Setting Up Your Compny nd Office in Brzil MOBILITY Mgzine, April 2007 As the B in BRIC, Brzil hs been gining gret del of ttention on the globl business front, with mny compnies investigting how to get their businesses in the country. However, Grci Lopez explins tht while business legl structures in Brzil re similr to ones found in the United Sttes nd the United Kingdom, specific regultory differences could hve n effect on how you go bout setting up your business in Brzil. By Hector Grci Lopez, GMS The mny wys vilble to structure your business in Brzil essentilly re the sme s ny other plce of the world. With the exception of some specific sectors where legisltion puts restrictions on foreign cpitl, foreign investor is free to set up subsidiry to ssocite on minority, mjority, or equl bsis with other Brzilin or foreign investors; work vi one or more gents nd/or representtives; or simply sell his or her trdemrk nd/or technology on lumpsum commission or roylty bsis to loclly-bsed compny (See Figure 1.). Figure 1: Setting Up Subsidiry To Sell Trdemrk or Technology to Locl Compny Structuring To ssocite with Your Business Brzilin or in Brzil Foreign Investor Working with Agents nd / or Representtives As Figure 2 Illustrtes, Brzilin lw provides for legl structures tht re brodly similr to those found in the United Sttes or the United Kingdom. However, the specifics of Brzilin compny legisltion my imply differences tht could hve n effect on business.
Figure 2 : BRAZIL USA / UK Limitd compres Limited Libility, Limited Prtnership, Closely Held Co s Anonim compres Corportion by Shres The Brzilin sociedde limitd cn be compred with limited libility compnies, limited prtnerships, nd closely held compnies tht cn be found in other geogrphies. The cpitl is closed nd there re no shres vilble for public sle. The libility of the prtners is proportionl to their stkes in the compny. The sociedde nômin, or SA, is shre compny owned by shreholders, nd bsiclly comprble to corportion-type of compny. The cpitl is divided into shres tht might or might not be publicly trded. Finncil sttements nd corporte documents must be published periodiclly. Business Structure The very first step in moving into Brzil hs to be deciding wht type of structure best fits the business. Before coming to finl decision, it is preferble to keep n open mind during mrket reserch, estblishing contcts, nd becoming cquinted with locl business prctices nd conditions. The first priority typiclly will be to mke your compny s products nd services vilble s efficiently nd profitbly s possible to the clients or consumers. There re severl wys to enter the Brzilin mrket, including exporting, frnchise development, ppointing representtive, setting up subsidiry, nd creting joint venture. Following re discussions of ech method (See Figure 3.).
Figure 3 : Export to Brzil Develop Frnchise Wys to enter the Mrket Appoint Representtive Set Up Subsidiry Crete Joint Venture Exporting A simple wy to test the Brzilin mrket is through n export scheme with no forml representtion in the country. Mny compnies see this s good first step in judging mrket s receptiveness to one s goods nd services, with view to subsequently build up their presence. There re severl firms tht specilize in hndling importtion either on their own or for clients, nd the potentil exporter will hve severl choices t hnd. Exporting hs mny positive spects. It hs proven to be quick nd esy to set up. It requires minimum or no outly beyond few visits. It involves minimum of commitment or orgniztionl disruption. It cn strt on smll scle nd then grow with mrket demnd. However, it is importnt to remember tht when exporting, n orgniztion selling directly to overses consumers nd/or end-users my fce problems building customer reltionships nd in developing new outlets. A compny selling vi distributor but hs no physicl presence my feel uncertin tht its product is being hndled properly. If the product is bdly hndled in the first stges, its chnces in the new mrket my be t risk. Appoint Representtive When ppointing representtive, compnies my opt for single greement with ntionl scope, or number of regionl greements. A compny might just seek representtive for the bigger mrket of the Southest, centered in So Pulo, with view to expnding lter. The greement is executed in contrct. It is dvisble to include n option for the exporting compny to hve forml prticiption in the representtive compny t lter dte.
