A Step-by-Step Guide to Incorporate a Legal Entity in Brazil
The incorporation of a legal entity in Brazil requires compliance with several legal requisites. Understanding such requirements is essential to any foreign investor thinking about structuring a business in the country.
Based on our several years of experience assisting global clients, we have prepared a step-by-step guide for the incorporation of a legal entity (whether a limited liability company – sociedade limitada – or a corporation – sociedade anônima) by a foreign investor. (More information on Brazilian limited liability companies and corporations is available here.)
Below you will find a summary of the main steps involved in the process of opening a business in Brazil.
1. Obtaining a Tax Registration ID for the Foreign Investor
In order to hold equity in a Brazilian legal entity, the foreign investor is required to be registered with the Brazilian federal tax authorities. Individuals will be registered under the Cadastro de Pessoas Físicas (or CPF) and legal entities will be registered under the Cadastro Nacional de Pessoas Jurídicas (or CNPJ).
The tax registration is commonly made as part of the process of obtaining a Non-Resident Declaratory Record (Cadastro Declaratório de Não Residente – CDNR) of the investor with the Central Bank of Brazil. The CPF or CNPJ identification number is issued at the end of such process.
2. Incorporation of the Legal Entity
Once the foreign investor has obtained its CNPJ or her/his CPF, the investor may proceed with the incorporation of the legal entity.
Brazil offers different types of business structures, each with unique implications. The most common ones are the limited liability company (sociedade limitada) and the corporation (sociedade anônima).
Especially when a business is structured with multiple investors and/or equityholders, it is important to fully understand which legal structure is more appropriate and compatible with the entrepreneur’s goals, funding and future plans for expansion.
Choosing the right structure allows the use of the right tools to address the peculiarities of each business and investment.
The main features of the sociedade limitada and the sociedade anônima are available in the article Types of Companies in Brazil prepared by MMR – Mastrocola Marcondes Rocha Advogados.
The bylaws (in case of a corporation) or the articles of association (in case of a limited liability company) must be filed with the registry of commerce (junta comercial) in Portuguese.
The following information shall be included in the incorporation documents:
- the name of the company;
- the local address of the company;
- the corporate capital and how it will be paid in (timing and with what kind of assets); and
- the name and qualification of the officers/directors of the company.
The officers/directors of the company are not required to reside in Brazil. However, if the officers/directors do not reside in Brazil, she/he shall be required to have an attorney-in-fact residing in Brazil.
It is not uncommon for foreign entrepreneurs, particularly during the preoperational phase, to retain local firms to act (through their partners) as their legal representatives in Brazil and as directors/officers of the Brazilian entity. It is important that foreign investors retain firms that are reputable and trustworthy.
As part of the process of incorporation, the Brazilian company will be issued a federal tax ID (CNPJ) and, as applicable, a state tax ID. Once the CNPJ is issued, the Brazilian entity will also be required to obtain a municipal tax ID.
The foreign investor is required by law to have an attorney-in-fact residing in Brazil.
The local entity shall retain an accounting firm for accounting and tax compliance.
3. Informing the Ultimate Beneficial Owner – UBO
Brazilian companies invested by foreign legal entities, as well as such foreign legal entities themselves, must report to the Brazilian federal tax authorities their respective ultimate beneficial owners (UBOs). Such process is carried out by means of filing the relevant documents and information with the Brazilian Internal Revenue Services (Receita Federal Brasileira).
You may find more information on UBO reporting here.
4. Required Documents
The following documents will be required as part of registrations with the Central Bank of Brazil (including the issuance of the CPF or the CNPJ for the foreign investor), the incorporation of the Brazilian entity and the filings regarding UBO:
- apostilled copy of the foreign partner’s articles of incorporation / certificate of incorporation (or equivalent) showing the company’s name, address and officers/administrators. If the foreign investor is an individual, apostilled copy of her/his passport;
- apostilled copy of a certificate that proves the current corporate structure of the share capital of the foreign company (applicable only if such information is not available in the foreign company’s articles of incorporation / certificate of incorporation);
- apostilled copy of document indicating the representation powers held by the foreign investor’s legal representatives in the country of origin (applicable only if such information is not available in the foreign company’s articles of incorporation / certificate of incorporation);
- apostilled power-of-attorney granted by the foreign partner to an attorney-in-fact residing in Brazil;
- apostilled copy of the identification document or passport of (a) the foreign investor’s legal representative in the country of origin and (b) the foreign partner’s UBOs, if they do not hold a CPF registration;
- copy of the ID of the foreign investor’s attorney-in-fact and of the officers;
- municipal registration of the real property used by the Brazilian entity as head office; and
- an organizational chart indicating the foreign investor’s ultimate beneficial owner.
