Is It Easy Starting A Business In Brazil As A Foreigner?

As the sixth most populous country in the world with a population of more than 200 million, Brazil is an ideal place to set up a business due to its strong local demand for goods and services caused by a rapidly expanding middle-class. Furthermore, Brazil’s steady economic growth and the government’s pro-investment stance have attracted many foreign investors in recent years to register company in Brazil. However, starting a business in Brazil as a foreigner is not easy because of the large amount of bureaucracy and regulations businesses are subjected to. There are also high barriers to trade and taxes associated with a Brazilian business, which may deter business owners from setting up a business in Brazil.

Factors affecting the ease of starting a business in Brazil as a foreigner

#1 Bureaucracy 

• According to the World Bank’s Ease of Doing Business Index in 2020, Brazil is ranked 124 out of 190 countries in terms of ease of doing business. This index takes into consideration regulations and systems that directly affect businesses such as business registration procedures, ease of obtaining credit, method of tax payment and procurement of licenses. Due to the large amount of paperwork required when applying with government agencies, the time taken for starting a business in Brazil as a foreigner can take up to a few months. Most companies spend more time handling administrative issues, such as the application of a work visa and obtaining documents required to register company in Brazil, as compared to the actual planning of business activities in Brazil.
• There is also low efficiency when it comes to awarding public contracts to companies. Companies that wish to obtain permits to work on the road must go through a procedure that takes at least 7 months. If the company wishes to work on government projects, it will usually take an even longer period of time. 
• Furthermore, the complicated tax system in Brazil serves as another huge inconvenience for business owners as different goods and services sold can be taxed under a different indirect tax. In fact,  according to the World Bank’s Doing Business 2019 report, it is estimated that Brazilian companies spend almost 2,000 hours per year on managing tax and ensuring tax compliance. Generally, the average time spent to meet tax filing obligations is 275 hours in low-income economies and 149 hours in high-income economics.
• In 2019, the Brazilian government promised a comprehensive tax reform in 2020, which includes the implementation of a new tax system that would replace all the various types of indirect taxes with a single new tax levied on goods and services, also known as the IBS. The IBS will follow the model of value-added taxes (VAT) used in most developed nations and has an implementation time period of 6 years. If successfully implemented, this new tax system will greatly simplify tax compliance procedures for companies in Brazil.

#2 Rampant corruption and bribery

• Political corruption is relatively common in Brazil. Operation Carwash, the largest corruption scandal in Brazil, led to the prosecution of many business elites and government officials across 12 countries, including past Brazilian presidents. The scandal was exposed by a money-laundering investigation and mainly centred around Petrobras, a state-owned petroleum company where executives were found to be accepting bribes in return for awarding contracts to other companies.
• According to Transparency International’s Corruption Perception Index (CPI), Brazil scores 38 out of 100 on a scale from 100 (very clean) to 0 (highly corrupt). Corruption such as clientelism, cronyism and nepotism are widespread practices in Brazil and continue to remain largely unprosecuted. The complicated tax regime and high corporate tax rate in Brazil have also fuelled corruption as it indirectly encourages tax evasion so as to reduce the time and money involved in paying taxes in Brazil. Operation Zelotes started in 2015 was an investigation on tax evasion by both Brazilian companies and foreign businesses that have been allegedly running for decades. Companies involved in the scandal were found to be bribing tax authorities in order to receive a reduction or full exemption from corporate taxes.

#3 High corporate tax rate

• Brazil has one of the highest corporate income taxes in the world. Generally, all companies in Brazil pay a net corporate income tax of 34%. This includes 15% statutory corporate income tax, 10% surtax on annual income greater than BRL 240,000 and 9% social contribution tax (CSLL) levied on adjusted net income. For financial institutions, corporate income tax is much higher as the CSLL is 20%. All Brazilian resident companies are taxed based on worldwide income while non-resident companies will only be taxed on the net income generated locally. The high corporate income tax in Brazil, together with the bureaucracy involved in government procedures, serves as a strong deterrence for foreigners setting up a business in Brazil.

#4 Barriers to trade

• In Brazil, imports are subject to three main types of taxes – the Import Duty, the Industrialized Product tax (IPI) and the Merchandise and Service Circulation tax (ICMS). There are also additional smaller taxes and fees that may apply. Import duty is a federal product-specific tax levied on a Cost, Insurance, and Freight (CIF) basis that usually range from 10 percent to 35 percent. IPI, on the other hand, is levied on most domestic and imported goods but tends to be higher for imported goods to encourage domestic production. Generally, the IPI tax rate ranges from 0-15 percent. 
• Tariff rates in Brazil are considered to be relatively high compared to other countries where the tariff rate is usually less than 3%. As such, Brazil companies may prefer to purchase raw materials from domestic firms instead of buying them from overseas companies.
• However, there has been some improvement in recent years as the Brazilian government attempts to improve the regulatory practices involving imports in Brazil in order to discourage unfair and discriminatory regulations. In 2019, Brazil implemented the Regulatory Agencies Law and the Economic Free Law, which ensure that specific good regulatory practices (GRPs) such as public consultation requirements and the use of a regulatory impact analysis are legal requirements for all Brazilian regulating agencies. 

How we can assist you with starting a business in Brazil as a foreigner

Generally, it is not easy to start a business in Brazil due to the unnecessary bureaucracy, high tax rates and prevalent corruption. However, the government has promised to reduce bureaucracy in different sectors and is currently implementing measures to speed up government procedures. The new tax reform will also make it easier for businesses to handle their tax affairs as there will no longer be multiple VATs for different goods and services. As such, it may still be attractive to set up a business in Brazil if you wish to cater to a huge local consumer base.

To simplify the Brazil company registration process, you can opt to engage the services of Tetra Consultants. Tetra Consultants provides you with a fast and simple way to register company in Brazil through our service package, which includes registration of your company with Brazil’s Board of Trade; CNPJ registration; provision of nominee resident director, local company secretary and a registered address; opening of corporate bank account; tax registration; and annual accounting and tax services. There are many different types of companies in Brazil such as a limited liability company, branch office and representative office. Tetra Consultants will recommend a business structure based on your company’s long-term goals and business activities.

Contact us to find out more about Brazil company registration. Our team of experts will revert within 24 hours.