The Brazilian business market includes rules and procedures that require planning and support during the process of opening companies, and this article shows you how to prepare in the best possible manner.
Written by Cássia Calixto, Partner at Domingues e Pinho Contadores
Setting up a company in Brazil is considered a challenge, especially because the Brazilian business environment is complex and includes a variety of rules and procedures that may surprise those who are not properly familiarized with this process.
Therefore, seeking support from local experts should be one of the first actions to be taken by foreign investors and business managers, to ensure compliance with all rules.
When opening a company in Brazil, investors face a large number of requirements. Doing Business ranking, promoted by the World Bank, conducts a survey every year which has been proving that. According to their report, in 2020 Brazil was ranked 138th among 190 nations when assessed based on procedures for opening companies.
Provisional Measure No. 1.040/2021 and its potential to stimulate business
This year, with Provisional Measure No. 1.040/2021, Brazilian government plans to rise 20 positions in the Doing Business ranking. The set of legal changes aims to simplify the process of setting up companies and promote business modernization in Brazil.
This measure has been considered a great step for improving the process of starting new companies and, as a consequence, attracting foreign investors. The initiative eliminates some formalities, which also speeds up the process. The government highlights the following topics:
- elimination of prior location feasibility study;
- elimination of prior corporate name research;
- unification of tax registration numbers;
- elimination of prohibition on similar corporate names;
- elimination of the notarization requirement;
- withdrawal of non-registration inactivation.
It is clear that Brazil still needs measures to overcome the complexity of its market, but while the country is trying to move forward, there are already real opportunities in energy, telecommunication and oil and gas sectors. To achieve great results, investors and managers should act now, but not before setting appropriate support and consulting services.
Opening a foreign company branch vs. Opening a Brazilian company using foreign capital
First of all, it is important to study whether the best option is opening a branch or opening a Brazilian company using foreign capital. It is necessary to take into account the business purpose and analize each particular case. However, legalizing a foreign company branch includes more steps.
This process is more bureaucratic and brings a number of extra requirements since the beginning, in the process of obtaining authorization to operate. Foreign companies can only operate in Brazil under authorization of the executive branch.
Opening a company using foreign capital is usually faster, because foreign capital can enter freely in Brazil, with only a few exceptions and restrictions.
There cannot be foreign participation in: activities related to nuclear energy, postal and telegraph service, aerospace, among others. There is also some restriction and need for prior authorization for participating in financial institutions, air transport, radio, TV and newspaper companies, the mining sector, etc.
Some important aspects related to the process of starting companies using foreign capital are presented below:
Appointing a representative in Brazil
It is mandatory to nominate an attorney, who may also be appointed as administrator, director and/or legal representative of the company.
This attorney or legal representative must: live in Brazil; be a Brazilian citizen (by birth or naturalization) or a foreigner with permanent visa and fixed residence in Brazil. This person will have the power to manage the entity’s assets and rights in the country and represent it before the Brazilian Federal Revenue Office. This is necessary because he will have legal and tax responsibility over the business.
Organizing documents issued abroad for use in Brazil
It should be checked if the foreign investor comes from a country which has ratified the Hague Convention.
If it is the case, then the validation of documents must be carried out by means of the Hague Apostille service, which allows notarization of official documents for use in other ratifying countries.
If it is not the case, documents must be authenticated by the original country consul office or by a Brazilian diplomatic representation office and go through sworn translation. After this, these documents have legal status and can be submitted to Brazilian public agencies.
Documents written in a foreign language must be translated into Portuguese by a sworn translator to have legal effects in the country.
Enrolling of Corporate Taxpayers National Register
Foreign legal entities are required to have a Corporate Taxpayer Identification Number (Cadastro Nacional de Pessoas Jurídicas -CNPJ) to invest in Brazilian legal entities. Before applying for a CNPJ, foreign legal entities should enroll with the Non-resident Declaratory Register (Cadastro Declaratório de Não Residente – CDNR), a system which came into force in 2019 and replaced Central Bank of Brazil’s previous Company Register (Cadastro de Empresas – Cademp).
Filing the articles of incorporation
The company must have legal support when filing the articles of incorporation, to ensure compliance with Brazilian laws. This document includes a variety of information about the company, such as corporate name, business purpose, corporate capital, head office, address, directive constitution, among others.
At the beginning of the process and whenever foreign capital is directed to the Brazilian company, it will be necessary to register the operation before the Central Bank of Brazil. This is done through the Foreign Direct Investment Electronic Declaratory Registration (Registro Declaratório Eletrônico – Investimento Estrangeiro Direto, RDE-IED).
The inflow of foreign capital investment in Brazil should be recorded officially, using the traditional banking system.
From this point on, opening a company using foreign capital is similar to opening a regular Brazilian company, done by a resident or without foreign participation.
Check out the main steps here.