Subsidiaries, which are Brazilian companies established under Brazilian law, represent a more straightforward approach to establishing a presence in Brazil. Although various types of companies exist under Brazilian law, the two most frequently used are the Limited Liability Company (Sociedade Limitada) and the Corporation (Sociedade por Ações – SA). A new type of company having a single member and known as the single-member or individual limited liability company (EIRELI) also became available for individuals since January 2012.[1]
A Limitada requires at least two shareholders, also known as “quotaholders”, whether or not Brazilian resident individuals or corporate entities. The quotaholders may incorporate a Limitada by executing a “Contrato Social” (Articles of Association) and comply with registration requirements of the local applicable registry in which the registered office of the company is to be located (either the Commercial Registry – or Junta Comercial – for business companies, and the Registry for Corporate Entities – Registro de Pessoas Jurídicas- for non-business companies).[2]
The Limitada must be managed by at least one member resident in Brazil (whether quotaholder or not), appointed by the quotaholders in the Articles of Association or in a separate corporate document. Decisions are taken as set out in the Articles of Association.
The Limitada is required to produce annual accounts which must be approved by its quotaholders at an Annual Quotaholders’ Meeting. The Minutes as well as the company’s Articles of Association are required to be publicly filed at the Commercial Registry.
B. Advantages/Disadvantages
Limitada is the most common form of company in Brazil. It is also the simplest, most flexible and inexpensive type of company to operate, while the Sociedade Anônima (SA) is not as flexible and is considerably more expensive to operate.[3] A limitada is a useful corporate form for businesses with few owners and no intention to raise public funds.[4]
In the Limitada company form, members are liable only up to the value of the quotas for which they have subscribed. However, until the capital of the company is fully paid up, their liability extends to the entire capital of the company.[5]
While nonresidents can be members, there are a few additional obligations for them. A nonresident quota holder must still obtain a tax identification number from the Brazilian Internal Revenue Services (called CNPJ or CPF), and also grant a power of attorney to a Brazilian citizen or resident (likely an appointed accountant or lawyer).[6] Until the full capital is paid in, the quota holders are jointly and severally liable for the total capital subscribed.
The Limited Liability Companies with assets greater than BRL 240 million or turnover greater than BRL 300 million are called “large companies” and must follow the rules of the Corporations regarding to the preparation of their financial statements. Also, large companies shall have their financial statements audited by independent auditors.[7]
C. Registration Steps
In general, entities that perform business activities are considered ‘sociedades empresárias’. Regardless of the type of legal entity adopted or their type of activity (services, sales or manufacturing), sociedades empresárias must be registered with Trade Boards (‘Juntas Comerciais’), federal tax authorities, state tax authorities (depending on the activities to be performed), municipal tax authorities and the social security system.
If the subsidiary company later opens more branches elsewhere in Brazil, separate registrations are required for each branch established.
In Brazil, companies must be registered at the federal, municipal, and state levels. There is evidence of synchronization between these different levels, but it will depend on the particular region and some cases will require separate and independently performed registrations at each level. While generally areas conform to standards set out by federal law, requirements and procedures may vary from state to state. Registration can be time-consuming and bureaucratic process.
1. Appoint a Representative
A company requires at least one manager to be a permanent resident of Brazil (they do not have to be a citizen), who has express power to act on behalf of the company. The representative must have the power to deal with all matters, and receive legal and official documents, including judicial summonses, on behalf of the parent company. This must be formally decided upon before the company can apply for approval for a branch office.
Time: n/a
Cost: n/a
2. Check Company Name
It is not required for a company to reserve a name before incorporating in Brazil. However it is recommended to check first if the company name exists in the state(s) to avoid problems.
Most states provide this service online, and it generally takes one hour and is free. For a federal check, a “request for extension” must be submitted to the Board of Trade (Junta Commercial). It is recommended to have search for three potential names which can then all be proposed when registering the company.
Note: A company name must make reference to the core business of the company. For example, this means that the company name may not be simply “XYZ do Brasil Ltda”, but must be “XYZ do Brasil Information Technology Equipment Ltda”.
