Quick checklist before starting your business in Brazil

Brazil is one of the “BRIC” economies, an acronym used to refer to Brazil, Russia, India and China. These four economies were identified in 2001 by Terence James O’Neill, a British economist as part of Goldman Sach’s “Global Economic Paper” series to be the four economies most likely to be able to challenge the current economic dominance of the United States. It is no surprise then that it is currently the biggest economy by Gross Domestic Product (Purchasing Power Parity) amongst all the Latin American and Caribbean countries. The size of their economy along with the fact that they are the sixth most populated country in the world makes it a good choice for you to register company in Brazil to tap on their domestic market. More outward facing investors can instead choose to register company in Brazil to serve as a conduit for further expansion into the Latin American and Caribbean region. Regardless of which option you choose, there are definitely certain preparations to be made in order to ensure a smooth company incorporation process. Here is a quick checklist before you start your business in Brazil.

Choosing the right type of company
There are many different company structures in Brazil, each tailored for different types of businesses. When deciding the most suitable company structure, it is important to consider various factors that include but are not limited to availability of personal liability protection, tax ramifications, ownership and management flexibility as well as compliance requirements. Foreigners would also be restricted in terms of what company structure they are able to choose. This is because certain company structures such as Single Holder Limited Liability Entity or Empresa Individual de Responsabilidade Limitada (EIRELI) can only be started by Brazilians or permanent residents of Brazil.

Therefore, common and possible options for your company are as follows:

• Limited liability company. Known locally as a Limitada (Ltda.), this structure is most suitable for new businesses since they do not require a registered foreign parent company prior to incorporation of their Brazil company. It also offers ease of management and liability protection, which is why it is the most commonly used business structure as well. However, you will need at least one local resident director, a requirement that will be further elaborated on below.
• Limited liability corporation. Known locally as a Sociedade Anônima (S.A.), the main difference with a Limitada is that it allows the company to be publicly traded (Sociedade por Ações Aberta), making it easier for you to raise capital, and more suited for larger businesses. This does come at the cost of having significantly higher compliance requirements, such as the need to appoint an Administrative Council in addition to the Board of Directors.

Resident director
A resident director or a local company representative would be needed for almost every company structure, making it an important task on your checklist to accomplish before starting your business in Brazil.

Preferably, this person should be well-versed in doing business in Brazil so that he or she can help to mitigate some of the additional costs for companies that are new to operating in Brazil that arise from unfamiliarity in navigating its business environment. Commonly known as “Custo Brasil”, these costs can come either in terms of distribution costs, employee benefits or tax. This person will also serve as your local contact person and liaison with the government and banking authorities, ensuring that all your financial reports and tax returns are filed correctly and on time. Due to this, it is also beneficial to have a resident director that is proficient in Portuguese.

You are also recommended to do a basic KYC check on the appointed director to ensure his or her good standing and clean criminal record. Typical documents needed for a KYC check include the names of directors, certified true passport copies, proof of address, bank reference letter and CV. You can also conduct court searches and searches of public databases for a more thorough check.

Lastly, it is important that you draft a nominee director agreement that is tailored to Brazilian law. This will ensure that your appointed director will not hold any decision making power in your business and will not compromise the authority or control you have over the operation and management of your business.

Applying for additional licenses and work visas
Certain business activities would require additional licenses, whilst you would need a work visa to enter the country for the purpose of conducting business activities. Therefore, another important item on your checklist before starting business in Brazil would be to ensure that your business has the necessary licenses, and that your workers have the necessary work visas. This would ensure that your company is able to operate legally and help you to avoid penalties or fines.

It is important to find out beforehand what licenses are needed since the application process for these licenses would require additional time that might delay the start of your business’ operations. Due to a lack of centralization of such processes, there is little cooperation between regional and federal authorities in facilitating or standardization between requirements. This might mean that your business needs to go through multiple rounds of registration and also need to prepare different sets of documents. This makes it all the more important that you account beforehand for the license that your business would need, and factor in the time and cost into your business planning.

It is also important to note that certain sensitive industries such as radio, television and publishing, air transportation, health care and security services might face additional restrictions on foreign ownerships or foreigners might be prohibited from operating entirely. It is important to ensure your business is able to meet the minimum local ownership requirement before starting business, and more importantly, you should not attempt to start a business in a wholly restricted industry.

Language barrier
Another important item on the checklist before you start your business in Brazil is accounting for the possible language barrier. Given that Brazil’s official language is Portuguese, it is important for your staff and management board to be fluent in the language in order to ensure that they can communicate with customers and the authorities. With Brazil being ranked 53rd on English First’s 2020 English Proficiency Index, with a standard of “Low”, communication between these parties would be difficult otherwise.

Due to the need to hire a certified translator, the cost and time of processes would also be increased. More importantly, translation might also create minor inaccuracies that distort the actual meaning, leading to misunderstandings.