange market or transferring local currency abroad to purchase foreign currency outside Brazil.
Apart from the aspects relating to registration, repatriation and certain tax consequences, an unregistered investment is subject to the same rules applicable to registered investments.
Foreign capital that enters Brazil as FDI is not subject to any taxation. However, intercompany loans will be subject to the federal Tax on Credit, Foreign Exchange, Bonds and Securities Transactions and on Insurance Operations (IOF 5) at a rate (which can be reduced to 0%) that varies depending on the sector, the length of investment and other aspects. Even though intercompany loans are classified as FDI, The Federal Revenue Service (SRF 6) considers this kind of investment a normal, interest-bearing financial transaction that is subject to the same IOF rates as domestic investors.
The remittance of profits and dividends and the repatriation of the foreign capital abroad are exempt from the withholding Income Tax (IR7) when leaving Brazil. But this only applies if the sum of the capital to be sent abroad is the same as the sum that was registered with the Brazilian Central Bank. Capital repatriated in an amount greater than the initial amount registered will be deemed a capital gain and be subject to a 15% or 25% IR, unless otherwise provided by an applicable tax treaty between Brazil and the other country involved.
When remittance or repatriation is not desirable, reinvesting profits is an option. Reinvestment can be registered as foreign capital with the Brazilian Central Bank, thereby increasing the tax basis for calculating future divisions of capital.
Finally, to stimulate FDI, Brazil has signed Double Taxation Treaties (DDTs) with 28 countries. Check each convention document in its entirety at http://www.receita.fazenda.gov.br/Legislacao/AcordosInternacionais/AcordosDuplaTrib.htm
Nationals of most European and Latin American countries, as well as certain other countries, do not need a visa to enter Brazil for business visits of up to 90 days. A list of visa requirements per country is available from the following link: http://chicago.itamaraty.gov.br/en-us/visa_requirements_by_country.xml
In any case, investors planning to visit Brazil are strongly advised to check with the Brazilian consulate in their country on whether they require a visa before confirming travel plans.
For investors who do require a visa to enter Brazil, it is recommended to apply for a business visa that is valid for up to five years (depending on reciprocal arrangements in the country in which you hold nationality) and allow a maximum stay of up to 90 days at any one time, which can be extended for a further 90 days upon request to the Federal Police.
- Abide by the regulations for the register of foreign companies, in the terms of Instruction DREI no. 7/2013 (available in Portuguese at http://drei.smpe.gov.br/legislacao/instrucoes-normativas/titulo-menu/pasta-instrucoes-normativas-em-vigor/drei-07.pdf)
- Choose the type of company for the business. For that, it is important to consider the types of businesses in Brazil.
- Hire a local accountant to take all documents to the Board of Trade of the Brazilian state where you intend to open the company. Find the websites of these state boards at: http://drei.smpe.gov.br/assuntos/juntas-comerciais
This professional should assist throughout the process, prepare and register the following documents:
I. Articles of incorporation/bylaws. One must choose the revenue method for calculating taxes when filing these – either the "National Simple" (Simples Nacional) for small businesses, Taxable Income or Estimated Profit - and make a number of other decisions, such as the company's name, the legal representatives in charge of the company's administration, etc. Legal assistance is also recommended in order to prepare the articles of incorporation/bylaws;
II. Power of attorney given to the Brazilian Representative;
III. Copies of the personal documents of the representatives, including the visa; and the address voucher for where the company will be established;
IV. Corporate taxpayer ID number (CNPJ);
V. State and Municipal Taxpayer Registries;
VI. Municipal License / Operation Permit (Alvará ou Licença de Funcionamento); and
VII. National Institute of Social Security (Previdência Social) and Special Fund for Unemployment - FGTS Registrations.
Note that all foreign documents must be translated to Portuguese by a sworn translator (whose contacts available at the local Board of Trade) and notarized in the Bureau of Registry of Deeds and Documents (Cartório). The paperwork must be also notarized by a Brazilian consulate located in the associate's country of origin.
Opening a Bank Account
A final important point related to this topic is opening a bank account in Brazil. The Brazilian banking sector is considered as one of the most modern in the world. State-owned banks, private banks, investment banks and other financial institutions, both domestic and international, compete in the retail banking industry in Brazil.
To open a business account, businesses need to fill out certain forms and provide legal documents, such as:
- Identification, proof of registration and registration status with the National
- Registry of Legal Entities of the Ministry of Finance/Internal Revenue Service issued no more than 30 days earlier;
- Identification of Legal Partners and Managers - Submit documents and information form for the registration of individuals who are shareholders or officers of the company/organization (ID, CPF, proof of residence);
- Chattel property, real estate and livestock (e.g. proof of property ownership, proof of payment of property tax or ITR for the last year, Certificate of Ownership, Registration and Licensing of Vehicles)
- Authorization for waiver of registration information – SCR (Credit information system)
- Authorization for waiver of registration information – REFIS (Taxpayers Program)