FDI in Brazil FAQ

1. 3ed edition
Sao Paulo, 2012
Foreign Direct Investment & Company Formation in Brazil
-Frequently Asked Questions-
Digitally signed by:
ESTABLISH BRAZIL
CONSULTORIA
LTDA
Date: 2012.03.01
08:50:33
Location: São Paulo,
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2. -Index-
1) In brief, what are the most important things I need to know about starting a company in
Brazil? ........................................................................................................................................4
2) Can the company be 100% owned by foreigners? .................................................................4
3) Is there is advantage to having Brazilian partner? .................................................................4
4) What is the definition of foreign capital (as per Foreign Capital Law)? ................................4
5) What is the Legal Structures of “Business Entity” in Brazil? ................................................5
6) Is there a difference between local and foreign investment or companies owned by
Brazilians and companies owned by foreigners? ..........................................................................5
7) What would the Sociedade Limitada (Ltda) be equivalent to? ..............................................6
8) What does the LTDA. have to offer? ....................................................................................6
9) What is the minimum startup capital for “LTDA”: ...............................................................6
10) What is the time frame for the company formation process? .............................................6
11) What documents are needed for the Company Formation in Brazil? .................................7
12) What documents are necessary in order to open a Corporate Bank Account in Brazil? ......7
13) Who is able to be a representative of foreign Quotaholders? .............................................8
14) What is the Central Bank of Brazil responsible for when it comes to foreign direct
investment? .................................................................................................................................8
15) When will I need to deal with the Central Bank of Brazil? ................................................8
16) What are the foreign capital restrictions imposed by Brazilian law? ..................................9
17) How are quotas transferred? .............................................................................................9
18) What are the incorporation procedures/steps? ...................................................................9
19) When should a company require amendments to the Articles of Incorporation of
LTDA?...................................................................................................................................... 10
20) What would cause a dissolution of a LTDA.? ................................................................. 10
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3. -Vocabulary Index-
Below are questions that are frequently asked by Establish Brazil clients regarding Foreign Direct
Investments and company formation in Brazil.
We tried to be as clear as possible when explaining the answers to avoid any confusion you
might have when it comes to starting a company/subsidiary/branch in Brazil.
Some vocabulary used throughout the text and might be different in your country:
 Quotaholders: Shareholders, Owners and Partners of LLC/ LTDA and can be Natural person or
Legal entity.
 Natural person: (in Portuguese: “Pessoa física” or just PF) to express an individual and not a
“Company or Legal entity or organization”
 Legal entity: (in Portuguese “Pessoa Juridica” or just PJ) to express company, organization,
corporation and not individuals
 AOI: Article of Incorporation, Article of Association, Articles of Organization, Memorandum of
Association is A document between Quotaholders, that specifies the regulations for a company's
operations. and define the company's purpose and lays out how tasks are to be accomplished
within the organization, including activities, capital, company address, administration ..
 POA: Power of Attorney, Letter Of Attorney is a written authorization to represent or act on
another's behalf in private affairs, business, or some other legal matter.
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4. -Main Content-
1) In brief, what are the most important things I need to know about starting a company
in Brazil?
Limited liability Company (Socidade Limitada/Ltda in Brazil) is the most common legal entity for
foreigners starting in Brazil.
 Minimum Two Quotaholders (partners can be Foreigners, Brazilian, Individuals or Legal Organization)
 No minimum start-up capital (however with R$150k or R$600k capital you may apply for permanent
visa)
 It takes 20-45 days, (from time properly prepared documents are ready)
 Company can be Formed Remotely (No need for Quotaholders/Partners to come to brazil)
 Company can be Administrated Remotely (Establish Brazil Provide this Service)
 Company needs domestic Address (on the state of company formation, Establish Brazil Provide this
Service)
 Partners need legal representative (Residence in Brazil, Establish Brazil Provide this Service)
 Partners have to name Administrator (administrator not necessarily a partner but has to be
residence in Brazil, Establish Brazil Provide this Service)
Document preparation for Quotaholders is relatively simple. You usually need Passport copy
and a POA for personally owned LTDA, and AOI, Company letter and a POA for legal
organization /for LTDA owned by two or more legal organizations/companies.
2) Can the company be 100% owned by foreigners?
Yes, you don’t need to have a Brazilian partner to start a company in Brazil, however you will
need to have a Brazilian Address for the company, Brazilian resident Administrator, and Brazilian
resident legal representative, in order to form a Brazilian company (Ltda) and obtain a Corporate
Bank Account.
