Company incorporation in Brazil

Brazil, the largest economy in South America, offers a wealth of opportunities for foreign investors. As a member of the BRICS group of emerging economies, Brazil provides a large consumer market, an extensive natural resource base, and a growing industrial sector.

Most Common Business Forms for Foreign Companies

The most common business structures for foreign companies in Brazil are the Limited Liability Company (LTDA) and the Corporation (S.A.).

• Limited Liability Company (LTDA): The LTDA is the most common business structure in Brazil, particularly for small and medium-sized businesses. It offers limited liability, meaning that the owners (quotaholders) are only liable for the company’s debts up to the value of their shares. The minimum number of partners required is two, and foreign ownership is allowed. The minimum capital requirement is flexible, but it is recommended to have a reasonable amount to show the company’s stability.
• Corporation (S.A.): The S.A. is used by larger businesses, especially those planning to raise capital through the public stock market. It requires a minimum capital of BRL 100,000 for publicly-held companies and BRL 10,000 for privately held companies. The S.A. structure allows for more flexibility in ownership and management, making it ideal for large companies or those seeking to raise funds through public offerings.
• Foreigners can own 100% of the shares in both LTDA and S.A. structures, provided that the company’s activities comply with Brazilian regulations and restrictions on foreign ownership in specific sectors.

For most foreign investors, the LTDA is the preferred choice due to its simplicity, low minimum capital requirements, and flexibility in management. The S.A. structure is ideal for large corporations or those wishing to list shares publicly.

Setting Up a Company in Brazil

Setting up a company in Brazil involves several steps. Below is an overview of the process:

1. Choose a unique company name and verify its availability with the Brazilian Board of Trade (Junta Comercial).
2. Draft the Articles of Association (Contrato Social) outlining the company’s objectives, governance structure, and shareholding.
3. Register the company with the Junta Comercial to obtain legal recognition. This process can take up to 2-4 weeks, depending on the region.
4. Obtain a tax identification number (CNPJ) from the Brazilian Federal Revenue Service (Receita Federal). This is required for all businesses operating in Brazil.
5. Open a corporate bank account in Brazil and deposit the required share capital. For an LTDA, there is no specific minimum capital, but it should be a reasonable amount for the type of business.
6. Register for social security and labor taxes with the National Institute of Social Security (INSS) if you plan to hire employees.
7. Register for VAT (ICMS) and other local taxes depending on your business activity. The rates vary depending on the state and industry.
8. Obtain any necessary licenses or permits based on the business activity, such as environmental or health licenses.

The incorporation process in Brazil can take several weeks due to bureaucratic requirements, and foreign investors are advised to work with local legal and accounting professionals to ensure compliance with local laws and regulations.

Taxation and Withholding Taxes

Brazil has a complex tax system with various federal, state, and municipal taxes. However, it also offers several incentives for foreign investors. Key tax aspects include:

• The corporate income tax rate in Brazil is 15% on profits, with an additional 10% surcharge on profits exceeding BRL 240,000 per year.
• In addition to corporate income tax, companies are subject to Social Contribution on Net Profit (CSLL) at a rate of 9% for most businesses.
• Brazil also has a Value Added Tax (VAT), which is known as ICMS (Imposto sobre Circulação de Mercadorias e Serviços). The rate varies by state, generally ranging from 7% to 18%. Other taxes like PIS and COFINS are also levied on gross revenue.
• Dividends are subject to a 0% withholding tax for both Brazilian residents and foreign shareholders. However, other distributions such as interest on equity (Juros sobre Capital Próprio) are subject to a 15% withholding tax.
• Foreign companies paying royalties, interest, or dividends to other foreign entities are subject to a 15% withholding tax, which may be reduced under applicable double taxation treaties (DTA).

Service Providers for Company Incorporation

• PwC Brazil
• Deloitte Brazil
• BDO Brazil
• Grant Thornton Brazil
• KPMG Brazil

These service providers can assist with company registration, tax advisory, legal consulting, and compliance in Brazil. Their expertise helps foreign investors navigate the regulatory framework and ensure the successful incorporation and operation of a business in Brazil.