Foreign companies can set up a presence in the country by establishing a subsidiary in Brazil. Subsidiaries, which are Brazilian legal entities opened according to the domestic legislation, constitute a more straightforward option, rather than setting up a branch here.
Even though there are different types of companies that can be set up according to Brazilian law, the two most popular ones are the limited liability company (Limitada) and the Corporation (S.A.).
Starting with 2012, a new type of legal entity has been introduced in Brazil and it is made of a single member, known as a single-member or individual limited liability company (EIRELI).
Establishing a subsidiary company in Brazil necessitates expertise, particularly for foreign investors; our consultants are readily available to guide you through company incorporation in Brazil. This article will look at how foreign businesses can legally do business in Brazil. Our company formation consultants in Brazil explain different aspects related to opening a subsidiary in 2023.
If you are interested in other matters, such as how to open a company in Brazil that is not subject to the control of a foreign legal entity (even if it retains its level of independence, like a subsidiary), our team is ready to assist you each step of the way. You can read below to find out more about subsidiaries, or you can reach out to us if you wish to know more about other business forms.
How to set up a subsidiary in Brazil
A foreign company that wishes to establish a subsidiary in Brazil may select one of the company structures available during company incorporation in Brazil. However, limited liability companies (SociedadeLimitada) are Brazil’s most famous legal entities when establishing subsidiaries because they are easier to establish and operate.
A limited liability company requires at least one administrator, who has a similar position to that of a director and who has to be a local resident. This type of company also must have a minimum of two quota-holders, who can be local or foreign resident individuals or legal entities.
Our company registration advisors in Brazil can help you open a company in Brazil in 2023, according to your own needs and requirements.
Here is the list of steps to open a subsidiary in Brazil.
- File the articles of incorporation as they were registered in the country of origin;
- Register with the Board of Trade: Registration applications should be sent to the Ministry of Industry, Foreign Trade, and Services.
- Obtain a tax ID.
- Get a Brazilian visa and open a bank account for yourself.
- Get a business license in your municipality.
- Register with the Inscricao Estadualto to pay taxes in Brazil.
Differences between a subsidiary and a branch
The table below highlights these important differences:
|A legal entity distinct from the parent company allows for greater autonomy and limited liability.
|A branch is an offshoot of a larger corporation and is legally the same as the parent company.
|It has rights and obligations and is governed by Brazilian laws and regulations.
|The parent company is liable for the branch’s actions.
|Must pay 5%/35% tax plus surtax.
|A branch is required to pay 5%/34% tax plus surtax.
Legal and regulatory considerations
When deciding to establish a subsidiary in Brazil, it is essential to consider several key factors that can significantly impact your business. These factors include:
1. Legal and Regulatory Considerations: Brazil has laws and regulations governing business operations, including company formation in Brazil, labor laws, intellectual property rights, and contract regulations. Understanding and complying with these legal requirements is crucial to avoid potential legal issues and ensure a smooth operation.
2. Liability and Risk: opening a subsidiary in Brazil involves assessing the liability and risk associated with your business activities. Understanding the local legal framework, liability laws, and potential risks is essential for mitigating any adverse effects on your company. Considerations include product liability, employee liability, and contractual obligations.
3. Tax Considerations: Brazil has a complex tax system, and understanding the tax implications of establishing a subsidiary is crucial. This includes corporate income tax, value-added tax (VAT), payroll taxes, and other local taxes. Corporate taxes are generally subject to taxation on profits or presumed profits, with an income tax between 15% and 25%. For proper compliance with the tax regulation, consulting with our tax professionals will help you.
4. Operational Control and Flexibility: Consider the level of operational control you can maintain over your subsidiary in Brazil. Understanding local labor laws, hiring practices, and cultural norms can help establish efficient operational processes. Flexibility in adapting to local market conditions, regulations, and business practices is also essential for long-term success.
Overall, thoroughly evaluating these factors before company formation in Brazil can help you make informed decisions, navigate the legal landscape, minimize risks, and maximize the potential benefits of expanding your business there. Consulting with our legal, tax, and business professionals with expertise in Brazil can provide valuable guidance.