3) Is there is advantage to having Brazilian partner?
No, not in terms of taxation, buying, selling, etc.; in these areas it is equivalent.
Having Brazilian partner, however, will facilitate some B2B and day-to-day activities.
4) What is the definition of foreign capital (as per Foreign Capital Law)?
“Any goods, machines and equipment coming into Brazil with no initial foreign currency
expense, for the production of goods or services, as well as financial and monetary funds coming
into Brazil to be invested in economic activities, provided that in both cases these assets belong
to individuals or legal entities either domiciled or headquartered abroad.” (Law n. 4.131/62).
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5. 5) What is the Legal Structures of “Business Entity” in Brazil?
When first starting the process of forming a company in Brazil, there are several different Legal
entity and formational structures to choose from:
Non-profit (Sociedade simples), General Partnership (Sociedade em nome coletivo), Limited Partnership &
Limited Partnership by Shares (Sociedade em comandita simples & Sociedade em comandita por ações),
Overt/covert partnership (Sociedade em conta de participação), Limited Liability Company (Sociedade
limitada / Ltda.), Corporation (Sociedade anônima / S.A.)
The two most common legal structures in Brazil are:
 “LTDA” Limited Liability Company (Sociedade limitada/Ltda.)
 “S.A.” Corporation (Sociedade anônima/S.A.).
6) Is there a difference between local and foreign investment or companies owned by
Brazilians and companies owned by foreigners?
No, in 1995 an amendment was passed in the Brazilian Constitution to amend the legal
differences between foreign investments and domestic local investments. However, there are
still some formal requirements that must be fulfilled in order to complete the registration
process for your company. Things like:
 Document preparation (notarized and apostilled by Brazilian consulate).
 A Brazilian resident must be the legal representative for the foreign Quotaholders
(partners need legal representative “Attorney-in-fact” temporarily till they obtain
residency in brazil)
 Quotaholders must name a Brazilian resident as the Managing-Director / Administrator
for limited liability companies.
But when talking about business; selling, buying, taxation, etc., businesses are 99.99% the same
for Local domestic direct investment and foreign direct investment,
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6. 7) What would the Sociedade Limitada (Ltda) be equivalent to?
It is equivalent to a limited liability company (LLC) in the United States, Pvt. Ltd. (Private Limited
Company) in India, Private Company Limited by Shares in the United Kingdom. This company
formation (LTDA) is most commonly used for foreign businesses in Brazil.
8) What does the LTDA. have to offer?
With this business structure, the company’s advantages are:
 Limited liability for Quotaholders/Partners,
 No obligation to constitute a capital reserve,
 No minimum capital requirement, (in general)
 No obligation to publish annual financial statements.
 It’s simple to form and operate, and
 can eventually be converted to a Corporation/S.A structure anytime
Sociedade limitada/LTDA needs to be founded with at least two partners, but neither is required
to be Brazilian. A partner can be either an individual person or a legal organization.
9) What is the minimum startup capital for “LTDA”:
In general, there is no minimum required for startup capital, however, if you wish to apply for an
investor/permanent visa for partner or company officer/administrator, you must invest a
minimum of R$150k or R$600k. To obtain the visa, you will need to show/proof of capital, of at
least this amount, in your Brazilian bank account.
10) What is the time frame for the company formation process?
The registration process for company formation of Sociedade limitada/LTDA (Limited Liability
Company/LLC) takes approximately 20-45 days for simple services rendered. For a more
complex and/or commercial LTDA formation, it can take up to 4 months. These dates are
approximated from the time we receive all of the properly prepared documents.
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7. 11) What documents are needed for the Company Formation in Brazil?
For personally owned Brazilian Ltda:
 Passport copy
 POA (Establish Brazil will provide template)
For Brazilian Ltda Owned by Legal entities:
 AOI
 Company Letter (Establish Brazil will provide template)
 POA (Establish Brazil will provide template)
In addition, the provision of a Curriculum Vitae/legal entity broacher is sometimes mandatory
and always useful.
Documents must be notarized, and then registered / apostilled at the Brazilian consulate.
Please check document Ref.:EB083 title: FDI-CompanyFormation, Documents preparation &
EXAMPLES
12) What documents are necessary in order to open a Corporate Bank Account in
Brazil?
