Establish a Branch in Brazil
Obtaining the authorization to set up a branch in Brazil
The requirement to obtain the prior approval of the Brazilian authorities when opening a branch is performed as per the regulations set forth in the Brazilian Civil Code. The request can be made electronically and, upon request, our team of agents who specialize in Brazil company formation can provide foreign investors with complete assistance during the needed submissions for authorization.
The result of the evaluation is communicated by the Department via the online platform. The applicant (the representative) will also be informed via the platform and e-mail to provide any additional documents and in this case he will have 60 days to complete the request.
If the application is approved by the Department of Business Registration, as a next step it will be forwarded to the Minister of Economy and once this authorization is obtained, the decision will be published in the Federal Official Gazette.
Characteristics of a branch in Brazil
One of the final steps for opening a Branch in Brazil will be to open a bank account. Our team can provide complete assistance during this process.
Branch taxation in Brazil
There is no special branch tax rate, and these types of establishments are taxed using the same rate applicable to resident companies, the standard corporate income tax rate to which a surtax applies. We list the rates of the main taxes below:
- 15%: the corporate income tax rate, with a surtax, making the effective rate 34%;
- 0%: the withholding tax on dividend payments, when the distribution is made to a resident; no withholding tax applies to distributions made to non-residents when these are paid out from IFRS profits.
- 25%-4%: the value of the state VAT, or the ICMS; this is levied on the provision of certain types of goods and services;
- 5%-2%: the value of the municipal tax, or ISS, applicable to services other than those subject to the ICMS; exported services can be exempt in certain cases;
- 8%: the social security contributions payable by the employers to each deferred salary of an employee;
- Others: there is no payroll tax, no capital duty, no tamp tax; a real property tax, or IPTU, is collected by the municipality on an annual basis and is calculated according to the deemed sales price of the property.
Brazil has signed approximately 30 double tax treaties, however, it has not signed the OECD multilateral instrument (MLI) developed to implement tax treaties with measures targeting the prevention of base erosion and profit shifting. Our team can give you more details about these treaties as needed.
The branch in Brazil is subject to following the compliance requirements for corporations, however, it can be subject to lighter requirements in terms of annual accounting and reporting. In general, the tax year is the same as the calendar year and all business entity in the country, including branches of foreign companies, is expected to file an annual income tax return corresponding to the previous business year. The filing is performed before the last business day in July, the year following that for which the submission is made. For the corporate income tax, monthly or quarterly advance payments are usually submitted. In case of excess tax, this can be used to offset future taxes, under certain conditions.
Working with our team for taxation purposes is recommended in order to avoid late payments which are subject to penalties and interest.
Our company registration agents in Brazil can offer more details about the taxation imposed on branches in this country.
Options for investors in Brazil
The process of opening a branch in Brazil can seem lengthy, given the fact that the aforementioned authorizations are mandatory. Investors are advised to keep this in mind, as well as to ask our company formation agents if there are any industries in which foreign ownership is limited. Alternatively, we can also help entrepreneurs to open a company in Brazil. This will be different from a branch in the sense that it will be independent of the foreign company abroad, however, the foreign legal entity will still be able to retain a certain level of control when owning shares in its Brazilian subsidiary.
When opening a resident company, foreign investors have to choose between several business forms, however, the limited liability company is among the preferred ones. As in other jurisdictions, the Brazilian LLC allows investors to maintain their liability limited to only their equity interest, however, all members in the company will make contributions to the corporate capital. The LLC is commonly used for small or medium-sized businesses and it has at least two members. Another option is to open a corporation (the anonymous company-sociedad anônima) which is suitable for larger businesses with more classes of shares.
Establishing a presence on the Brazilian market is, therefore, possible either through a branch or through incorporating a Brazilian company or purchasing an already existing one.