In Sao Paulo, the company name can be checked with JUCERJA at http://www.jucerja.rj.gov.br/.
Time: instant (online)
Cost: BRL 0 (if wanting a printed copy, a fee of BRL9 per state, or BRL10 for a Federal check)
3. Establish an Office
Similar to other steps, there is some convolution over the order and prerequisite requirements of registration steps. For offices, in some cases it is said a company address is needed to incorporate, suggesting the office should be established first, but in other cases the company must incorporate first to obtain a tax number before it is allowed to establish an office. Apparently a common practice is to initially register a virtual office on the Articles of Association, incorporate, and establish an office and change the address after incorporating.
There is no specific office registration process required at this point, and instead it will depend on finding and establishing a lease agreement, virtual office agreement, etc before filing the incorporation documents.
Time: n/a
Cost: n/a
4. Register Company at Board of Trade
After preparing and notarising incorporating documents, the first main step of incorporating a subsidiary is to register the incorporation documents at the federal level. This involves filing the company’s corporate documents (articles of association) with either the Board of Trade (Junta Comercial) or with the Registry of Civil Companies, depending on the company activities. This process will supply the business with an identification number (NIRE). In most cases, federal tax (CNPJ) and social security (INSS) registration can also be done within the Board of Trade, as these are also federal bodies.
The Board of Trade is the governmental body responsible for the registration of all business activities, and can usually handle a number of different registrations in one place. There is a Board of Trade for each of state and are governed by the National Department of Business Registration (DNRC), and the Brazilian Ministry of Development, Industry and Foreign Trade. Prices and terms of the registration at Junta Comercial vary from state to state. For this, the company will need to consult the Board of Trade of the state where the company is located.
For example, in the State of São Paulo the company can fill in the forms online at www.jucesp.fazenda.sp.gov.br, to be registered directly with the Board of Trade. In addition to the corporate documents, identification documents of the directors will be required. Nonresident directors may need to acquire a Brazilian personal tax number as well.
Special companies can be used that provide expedited filing and approval services. For example, in São Paulo you can register with either the Sindicato da Micro e Pequena Indústria de São Paulo (SIMPI) at www.simpi.com.br or Associação Comercial de São Paulo (ACSP) at www.jucespacsp.com.br to take advantage of expedited registration with the Board of Trade of the State of São Paulo. For this service, an extra charge of BRL50 is applicable, and registration will be finished within 24 hours.
As part of this process, the company should obtain a company number identification (NIRE), and can also usually process its registration for a tax number (CNPJ) and social security number (INSS) at the same time.
Time: 1-7 days (1 day for express service, 7 days otherwise)
Cost: BRL75 company registration fee (plus BRL50 expediting fee)
5. Publish Financial Statements
To maintain its operating authorisation, the branch and foreign company must publish financial statements in an Official Gazette (Diário Oficial ) and a widely circulated newspaper.
The Diario Oficial usually charges per letter or word, a fee which is determined at the time of publication.
Time: 1 day
Cost: Varies
6. Register for Federal Tax
A company must register as a taxpayer with the Federal Revenue Services (Receita Federal) in the National Register of Corporate Taxpayers (Cadastro Nacional da Pessoa Jurídica, CNPJ) and obtain a CNPJ Certificate. When placing the order with the CNPJ, you must specify the activities the company will be operating. This information will be used not only in taxation, but also in monitoring the activities of the company.[8]
In most major cities, the registration process for tax and social security has been synchronised across federal and state authorities. This means that, as mentioned above, it generally will be covered simultaneously with the previous step. For example, in São Paulo, federal registration of businesses to obtain a CNPJ number and registration with the state tax authorities is done simultaneously. However, it may be different in some states. It is mainly listed here as a separate “step” for clarity purposes.
State tax authorities may schedule an official inspection of the company’s local head office before approving its registration into the CNPJ.
Time: 1 day
Cost: No charge
7. Register for Social Security
The Brazilian government provides social security insurance (the INSS) to workers to cover circumstances such as unemployment and retirement. The scheme is funded by workers having contributions taken from part of their salaries.
