Foreign ownership in Brazilian companies: check out some key considerations

Foreign individuals can establish or hold interests in a Brazilian company, provided they comply with local requirements and procedures

By Cristiano Gonçalves

A foreign individual can set up or hold interests in a Brazilian company, regardless of their tax residency status, provided that they meet specific requirements and follow the necessary procedures.

The process should start with comprehensive strategic planning that covers financial, accounting, and tax considerations. Such preparation is crucial for minimizing risks and navigating the potential challenges unique to the Brazilian environment. By seeking specialized guidance and adhering to all relevant regulations, foreign stakeholders can effectively leverage the business opportunities Brazil has to offer.

Brazil's legislation is getting progressively refined to streamline business processes, including enhancements to provisions for foreign participation in domestic companies. These improvements significantly boost the appeal of Brazil’s investment landscape.

Types of business entities

When planning one’s business operations in Brazil, it should be kept in mind that each business type has unique characteristics. Specifically, the rules vary significantly between a limited liability company (‘Sociedade Limitada’ – Ltda.) and a Corporation (‘Sociedade Anônima’ - S.A.), which are the entity types most frequently adopted by investors. Check out below some key considerations:

Primary rules for foreign ownership

Brazilian regulations stipulate that both in limited liability companies and corporations, a Brazilian or a foreign individual can become a member or shareholder provided they are over eighteen years of age.

Additional permissions for owning interest in a company are granted as long as there are no legal restrictions on the individual concerned.

To hold ownership in a Brazilian company, foreign nationals must be registered with the Individual Taxpayer Registry (CPF), regardless of whether they are tax residents in Brazil or not.

The CPF number is essential not only for foreigners aiming to acquire equity interests but also for those intending to own assets and rights in Brazil subject to registration with Government agencies. This includes real estate, vehicles, boats, aircraft, bank accounts, and financial market investments. The Brazilian government provides this service free of charge.

Companies in Brazil can be formed exclusively by foreign members or shareholders. However, Brazilian legislation sometimes limits or restricts foreign capital ownership for certain industries. This is particularly true for companies located in border areas or those engaged in specific activities, including:

• Healthcare;
• Journalism, sound, and image broadcasting;
• Mining;
• Hydraulic energy;
• National Financial System;
• Road freight transportation.

Additionally, the Federal Constitution of Brazil explicitly prohibits foreign capital investments in certain sectors, such as postal services, nuclear energy, and aerospace industry.

Business management

It is important to note that in the case of an S.A. (corporation) comprised solely of individuals residing abroad and/or foreign legal entities, it is mandatory for the company to have a manager who resides in Brazil.

Foreign investment in Brazil

Brazilian companies are open to receiving foreign direct investment (FDI) from individuals or entities not residing in Brazil. This type of investment is defined by the investors’ lasting interest in the country and is typically made outside of organized over-the-counter markets and stock exchanges.

It is crucial that the entry of foreign capital is properly formalized. Accordingly, all investments must be registered with the Central Bank of Brazil (Bacen) in a declaratory and individualized manner prior to the initial transfer of funds into the country.

Investors should bear in mind that the Non-Resident Declaratory Register (CDNR) is mandatory for individuals who are not residents of Brazil but need to be identified when registering transactions involving foreign capital in the systems operated by the Brazilian Central Bank. Typically, this registration can only be created through a representative in Brazil, as the platform requires access by a resident individual or legal entity.

Additionally, companies receiving foreign investments have specific responsibilities. They are required to submit periodic reports to the agency using the System for Reporting Foreign Direct Investment (SCE-IED System).

Read more: Bacen: check out the changes in Foreign Direct Investment Statements for 2024

Specialized advice for foreign investors

Domingues e Pinho Contadores provides full support to foreign nationals planning to invest in Brazilian businesses. Our services range from company formation and acquisition of ownership interest to accounting, tax, and labor support during operations, ensuring compliance with the regulations in force.

Our assistance also extends to helping individuals meet local requirements, offering them peace of mind and security as they conduct their investments in the country. Contact us for more information: dpc@dpc.com.br.