Intertrust N : What type of entity is right for you when setting up business in Brazil?

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Navigating the opportunities and challenges of incorporation and expansion into Brazil.

Bordering almost all other South American countries, Brazil is an emerging economic powerhouse and a gateway to Latin America.

As a member of the so-called BRICS economies - along with Russia, India, China and South Africa - Brazil is expected to develop into one of the world's top economies in the 21st century. The federal presidential republic comprises 26 states plus a federal district that is home to the capital city, Brasilia.

Brazil is the world's 12th-largest economy and the biggest in Latin America. It boasts one of the most sizable mining industries in the world, a huge agricultural sector and a thriving services sector that makes up over two-thirds of the country's gross domestic product (GDP).

The Brazilian government generally welcomes and actively seeks foreign investment, especially if it fosters new technologies and job creation. However, the structure for incorporation can be complex and there are a number of different options open to investors doing business in Brazil.

1. Know whether your sector is restricted for foreign investors

Although Brazil is generally open to foreign investors, certain strategic sectors remain either restricted to Brazilian investment or subject to governmental authorisation. These include media, postal services, private security and transport, nuclear energy, rural real estate, activities in international border areas and cabotage (domestic air transport operated by foreign airlines).

2. Make sure you are registered with the correct authority

Foreign direct investments must be registered with the Central Bank of Brazil and investments in the securities market must also be registered with the Brazilian Securities Commission. Foreign investments in Brazilian companies and loans granted to Brazilian companies or individuals must be registered with the Central Bank.

3. Understand the different business entities in Brazil

The most common forms of business entity in Brazil are:

• limited liability company (sociedade limitada - LTDA)
• sole shareholder limited liability company (empresa individual de responsabilidade limitada - EIRELI)
• limited company (sociedade anonima - SA)

The first two vehicles require only one shareholder, while limited companies require at least two. Although shareholders are not required to be Brazilian residents or citizens, only permanent residents can be appointed as executive directors.

4. Allow time to become officially incorporated

Any company in Brazil needs at least 30 days to get incorporated. Limited liability companies and limited companies are required to file formation documents with the commercial registry of the state in which they are establishing their headquarters.

Entities must also register with the national taxpayers' registry and apply for any licences required by their sector.

5. Explore your options for setting up a company in Brazil

Choosing the right entity option depends on your business plans in Brazil.

Limited liability company: requires no minimum capital and is simple to establish, with few formalities for operations and financial reporting.

Sole shareholder limited liability company: this combines the advantages of a separate legal entity - such as a limited liability company or a limited company - with the benefit of allowing a single shareholder. However, this business vehicle requires a minimum capital of at least 100 times the minimum wage in force, which must be paid in full upon incorporation.

Limited company: due to their extensive compliance requirements, limited companies are considered a more complex form of legal entity and as such are preferred for businesses that need a more sophisticated corporate structure or alternative fundraising options.

6. Consider alternatives to a standalone business in Brazil

Foreign investors who do not wish to set up a standalone business in Brazil may opt to open a branch or representative office instead. Setting up a branch requires lengthy approval from the federal government that is granted for only 12 months, during which the company must develop its activities or lose the authorisation to operate.

How Intertrust Group can help in Brazil

Before entering the Brazilian market, foreign investors should rely on professional advice to navigate these complex matters. Working with a trusted partner is therefore essential to avoid common pitfalls in this exciting country.

Our team in Brazil includes experts specialising in administration services dedicated to multinational, private equity and fund clients. We are able to help corporate clients looking to expand there with a full suite of services from our office in São Paulo.

Why Intertrust Group?

• Intertrust Group provides a wide range of financial and administrative services to clients operating and investing in the international business environment.
• We are experts in management and administration services to operational companies and holding structures.
• In Brazil, our office relies on a trusted network of local lawyers and accountants to provide the best tailor-made solutions for our clients.
• We offer a wide range of services to international investors - whether corporates or investment funds