In most cities, the registration process for tax and social security has been synchronised across federal and state authorities. This means that, as mentioned above, it generally will be covered simultaneously with the previous step. However, it may be different in some states. It is mainly listed here as a separate “step” for clarity purposes.
A company must register with INSS even if it has no employees. To do so the company representative must contact a Social Security Agency to request registration within 30 days from commencement of trading.
Time: 1 day
Cost: No charge
8. Approve Office Address
Depending on the company’s location, the office address must be approved by the municipality and the fire department. This may be required before being able to register for tax or business permits. There is little information available on this topic (at least in English). The company’s representative or attorney will need to contact the municipal office (generally the town hall) and the fire department directly, and apply for approvals.
As stated before, it may be required to appoint a temporary or virtual office before incorporating, then locate and establish a proper office then update the address.
Time: 1-7 days (estimate)
Cost: No known charges
9. Check and Apply for Municipal Business License/Permit
After obtaining a CNPJ, the company may need to apply for a business license (Alvará de Funcionamento) or operations permit (auto de licença de funcionamento) at the local municipality or regional administration office.
Historically a permit was required before the commencement of any business activities. However, since the application process can take a long time, and with introduction of new tax systems and the TFE (discussed later), the business can generally begin operating before officially receiving the permit.
Despite this, the process is still potentially convoluted. When and how this step is required in the overall process varies. For example in some the states, tax registration may be required before obtaining a business license, in others it may be the other way around, and in others the business license and tax registrations may be done simultaneously.
Generally the following documentation is required:
- Completed municipality’s application form for permit
- Company’s address (previously approved by the municipality and the fire department)
- Copy of the CNPJ
- Copy of the Articles of Association
Time: 90 days
Cost: No charge
10. Register for Municipal Tax(es)
Municipal tax registration is performed at the Municipal Taxpayers’ Registry (Secretaria Municipal de Finanças). Often when registering for federal tax, the municipal tax authorities are automatically notified, which suggests that in most cases this step can be performed automatically and simultaneously with the previous step.
An enrolment form CCM named the Cadastro de Contribuintes Mobiliários must be delivered to the municipality. In general the following documentation is requested:
- DUC form, in triplicate
- DCC form, one copy
- Proof of address of the holders, certified copy or original
- Certified copy of a document proving the right to use the business property, such as a leasing contract or deed of property
- Number of the tax accountant’s registration
- Proof of the ISS contributor to the service providers
- Articles of Incorporation, one copy
- Copy of the CNPJ
- Copy of the business license (alvará de funcionamento)
- ID and CPF of the holders
Although there is generally no ‘registration fee’, once the company has been registered it must pay an annual fee (taxa de fiscalização de estabelecimento taxa de fiscalização de estabelecimento, TFE) for the control and fiscalization of the compliance with municipal laws. The rate of the TFE is based on the company’s corporate purpose, which varies from BRL 141,82 to BRL 17.018,51.
In Sao Paulo, the municipal taxpayer enrollment is made through an electronic form that filled online on the website of the City Hall (www.prefeitura.sp.gov.br)
Note: Additional registrations or requirements may be mandatory for companies in the certain sectors: trade, industry and transport services intercity and interstate, communication services and energy. There may be some bureaucratic burdens or complexities: for example industrial and pharmaceutical companies are required to obtain a license from the CETESB before applying with the CNPJ, however the CETESB requires the company to obtain the CNPJ certificate first.
Time: 5 days
Cost: BRL 425 (e.g for retailing business in Sao Paulo, will vary on company’s activities and per state)
11. Register for State Tax(es)
State registration appears to be the final level of tax registration required. Although it is not clear and as with the previous steps it may be handled automatically in combination with the federal and/or municipal tax; some states may have an agreement with the Federal tax office (Receita Federal). However this may vary between state, and other factors. In addition to this complication, in some the states, state tax registration may be required before obtaining a business license, in others it may be the other way around, and in others the business license and state tax registration may be done simultaneously.