Taxes for subsidiaries in Brazil
As mentioned above, investors looking to open a subsidiary in Brazil must comply with the local tax regulations. Our Brazil company formation specialists will provide some details about them.
The corporate income tax rate ranges from 15% to 25% on annual taxable income. Taxation may be based on presumed profits or actual profits subject to income tax. A 10% surcharge applies to annual taxable income above 240,000 BRL. Please note that the effective tax rate is 34% (the combined tax rate of the corporate income tax and any surcharge on corporate tax).
Social contribution on net income is 9% for most legal entities, but 20% for private insurance companies, financial institutions, and capitalization companies.
Progressive rates are set for capital gains acquired by non-residents on investments recorded with the central bank. Rates range from 15% to 25%.
VAT ranges from 17% to 25%, depending on the state and the type of commercialized goods and services. Standard rates are 20% in Rio de Janeiro and 18% in Sao Paulo.
One significant tax for establishing a subsidiary in Brazil is that dividends are not taxed. This means that a subsidiary can repatriate its profits to its head office without being subject to taxation on the transfer of dividends. This can be advantageous for multinational companies looking to efficiently manage their earnings and investments in Brazil.
You also need to know that to open a subsidiary in Brazil, as a foreigner, you will need capital ranging from USD 3,000 to 10,000. Besides the starting funds, you’ll need approximately BRL 800 per month to run the subsidiary. These monthly costs are ongoing expenses necessary for the subsidiary’s operations and compliance with local regulations.
We can help with company incorporation in Brazil and related tax matters.
Government programs and incentives for subsidiaries in Brazil
Establishing a subsidiary in Brazil allows international companies to apply for various government programs and incentives aimed at supporting local businesses. Some examples of these programs include:
- BNDES (National Bank for Economic and Social Development), which supports financing;
- PADIS, which supports technological development of the semiconductor industry;
- REPES, a special taxation regime for information technology services export platforms;
- PATVD, a support program for the development of the equipment industry for digital TV;
- São Paulo Inova, which offers support to technology-centric companies in the state of São Paulo, whether they are in their primary stage or the process of opening.
You can also open a subsidiary in Brazil in the Free Trade Zones, which might come with other incentives for your business. Our specialists in company formation in Brazil can detail more about the government programs and incentives.
Advantages of opening a subsidiary in Brazil
Opening a subsidiary in Brazil can offer several advantages to foreign companies looking to expand their operations in the country.
Setting up a subsidiary is a very simple process. Any foreign company can invest in, become a shareholder of, or partner with a local subsidiary. Subsidiaries, once incorporated, are fully covered by Brazilian laws and can operate as normal businesses. Setting up a subsidiary in Brazil typically takes around 3 months to obtain all the necessary approvals.
While subsidiaries are subject to Brazilian laws and regulations, they also have a degree of independence from the parent company. This can allow for more flexibility in tailoring the business to local market needs and preferences. You can always choose to open a branch in Brazil if you are looking for a different structure.
Lastly, establishing a subsidiary in Brazil often provides access to local talent, resources, and expertise, which can be beneficial for various aspects of your business, including hiring and managing a local workforce. Having a physical presence through a subsidiary can enhance your brand’s visibility and credibility in the Brazilian market.
Our team can help you in opening a company in Brazil, according to your needs.
The following facts are interesting to observe:
- In 2020, Brazil had approximately 1.83 million legally registered retail and trade companies.
- These companies accounted for about 34% of all legally registered companies in Brazil.
- During the same year, over 103,000 agricultural businesses were registered.
- Various sectors were represented among the registered companies, including retail and trade, administration, real estate, health, education, media, art, finance, oil and gas, and more.
How our lawyers can help you with company formation in Brazil
Our Brazilian company formation team can help you establish a company in Brazil by assisting with subsidiary company formation in 2023 if you choose to incorporate one. Our incorporation agents can provide legal advice and guidance, walk you through the step-by-step incorporation process, draft and review legal documents, conduct due diligence, register a license, protect intellectual property, and even handle post-incorporation matters such as filing annual reports.
If you have further questions about how to open a subsidiary in Brazil or a company in Brazil, we kindly invite you to contact us.