Juliana Mello

Juliana Mello

The Brazil Business


Opening a Foreign Branch in Brazil

Juliana Mello

Juliana Mello

The Brazil Business


Some Brazilian branches of foreign companies are so profitable that are even being used as a way to recover their headquarters or other branches with financial issues. In 2011, the remittance of profits abroad amounted USD 38 billion, reveling the potential of the Brazilian market. In this article, we will explain the legal procedures on how to open a branch in Brazil.

With a population of nearly 200 million people, almost half of them in the middle class, Brazil became very famous for its enormous and promising consumer market. And it is exactly this very attractive characteristic that makes the foreign entrepreneurs’ eyes sparkle while they consider the pros and cons of doing business in Brazil.

A foreign company can expand into Brazil by many ways, such as:

  • Opening a branch, affiliate, agency, or office with the headquarters in its country of origin
  • Nationalizing the company, organizing it in accordance with the Brazilian legislation and transferring the headquarters to Brazil
  • Being a share/quota holder of a Brazilian company or creating a new own with this purpose
  • Getting a commercial representation in Brazil
  • Joint ventures or international partnerships

As the title of this article suggests, we are going further on the first way enlisted above, discussing the most important topics of the Regulatory Instruction that contains the procedures to be followed by foreign companies seeking to open branches in Brazil.

The Brazilian Legislation is not very attractive when it comes to the installation of branches. Besides some restrictions on foreign capital, there is the need for obtaining prior authorization from the Brazilian Government to open a branch. The Executive power will consider if the company will bring benefits to Brazil, if it will generate jobs, create infrastructure, generate revenue, invest part of its profits in the country's development etc.

The rules and procedures are the same for companies from any country of the world, including the ones from Mercosul that do not receive special treatment for having privileged commercial agreements with Brazil.

Regulatory Instruction

In Brazil, it is considered a foreign company, the partnership that was formed and organized in accordance with the laws of its country of origin, where it is also headquartered. Those companies are subject to the authorization of the Brazilian Federal Government in order to operate in the country.

The Regulatory Instruction number 81, from 1999, contains all the procedures of the process of nationalization or installation of branches, agencies, affiliates or other establishments in Brazil by foreign commercial companies.

Addressing the Request to the Government

The company interested in installing a branch in Brazil must address a requirement to the Ministry of Development, Industry and Foreign Trade to be analyzed by the National Department of Trade Registration (DNRC). This requirement will contain:

  • Corporate resolution regarding its installation in Brazil, with the activities the company wishes to perform in the country and the capital, in Brazilian currency, designated to its operations here.
  • Articles of Association in its entirety
  • List of partners and associates, with their full names and qualification
  • Certificate that the company was formed and follows the laws of its country of origin
  • The appointment of a legal representative resident in Brazil and his acceptance on the conditions of installation and operation in the country
  • Last balance sheet

It is important to notice that all documents must be translated to Portuguese by a sworn translator and registered in the Registry of Deeds and Documents. The paperwork also must be notarized by a Brazilian consulate located in the company’s country of origin.

Once the requirement is given, it will be checked by the authorities responsible. If the request is granted, and the decree is consequently issued by the Federal Executive Branch, the foreign company will have to publish the authorization documents in the Diário Oficial da União (Federal Official Gazette).

Registering at the Board of Trade

The next step is reporting to the Board of Trade (Junta Comercial) of the Brazilian state where the branch will operate, and take actions to register it in this organ. The registration will be made in a special book for foreign companies and will contain:

  • Name, purpose, duration and headquarter of the foreign company
  • Location of its branch in Brazil
  • Date and number of the authorization decree
  • The foreign company’s capital destined to the operations in Brazil
  • The name of the branch’s legal representative

After the foreign company is registered at the local Board of Trade, it is authorized to operate in Brazil, and will be subjected to the Brazilian laws and courts during its activities in the country.

The Brazilian legislation will consider the Brazilian branch as an extension of the head office of the foreign company and, therefore, its liability before third parties in Brazil may reach not only its own corporate capital but that of the head office of the foreign company as well.

Moreover, the foreign company shall permanently maintain a legal representative in Brazil, with powers to solve issues related to the business, respond legally and receive summons on behalf of the company overseas.

This appointed representative does not necessarily have to be a Brazilian and it is not necessary to have a Brazilian partner either. But if the representative is a foreigner he must be resident and domiciled in Brazil and have a permanent visa.

Foreign Capital

The foreign capital to be applied in the Brazilian branch is considered a direct investment, and shall receive the same legal treatment as the national capital. The Brazilian legislation will define foreign capital as assets, machinery and equipment that enter Brazil, with no initial disbursement of foreign currency, for the production of goods or services, as well as the financial or monetary resources, brought into the country, for application in economic activity as long as, in both cases, the capital belongs to individuals or legal entities resident, domiciled or headquartered abroad.

For a foreign company to send the capital to Brazil, it has to send the money destined to investments from abroad, through a banking institution authorized by the BACEN to operate with foreign exchange. The remittance is not subject to previous authorization of the Central Bank of Brazil, but, either way, the transaction must be registered in this institution.

The register is done based on a declaration made by the responsible people, through the Electronic Declaratory Registration system from Sisbacen (Information System of the Brazilian Central Bank). The declaration has to be done in up to 30 days counting from the date the capital was sent.

The Brazilian Central Bank will issue a certificate of register with the invested amount in foreign currency and its corresponding value in the national currency. This certificate is necessary and essential to the remittance of profits abroad, the repatriation of the invested capital and registration of reinvestment of the profits earned in Brazil.

Taxation: the foreign capital entering Brazil is not subject to any taxes, when destined to direct investments in the country.

Restrictions to Foreign Capital

The Brazilian legislation imposes some restrictions and hindrances for a number of activities that can only be explored by born or naturalized Brazilians and even have the participation of foreign capital forbidden. Those activities include:

  • Health care companies
  • Navigation and shipping companies
  • Journalistic and radio broadcasting companies
  • Sounds and images companies
  • Service cable TV
  • Mining and hydro power companies
  • Road cargo transportation companies
  • National airlines
  • Companies located along the border areas
  • Company of colonization and rural settlements
  • Postal and telegraph services

Those prohibitions and restrictions are related to politics of national security to prevent:

  • The acquisition of land in areas of the frontier zone by foreigners
  • The acquisition of domestic companies by foreigners
  • The exploration of crucial infrastructure activities by foreigners

Remittance of Profits Abroad and Repatriation of Capital

The remittance of profits and dividends and the repatriation of the foreign capital abroad are exempted from the Withholding Income Tax when leaving Brazil. But that only applies if the sum of the capital to be send abroad is the same as the sum that was registered in the Brazilian Central Bank.

If the amount of capital is superior to the registered value, it is considered capital gain for the benefit of the foreign investor. Then it will be subject to the charges of Withholding Income Tax at a rate of 15%.

To avoid the Double Taxation in the capital flow among countries Brazil has signed Double Taxation Treaties with 28 countries, but still lacks DDTs with important partners, such as United States and United Kingdom.