Establishing a Presence in Brazil
If just importing is not enough (see Legalities and Customs Duty), would-be exporters should consider forming a Brazilian subsidiary and manufacturing their products in Brazil. This means founding a company - or merging / acquiring one (see Acquiring a Company in Brazil).
Brazil allows 100 percent foreign ownership of Brazilian companies. The most common legal entities are the “limitada” (or limited liability company) - a mix of corporation and partnership; and the “sociedade anônima” or “S/A,” which is similar to a public limited company. The characteristics of both legal entities are as follows:
Both need at least two shareholders who do not need to be Brazilian nationals. However, managers must be residents of Brazil. If not, they can obtain a permanent visa for expatriate managers, but this means paying in a minimum of 200,000 US dollars. Note that foreign directors can oversee local management and direct overall affairs of the company.
Both entities must register with the Commercial Registry and publish their formation in the Official Gazette and a widely circulated local newspaper.
At least 10 percent of the initial paid-in capital must be deposited with a commercial bank at the company’s formation. In the case of foreign investment, the shareholders must register with the Brazilian Central Bank.
In the case of a "Sociedade Anônima", the company’s financial statements and minutes of shareholders’ meetings must be published and it must set aside 5 percent of annual profits as a legal reserve.
In the case of a "Limitada", the company does not need to publish its accounts or amendments to its Articles of Association, etc.
In both the "S/A" and the "Limitada", it is common for foreign companies to form two domestic limited liability companies to act as the share owners. In the case of the "Limitada", this means that profits and losses can be passed through to the parent company. Finally, failure to register the foreign capital invested in the "S/A" or the "Limitada" with the Brazilian Central Bank will prevent the subsidiary from remitting dividends to the foreign owners.
The Manaus Free Trade Zone
Many foreign manufacturers are moving to the Manaus Free Trade Zone in Manaus, capital city of the State of Amazonas. The Manaus Free Trade Zone offers qualifying foreign companies numerous business and tax incentives, in particular: a 75 percent tax reduction through to 2013 (this incentive may be extended) and an 88 percent reduction in import duty tax for raw, intermediary, and secondary materials and for products destined for internal consumption in the Amazon region, plus VAT benefits on eligible goods.
When looking for a manufacturing location it is worthwhile investigating whether other states in Brazil are willing to offer incentives.
Hiring Employees in Brazil
Brazilian law requires employers to contribute to social security and the employees’ severance and pension plan system.
Brazilian law does not allow employers to terminate employees without cause and without severance pay. Some employers try to get around this by listing workers as independent contractors. However this fiddle can result in the company being liable for unpaid social security, penalties, as well as other civil and criminal fines. It is therefore important for foreign owners to carefully monitor their subsidiary’s compliance with Brazilian employment laws.