State registration is handled by the state Department of Finance (Secretaria Municipal de Finanças). The procedure varies from state to state, and may not be able to be done over the Internet.
There are various taxes in Brazil, and for state tax the major ones are ICMS and ISS.
ICMS is a state-based value-added tax levied on the import of products and certain transactions involving goods (including electricity), inter-municipal and inter-state transportation services and communication services. In general transactions between different states have a rate of 7% (when the purchaser is located in the states of the North, North-east and Center-west regions or in Espírito Santo state) or 12% (for purchases located in the Southeast and South regions). 18% is the standard rate in the state of São Paulo.
ISS (Imposto sobre Serviços) is a tax applied to services provided to a third party by a company or professional, and is paid by the service provider. The usual rate is around 5%.
There are many other forms of tax and consultation with the state tax and municipal authorities would be recommended.
Time: 1 day
Cost: No charge
12. Apply for digital certification for e-invoice
The company will need to request permission to print invoices and authenticate the tax books. This can be done in the municipality of each city (Secretaria da Fazenda Estadual), by filing a specific form known as the AIDF, along with Book No. 51 and Book No. 57. However, some companies such as those in industry and trade may also need to register with the State Department of Finance (Secretaria Municipal de Finanças).
The company will then need to order official receipts/invoices (notas fiscais) with its CNPJ numbers from authorised printing companies.
Once the tax apparatus is registered, the company can start operating legally.
Time: 2-5 days
Cost: No charge for registration, R$450-600 for invoices
13. Register Employees in Social Integration Program
The company must register with Brazilian Social Security (Programa de Integração Social, PIS), even before employing/if the company has no employees.
Time: 1 day (simultaneous with previous procedures)
Cost: No charge
14. Open Retirement/Unemployment Fund
The company must open a special fund to make its unemployment contribution payments to a retirement fund (Fundo de Garantia por Tempo de Serviço, FGTS), with the Federal Saving Bank (Caixa Economica Federal).
To open the account, the company’s representative or attorney-in-fact must go to any local branch of the federal savings bank (Caixa Economica Federal) with information including:
- A copy of the company’s taxpayer registry number (CNPJ certificate),
- The adhesion form issued by the bank,
- The list of employees,
- The company’s articles of association or bylaws.
When registering an employee, the employer must complete a PIS/PASEP registry form (documento de cadastramento do trabalhador, DCT), to be delivered to the nominated bank responsible for the FGTS account.
Time: 1 day, (simultaneous with previous procedures)
Cost: No charge
15. Notify the Ministry of Labor
The employer must inform the Ministry of Labor of any new hires or employees dismissals. Such information shall be given to the local department of the Ministry of Labor (Delegacia Regional do Trabalho) by the seventh day of the month subsequent to the month of the event, by a written notice sent by postal mail or the Internet.
In addition, the company must submit annually to the Ministry of Labor the “annual report of social information” (relação annual de informações sociais, RAIS), which contains information on company employees (eg. name, salary and date of hiring).
Time: 1 day, (simultaneous with previous procedure)
Cost: no charge
16. Registration with the Patronal Union and Employees Union
Companies are also required to register with an employees union.
These documents can generally be submitted to the unions through their websites. However, how to register may vary on the municipality and state, and the unions themselves. Each municipality and state has unions that represent the activities performed by the company.
Generally the documents required include:
- Company registration form, Federal Register of Corporate Taxpayers,
- Articles of association,
- List of employees
Once a year, employees and employers must contribute to their representative employee unions and employer associations an amount equivalent to one day’s salary (regardless of whether they are affiliated to the union or association). The first payment is due in the month of the company’s registration, though the time may vary for each union.
Time: 5 days (simultaneous with previous procedures)
Cost: no charge
17. Open Company Bank Account
There are several major national banks in Brazil, as well as various regional banks and a handful of international banks. The requirements and procedure to open an account of course vary. However, in general, to open of a company bank account, documents required include:
- Incorporation documents and registration certificate
- Power of attorney document if applicable
- CNPJ certificate
Time: 1 day
Cost: No charge (may require minimum deposit)