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Rare and abundant natural resources, favorable climate conditions and vast territorial extension, in addition to characterizing our country, are important elements for promoting national economic development.
According to the IBGE (Brazilian Statistics Institute), it is estimated that Brazil has more than 210 million people, distributed among the five regions of the country (North, Northeast, Midwest, South and Southeast).
Brazil is divided into 27 federal units (26 states and the Federal District), including Brasilia as its capital. The official language of Brazil is Portuguese, and the currency is the real (BRL).
The high population index reflects a broad consumer market with a diversified profile, a vast field for a network of services and goods in the most different sectors.
Known to be a country rich in natural reserves, the electricity, agribusiness, mining, and oil and gas sectors showed significant growth. Data from the Federal Government points to an increase in industrial strength in these sectors compared to the last 5 years, with relevant gains being achieved in the coke (coal-based fuel)/(fuel coke) and petroleum derivatives, chemical products, and metallurgy industries.
The services sector received a significant number of investments, of billions of dollars in recent years, with the top three billion dollars inflows going to electricity and gas, trade, and financial services.
It is worth mentioning, however, that, currently, some proposals for reform of the national tax system are being processed in Brazil, which seek to simplify the methods of accounting and collection of taxes.
MCS Markup was born in 2014 and now has around 300 professionals in 4 offices located in Rio de Janeiro/RJ, São Paulo/SP, Vitória/ES, and Curitiba/PR. MCS offers more than 10 lines of services to assist our clients.
MCS team provides tailor-made solutions for companies seeking to do business in Brazil.
For a foreign company to establish a subsidiary company or branch in Brazil, it is necessary to follow some legal and bureaucratic steps. Below is an overall step-by-step guide to opening a subsidiary company or a branch in Brazil:
1.1. Market research: the foreign company must evaluate the Brazilian market and verify if opening a subsidiary company or branch is feasible.
1.2. Registration with the Board of Trade: the company must register its subsidiary company or branch with the Board of Trade of the state where it wants to be established. To do so, it is necessary to fill out the Company Registration Form and present the necessary documents, such as articles of incorporation and personal documents of the company’s representatives.
1.3. Enrollment in CNPJ (National Register of Legal Entities) – Brazilian Tax ID: after registering with the Board of Trade, the company must request its enrollment in the CNPJ with Receita Federal do Brasil – Brazilian IRS.
1.4. Obtaining an operating license: the company must obtain the operating permit from the State/City where the subsidiary company or branch will be installed, depending on company’s activities.
1.5. Employee registration: the company must register its employees at Social Security and comply with all labor and payroll obligations.
1.6. Registration at the Chamber of Commerce: the company may register at the Brazil-United States Chamber of Commerce (or other chambers of commerce) to gain access to information and business opportunities in Brazil.
1.7. Hiring an accountant: it is recommended that the company hire an accountant to guide it concerning tax and accounting obligations, as well as a legal representative in Brazil.
1.8. Compliance with tax obligations: the company must comply with all tax obligations, such as the ancillary obligations/tax returns and the payment of taxes and fees.
1.9. Compliance with labor obligations: the company must comply with all labor obligations, such as payment of salaries, Employee Severance Indemnity Fund (FGTS), vacation pays, “thirteenth salary” (Christmas Bonus/additional month’s salary), among others.
1.10. Trademark registration: it is recommended that the company register its trademark at the National Institute of Industrial Property (INPI), to guarantee the protection of the trademark in Brazil.
1.11. Registration of intellectual property: if the company works with intellectual property, it is recommended that it register its rights with INPI.
It is also recommended that foreign companies know the country’s tax scenario, as the Brazilian tax system holds a certain complexity. Some important information that the company should know about each type of tax, as well as their rates are:
2.1. Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL): all companies operating in Brazil must pay IRPJ, which is calculated on the company’s profit (Actual Profit or Deemed Profit). The Income taxes rate varies according to the type of company and can reach up to 34%.
2.2. Excise Tax (IPI): IPI is a federal tax on the production and sale of industrialized products. The rate varies according to the type of product, generally 10%.
2.3. Social Contribution on Revenue (PIS and COFINS): PIS/COFINS are federal taxes on companies’ gross revenue. The rate is from 3.65% to 9.25%, depending on the type of company (Actual Profit or Deemed Profit).
2.4. Value-added Tax on Sales and Services (ICMS): ICMS is a state tax on the circulation of goods and provision of services (telecom and transportation). The rate varies according to the state and type of product or service, usually 18%.
2.5. Service Tax (ISS): ISS is a municipal (city) tax on the provision of services. The rate varies from 2% to 5% according to the legislation of each city.
In addition to these taxes, there are several other fees and contributions that the company should be aware of, such as the Import Tax (II), the Export Tax (IE), the Tax on Financial Operations (IOF), Contribution for Intervention in the Economic Domain (CIDE), among others.
The company must also pay attention to ancillary obligations, such as issuing invoices, accounting and tax bookkeeping, submitting tax returns and maintaining accounting books.
There are also taxes on the company’s payroll, of which the following can be highlighted:
3.1. Employer Social Security Contribution (CPP): It’s a contribution paid by the employer to finance their employees’ social security and pensions. The tax rate varies according to the type of company and can reach up to 20% of the total payroll.
3.2. Brazilian National Institute for Social Security (INSS): It’s a mandatory contribution paid by the employee and the employer to finance social security. The INSS rate for the employer varies from 7,5% to 14% on the employee’s gross salary, depending on its amount.
3.3. Employee Severance Indemnity Fund (FGTS): It’s a fund created to protect the employee in case of termination without just cause. The employer must deposit the amount corresponding to 8% of the employee’s salary monthly in a bank account linked to the employee’s name.
3.4. Withholding Income Tax (IRRF): It’s a tax on the employee’s remuneration and is collected by the employer at source. The rate varies according to the worker’s salary and can reach up to 27.5%.
In addition to these taxes, there are other charges on the payroll, such as the educational allowance benefit, the contribution to the “S” System (which includes the National Service of Industrial Learning, the Social Service of Commerce, the National Service of Learning of Commerce, among others).
It’s important to remember that the steps above are just an overall guide and there might be variations and particularities according to the type of company, sector of activity, location, among other factors. Therefore, it’s fundamental to have the advisory of a specialized consultant to guide the process of opening a subsidiary company or branch in Brazil.
It is worth mentioning, however, that, currently, some proposals for reform of the national tax system are being processed in Brazil, which seek to simplify the methods of accounting and collection of taxes.
Two proposals stand out (PEC 45 and PEC 110), and both proposals aim at the unification of some taxes, with the goal of creating a unique VAT, with uniform rates in all federative units.
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