Important issues in opening foreign companies in Brazil

Starting a business in Brazil may be an arduous task, especially if the head of the company is not familiar with the applicable legislation, which often brings headaches for natives and aliens.

Faced the rules and procedures complexity to be followed, counting on the support of skilled professionals in all the necessary steps is always indicated.

The excess of bureaucracy in all aspects of a company's life is part of difficulties in starting a business in Brazil. Many requirements in the routines of entrepreneurs directly affect the quality of Brazilian business environment.

Brazil ranked 125th, from a total of 190 countries, for example, in the result of the last World Bank "Doing Business" survey conducted in 2018 (see here).

Questions such as "time to start a business", "tax payments", and "obtaining permits for construction" negatively influence the country's position.

Therefore, striving to avoid pending during the process of starting a company with foreign capital in Brazil is the best option to protect from problems and reduce legalization time. In order to assist the process, DPC lists the following main points to consider:

1) What is the difference between starting a foreign subsidiary company and set up a Brazilian company with foreign capital?

As a rule, the bureaucracy involved in the legalization process of a foreign subsidiary company is much superior to the one involved in stating a Brazilian company with foreign capital, such as the requirements to obtain the operating authorization.

It is noteworthy that Article 1134, from Civil Code, establishes that "a foreign company, regardless of its purpose, may not, without the Executive Power authorization, operate in Brazil, even if by subordinate establishments (...)".

The Business Registration and Integration Department (DREI) is responsible for instructing and examining foreign companies applications for authorization to nationalize or set up a subsidiary, agency, branch or establishment in Brazil. Only after obtaining authorization from this body, the legalization of a foreign branch company may occur.

In addition, there are situations where there is a prohibition (activities related to nuclear energy, postal and telegraph services, and the aerospace sector, for example) or restriction and foreign capital participation (financial institutions, air transport, radio companies, TV and newspapers, mining sector, etc.) prior authorization.

The foregoing indicates the starting of a company based in Brazil, with foreign capital, because, despite the tax burden is the same, the process takes less time, as it basically requires the same procedures when setting up a company without foreign shareholding.

2) What types of companies can I choose?

Among the different types of existing commercial companies in the Brazilian legal system, foreign investors usually choose to set up a limited liability company and non-public corporation. Each one of them has its own characteristics, as follows:

	Ltda.	S/A
Capital	Divided into shares	Divided into stocks
Responsibility	Subsidiary liability limited to the value of paid-up shares	Limited to the issuance price of acquired or subscribed stock
Name	The company name is followed by the expression "Ltda"	The company name is followed by "Sociedade Anônima" or "S/A" or is preceded by word "Company" or its abbreviation "Cia"
Constitutional act	Social contract	Bylaws
Administration	Named administrator and there is no time limit to stay in function	Board of Directors and board members not exceeding with a 3 years mandate, requiring a new election, with the re-election being possible

3) How may documents issued abroad be used in Brazil?

Initially, when foreign documents come, it must be verified whether the foreign investor comes from a country that has ratified the Hague Convention. This will allow the validation of foreign documents through the "Hague Handbook" or "Apostille" (a French-named notarization type with international validity), which certifies the public documents between the Convention signatory countries.

In order to have legal value, if the investor's documents are from a country not under Hague Convention, they must be registered in the consulate in the country of issuance (or in a Brazilian diplomatic representation) through a sworn translation procedure prior to submission to Brazilian public bodies.

4) How is the legalization process?

With the presentation of documents (arranged as described in the prior item), the company or individual foreign investor may participate as partner in a Brazilian company, acquiring legal personality in Brazil, by filing their records at the competent agencies.

An important point is choosing foreign investor attorney, through the presentation of power of attorney. The proxy may also be the managing director or director of the company being formed. It is noteworthy that the legal representative must be domiciled in Brazil, be born Brazilian, naturalized or alien with permanent visa in Brazil, in addition to have a fixed residence in Brazil, as he or she will have legal and tax responsibilities before the Brazilian authorities.

The CPF of the individual partner resident abroad must be obtained at a Brazilian diplomatic office, which will process the request and then provide the desired registration. If there is any inconsistency, the request will be forwarded to RFB for analysis.

The investor company’s CNPJ will be obtained from the Cademp - Cadastro de Empresas do Bacen (Bacen’s Companies Register) through the Central Bank System Information (Sisbacen), responsible for collecting and storing the registration information of resident and non-resident individuals or legal entities in Brazil.

Note that foreign capital must be registered through the RDE-IED (Electronic Declaratory Registration - Foreign Direct Investment module) within 30 days from the remittance of resources. The registration will allow the investment be then repatriated, if it is the case, and profits and dividends generated by the company sent abroad through the commercial exchange market.

The elaboration and registration of the company’s Articles of incorporation and obtaining the registrations in public agencies are from this point on, as happens with any Brazilian company.

Check out other aspects about legalization of companies in Brazil in the following article:

Opening companies: attention to some points may represent competitive advantage for those who want to undertake