In order to be valid in Brazil, foreign documents will need to be translated to Portuguese by a sworn translator and registered with the registry of titles and deeds in the country.
Digital documents are accepted, as long as their authenticity can be verified.
Additional documents may be required, depending on the particulars of the case.
5. Foreign Investor not Required to be Physically in Brazil for the Incorporation
As long as all applicable documents are presented in good order, including the relevant powers-of-attorney, the foreign investor is not required to be physically in Brazil to incorporate the company.
6. Registration of Foreign Investment with the Central Bank of Brazil
Foreign legal entities seeking to invest in a Brazilian legal entity must obtain a Non-Resident Declaratory Record (Cadastro Declaratório de Não Residente – CDNR) with the Central Bank of Brazil. Such record is not mandatory for foreign individuals (although useful for purposes of obtaining a CPF registration – see item 1 above).
Foreign investments in Brazilian companies in the amount of US$ 100,000.00 or more (or the equivalent in other currencies) must be informed to the Central Bank of Brazil. The registration of such investment is made through the Central Bank’s online system for direct foreign investment, the Sistema de Prestação de Informações de Capital Estrangeiro de Investimento Estrangeiro Direto (Sistema SCE-IED).
7. Licenses, Authorizations and Regulations
Depending on the activities to be carried out by the legal entity, certain licenses and authorizations may be required (e.g., sanitary permits, fire department permits, restricted products permits, environmental licenses, etc). The request of such licenses and authorizations is filed as part of the incorporation process or, as the case may be, immediately thereafter.
Additionally, certain industries are regulated and require companies to comply with specific norms and obtain specific authorizations or permits to operate.
Examples of such industries include financial institutions, insurance companies, gambling companies, aviation, telecommunications, among others.
Complying with regulations may be costly and, therefore, such costs should be considered by foreign investors when structuring their activities in regulated markets in Brazil.
8. Timeframe
Although timing may differ depending on the state in which the company is incorporated (as the registry of commerce is a state entity), it usually takes 5 to 10 business days as from the presentation of all applicable documents to incorporate a legal entity in Brazil, obtain its federal, state and municipal tax IDs and conclude registrations with the Central Bank of Brazil.
The timing for obtaining licenses and authorizations will depend on the applicable activities and the location where they will be carried out.
Additional Matters to Consider Before Starting Operations
Understanding the Tax System in Brazil
Brazil has a complex tax system. There are federal, state, and municipal taxes, and the taxation model depends on your business type, size, and sector.
Understanding the local tax system is crucial to prepare a business plan and determine the cost of operating in Brazil.
The tax reform approved in 2023, which mainly affects taxes on services and taxes on sales of goods, will result in a hybrid tax system in which old rules and new rules will coexist until 2033. Therefore, knowing the rules of the game before playing it is key to maximizing the chances of success of your business in Brazil.
Understanding Brazilian Labor Laws
Labor and employment laws in Brazil are employee-friendly and non-compliance can result in significant financial liability.
Depending on the characteristics of the relationship between the company and its workforce (for example, subordination and exclusivity), an employment contract may be in force even if it is formalized as a service contract. Contingencies usually arise under such circumstances, because employment relationships are subject to stricter employee rights and higher costs (labor charges) than service relationships.
Therefore, it is important to understand the different forms of contracts under which a company may retain its workforce, including employment contracts and service contracts.
MMR – Mastrocola Marcondes Rocha has extensive experience in assisting foreign clients opening their businesses in Brazil. Please reach out to us if you have any questions on the steps to incorporate your company in Brazil. We are fully prepared to guide you throughout the formation and with the operation of your subsidiary in the country.