Benefits and problems of registering a company in Brazil
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Benefits and problems
Advantages of Brazil company registration
- A Brazil company incorporation requires one director and two shareholders. Moreover, corporate directors are also allowed in a Brazil incorporated company;
- Since 2019, Brazil companies can be incorporated with a single shareholder. This type of legal entity is locally known as an EIRELI (Empresa Individual de Responsabilidade Limitada). An EIRELI is ideal business entity for our multi-national Clients willing to be 100% shareholders of their new Brazil business.
Dynamic growth opportunities
- Multinational firms are attracted to Brazil because of the massive growing consumer market. Brazil is the world´s sixth largest economy, one of the top 10 fastest growing economies in the world and the largest economy in Latin America with average annual growth of 6% since 2006;
- As of 2015, 52% of Brazil’s population is middle-class. Annual GDP growth of 6% also means family incomes are rising, meaning demand for foreign company products and services is rapidly increasing;
- The tourism, services and infrastructure sector provide huge opportunities to foreign investors because of the 2016 Olympic Games;
- Brazil has one of the largest renewable energy programs in the world. Brazil produces 25% of the world’s ethanol and has been adding new biomass and wind power plants to the country. Brazil currently produces 70% of the total wind energy in entire Latin America;
- In Brazil, 60% of qualified workers are computer literate. This rate will vary depending on the state where you want to incorporate the company;
- Within a week, Healy Consultants can supply our Clients’ a turnkey solution including i) a company number and address, ii) an already approved corporate bank account and iii) a tax id number.
Some tax benefits
- Brazil has five Free Trade Zones offering foreign companies tax exemption/reduction and flexible trading laws. The free zones are Manaus, Macapá and Santana, Tabatinga, Boa Vista & Bonfim, and Guajará-Mirim;
- Brazil is a member of Mercosur. Consequently, they enjoy reduced tariffs, less restrictions and greater government protection when trading with member countries, such as Argentina, Uruguay, Bolivia, and Venezuela;
- Without suffering local capital gains tax, foreign investors can buy stocks directly on the BM&FBOVESPA, Brazil’s main stock exchange;
- A Brazil LLC enjoys the benefits of 32 international double taxation treaties, minimising withholding tax;
- There are no withholding taxes on dividend distributions to non-residents whether corporate or individual;
- All dividends distributed by a Brazilian company to both nonresident individuals and corporate entities are exempted from withholding tax;
- Our Clients find it easy to divest from Brazil, if their earnings are not as good as expected. Brazil indeed does not apply capital controls and all divestments will furthermore be exempted from i) capital gains tax and ii) withholding tax, provided the initial investment has been properly registered with Brazil’s Central Bank.
Problems with Brazil company registration
- Brazil has been ranked 80th out of 137 countries in terms of its Global Competitiveness in the Global Competitiveness Index 2017-18 edition by the World Economic Forum. This is due to the country’s unstable macroeconomic environment as well as poor goods market and labour market efficiency.
- Resident Brazil companies suffers high taxes. Average corporate tax rate is 34% and VAT can be as high as 25%. Income tax ranges from 8% to 28%;
- The Government levies protectionist import taxes that range from 2% to 20%, depending on product;
- In addition to corporation tax, there are also taxes on gross revenue including i) a federal tax of 2% levied on domestic and foreign manufactured products and ii) a mandatory social security contribution tax of 7.6%.
- Brazil’s transportation infrastructure is of a poor standard, making it difficult to export goods to the other Latin American countries;
- Government agencies are inefficient. For example, i) it takes around 8 weeks to get immigration visas and ii) around 20 weeks to get your company fully incorporated;
- According to an international study done by EF English Proficiency Index (EF EPI), Brazil has a very low proficiency of English, placing 38th out of 63 countries. Entrepreneurs will find it difficult to find business partners and employees who speak any English;
- The Brazilian economy is highly dependent on China, the largest consumer of Brazilian exports. With the Chinese economy slowing down, the Brazilian economy dramatically slowed in 2014;
- To do business in Brazil, entrepreneurs must speak Portugese or hire a translator.
High cost of doing business
- Brazil city office rental is expensive, the average monthly rental price is US$55/sqm. States with lower monthly rents include i) Brasilia-Distrito Federal US$45/sqm, ii) Recife-Pernambuco, US$26/sqm and iii) Belo Horizonte-Minas Gerais, US$31/sqm;
- Brazil lacks a well-educated labour force and the available skilled labour is more expensive than in other South American countries. A mere 41% of adults have a high school degree, which is significantly lower than the OECD average of 74%. On average, the annual salary of skilled degree educated employee is US$20,706;
- Although Brazil has had no terrorist attacks for many years now, it is one of the most dangerous countries in the world in terms of street crime, with a murder rate 4 times higher than the US. People planning to move to Brazil will need to spend additional money for security and private transportation;
- Brazil foreign-owned companies generally have a higher paid-up capital requirement than other Latin American countries.
- For Brazil business registration, it is necessary for a foreign company to have a Brazilian permanent resident as a legal representative. If required, Healy Consultants will provide this nominee service;
- Foreign company set up in Brazil is time consuming and complex, bogged down by Government bureaucracy. Company registration can take up to 20 weeks, including time required for all Client supporting documents to be translated into Portuguese;
- Taxation is punitive in Brazil, and our Clients should expect to pay a whopping 68% tax on net profits including i) corporate tax of 34%, ii) average VAT rate of 20%, and up to 45% on products distributed across Brazil provinces and iii) employer’s social security contributions of 37% of gross salaries;
- Depending on their exact business activities, applications to register a company in Brazil have to be referred to multiple departments and ministries. For example, transportation businesses will require approval from the Ministry of Transports, Ports and Civil Aviation. To minimise timeframes to register a company, it is therefore wise to register a business with a single business activity, then to add activities following company set up.
Best uses of a Brazil company
- Online business in Brazil is a lucrative industry. Brazilians are already spending $13 billion a year online, despite only 40% of the country having internet access. As internet access improves, this section of the economy is expected to grow rapidly;
- Brazil is a viable manufacturing hub, with the 2nd largest industrial sector in the Americas and boasting an abundance of i) cheap raw materials including iron ore and coal and ii) natural resources such as crude oil.