Mandatory: and regulatory requirement
 Proof of Identity (passport, national ID..)
 Proof of residency (electricity, phone or water bill)
Optional: sometimes mandatory and always useful
 Curriculum vitae (CV)
 Marriage certificate
 Birth certificate
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8. 13) Who is able to be a representative of foreign Quotaholders?
Foreign entities or individuals holding shares or quotas in Brazilian companies must maintain a
legal representative (attorney-in-fact). Residents in Brazil need to have powers to receive
service of process in legal actions involving their holdings of shares or quotas, as well as be
enrolled in the Brazilian Internal Revenue Service Agency.
However, if one of the Quotaholders/Partners (foreign natural person) applies for a permanent
investor visa after an R$ 600k direct investment in the company, this foreign shareholder will be
able to manage the company and revoke the power-of-attorney to his former legal
representative
14) What is the Central Bank of Brazil responsible for when it comes to foreign
direct investment?
The Central Bank of Brazil is responsible for:
 Maintaining a special registrar of all foreign capital, without taking into account the
procedure used to bring it into or out of the Country.
 Records are kept for direct investments and loans in either cash or goods
 Reinvestments of foreign earnings and capital increase of companies (affective in
accordance with the law enforced)
 Values affected as a result of a return in capitol, earnings, profits, dividends, interest,
amortization, royalties or any other means that represent the transfer of earnings to a
foreign country.
15) When will I need to deal with the Central Bank of Brazil?
You will need the help of the Central Bank of Brazil when you need to:
 Obtain the CNPJ of the foreign partner
 To register in the Foreign Investment of Brazil
 To obtain Electronic Declaratory Registry of Direct Foreign Investment (RDE-IED
Number)
 Corresponding to the Foreign Investor/ Brazilian Company pairing through the
Information System of the Central Bank of Brazil (SISBACEN)
 When you reinvest your earnings
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9.  With capital contribution through the import of goods without exchange coverage
(requires registration with the SISBACEN and the Electronic System of Foreign Trade
[SISCOMEX])
 When you convert foreign credits to direct investment, into corporate capital of a
Brazilian company
16) What are the foreign capital restrictions imposed by Brazilian law?
There are only a few areas restricted:
 They impose restrictions on financial institutions
 The acquisition of rural and frontier real estate
 Broadcast media content
 Insurance
 Nuclear energy usage
17) How are quotas transferred?
Quotas are not represented by securities or certificates, but their ownership is granted by the
AOI. Any transfer of title of the quotas requires an amendment to the Articles of Incorporation.
The law requires the approval of quotaholders that hold at least 3/4 of the total company capital
to amend the Articles of Incorporation.
18) What are the incorporation procedures/steps?
It’s around ~40 Step, in brief can be as:
1. Documents must be prepared in the mother country and sent to Establish Brazil. “a
separate guidelines for document preparation with examples will be provided”
2. Documents translated by a public sworn translator (in Brazil)
3. Documents & Translation registration (in Brazil)
4. EstablishBrazil will obtain a CPF/CNPJ (tax payer ID) and draft an AOI.
5. File the Articles of Incorporation with either the Commercial Registry or the Civil
Registry office. (ex. Board of Trade)
6. EstablishBrazil will enroll the AOI with the Legal Entities Taxpayers Registry of the
Brazilian Internal Revenue Service (CNPJ),
7. If your company is commercial, you must also register with the State and Municipal
taxpayers’ registry
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10. 19) When should a company require amendments to the Articles of Incorporation
of LTDA?
 Resolution of the quotaholders by increasing or decreasing the company’s capital
 Extending the term of the company’s duration
 Changing the company’s name
 Changing their head office address
 Changing or adding activities
 Admitting or excluding quotaholders.
Quotaholders who disagree with an amendment to the Articles of Association have the right to
withdraw from the company.
20) What would cause a dissolution of a LTDA.?
A LTDA may be dissolved…
 At the end of its terms (as stated in the Articles of Association)
 By a unanimous resolution of all quota holders or by the resolution of quota holders
representing an absolute majority in a company with an undetermined term of duration
 If there is only one quota holder that exists and the minimum of two quota holders is
not reestablished in 180 days
 Filing bankruptcy.
The death of a quota holder does not cause a LTDA to dissolve. The quota holder may be help
by the diseased heir or the company can continue with the remaining quota holders (provided in
the Articles of Association).
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