As one of the largest economies in the world, many business owners have their sights set on establishing a Brazil subsidiary. Leaders in Brazil want to keep up with global leaders such as India and China so it’s staying on the cutting edge of innovations and encouraging new business development throughout the nation.
The country does have its challenges. It’s still considered a developing nation. Plus, laws and regulations for opening and running a business have not changed at the same rate in which the economy has grown. As a result, this presents many hurdles for overseas corporations.
Despite the hurdles, it’s still a sought-after destination for international expansion. In this post, we’ll explain the basics of starting a Brazil subsidiary and also explore an agile option to take your business overseas.
Establishing a Brazil Subsidiary
With more than nine types of corporate structures available, businesses must carefully choose the type of Brazil subsidiary to establish when entering the country. The most common structures for business are Sociedade Anônima (S.A.) and the Sociedade Limitada, which is similar to an LLC (Limited Liability Company). Brazil’s S.A. resembles a corporation in the U.S. and is optimal when multiple groups will have a stake in the Brazilian entity. If you plan on taking your firm public, an S.A. is mandatory.
In addition to choosing the type of entity you’d like to form, you will have to:
- File Articles of Organization
- Register with the Board of Trade
- Obtain a Tax ID
- Register with the Inscrição Estadual to Pay Taxes
To start a business, you will also have to obtain a Brazilian visa. The process is timely and requires an investment into your foreign company along with a promise to hire Brazilian talent. You’ll also have to work with a local partner to make that investment using a Brazilian bank account, which you cannot establish until you have a tax ID.
Brazil Subsidiary: The Risks
Overall, starting a subsidiary in Brazil is complicated, which is why the country is ranked 175 out of 190 for ease of doing business according to World Bank.
Aside from the risks, there are benefits for starting a permanent subsidiary in-country, which include:
- Fully Operational
- Hire Employees
- Trust from the Local Market Place
In addition to the complicated startup, there are other risks involved with establishing a permanent subsidiary. The risks include:
- Large Time & Cost Commitment
- Compliance Management
- Difficult Tear Down
After establishing Brazil subsidiary, your company is responsible for managing local tax laws, payroll withholdings, employment requirements, and banking regulations. Luckily, there are options to help your business enter new markets like Brazil without the maintenance and investment in hard assets.
Agile Expansion into Brazil
An agile approach to international business basically means that your company stays flexible. Flexibility is a critical part of successful global businesses, especially during your company’s startup phase.
One agile approach is using International PEO (Professional Employer Organization). This option allows your business to employ talent in Brazil without having your “company” in-country. In some countries, it’s also a way of cooperating with the administration of the employee contracts between the employing company, an administrative company, and the employee.
Other benefits of using International PEO include:
- Freedom to operate locally without managing administrative tasks from a subsidiary.
- Staying compliant.
- Managing employment regulations.
In general, International PEO makes entry into Brazil easier. And – if your company finds success, you can also move forward with a permanent establishment.
Contact the Velocity Global team to learn more about International PEO.