One of the dvntges of ppointing qulified representtive is the higher chnce of the product hving good entry into the mrket. A representtion greement cn provide the exporter with much better feeling bout the potentil of the product in the new mrket. On the flipside, ppointing representtive crries more expenses, dministrtion, nd set-up costs thn the simple export scheme. The selection of the right representtive is crucil to the business. Such reltionships lso my involve some direct or indirect finncil support by the exporters for prticiption in joint mrketing. Crete Joint Venture The cretion of joint venture is proven method for different types of compnies to bring their products or services to the Brzilin mrket. In economic nd commercil terms, the joint venture will seek to complement the existing strengths of the incoming compny. Joint ventures give the investor s product or service the benefit of locl knowledge of mrkets, business prctices, nd the like, hence potentilly incresing the speed of the lunch, business growth, nd the chnces of success. It lso my reduce the need for cpitl. However, joint ventures crete potentil conflicts concerning business prctices, strtegies, ethics, nd the like. An investor wnting to use joint venture s mens to cquire loclmrket knowledge nd operting skills must ensure tht such knowledge trnsfer relly will occur, forcing him to be committed with the locl prtner s consequence. Set up Subsidiry A foreign investor is llowed to set up compny in Brzil without the prticiption of locl investor. Mny multintionls hve operted successfully in this mnner for severl yers. There is good supply of locl executives who cn be hired to provide locl knowledge from the strt, reducing the dvntge of the joint venture. The positives of setting up subsidiry include totl control, voiding the potentil conflicts of joint venture. Also, profits ccrue wholly to the investor. However, successful penetrtion in new mrket requires both the knowledge of how the mrket works nd of the potentil cceptnce of the product or service to be offered. Additionlly, the potentil investor needs to be dvised nd prepred for the possibility of filure. Develop Frnchise Frnchising in Brzil hs grown during the lst severl yers, minly in the fst food nd retil service sectors. United Sttes compnies with Brzilin presence include Pizz Hut, McDonlds, Dunkin Donuts, Alph Grphics, nd others. Foreign frnchise compnies my choose to formlize presence in Brzil, either vi subsidiry or joint-venture, nd use this compny to frnchise to locl opertors. In this sitution, frnchising roylties will ccrue to the locl subsidiry or joint venture, which my remit them s regulr profits. Deciding on the Structure tht Best Fits Your Business Foreign compnies wishing to estblish presence in Brzil could dopt one of the following legl structures (See Figure 4.): the limited libility compny or sociedde limitd; the sociedde civil specil form of limited libility compny tht cnnot engge in trde; or the joint stock corportion or sociedde nônim.
Figure 4 : Limitd Business Structures Anonim Civil Registrtion of the Foreign Investment Once the formlities for estblishing compny in Brzil re complete, the foreign investor cn remit the cpitl to be used for its incorportion. This investment my be mde in the form of currency trnsfer, conversion of foreign credits, n importtion of goods, nd the like. The rules for bringing in cpitl essentilly re the sme regrdless of the type of compny being estblished. However, there re different procedures for the different types of cpitl incorportion. The following presents n overview of these procedures (See Figure 5.). Figure 5 : Steps for Compny cretion completed Currency Trnsfer Investor to remit Cpitl Conversion of Foreign Credits Importing goods
Csh investment. This does not require prior officil uthoriztion. Money for pying for cpitl or cquisition of n equity stke in n existing Brzilin compny my be sent to Brzil vi ny bnk uthorized to del in foreign exchnge. Conversion of foreign credits. Investments in this form re subject to the prior uthoriztion of the Brzilin Centrl Bnk (Bnco Centrl do Brsil). Once uthoriztion hs been obtined, it is necessry to perform symbolic exchnge opertion, representing the purchse nd sle of foreign currency. The compny then hs 30 dys to incorporte the investment to its cpitl. Importing goods. Investments done vi the importtion of goods nd equipment requires prior pprovl from the Centrl Bnk or Secretrit of Foreign Trde (SECEX). The goods, mchinery, nd equipment must be destined for the mnufcture of products or rendering of services. Importtion of Goods Specil Note The importtion of used goods or importtion under fiscl incentive cn be used for cpitl incorportion only if similr products re not vilble loclly. Second-hnd goods must be used in projects tht promote Brzil s economic development. Once customs clernce hs been obtined for these imported goods, the Brzilin compny hs 180 dys to incorporte them nd then 30 dys to pply for registrtion of the investment. Registrtion of Foreign Cpitl Foreign cpitl must be registered t the Brzilin Centrl Bnk, which will issue certificte of registrtion for the money invested. Investments will lwys be registered in the currency in which they were brought in. Foreign cpitl must be registered with the Centrl Bnk to llow the investor to mke future use of the commercil/ finncil exchnge mrket for remittnce of profits, reptrition of cpitl, nd registrtion of reinvestments. Remittnce of Profits Double Txtion Treties In generl, Brzil plces no restrictions or limits on the distribution nd remittnce of profits brod. Remittnces re not subject to ny withholding tx. Brzil hs signed double-txtion treties with severl countries, including Argentin, Austri, Belgium, Cnd, the Czech Republic, Chin, Denmrk, Ecudor, Finlnd, Frnce, Germny, Hollnd, Hungry, Indi, Itly, Jpn, Luxembourg, Norwy, the Philippines, Portugl, Slovki, South Kore, Spin, nd Sweden. Reinvestment of Profits In ccordnce with the Foreign Cpitl Lw, reinvestments re defined s profits erned by compnies estblished in Brzil nd ttributed to residents overses, which re repplied in the sme compnies which they preceded or in nother sector of the domestic economy. If foreign investor opts to reinvest profits, rther thn remit them brod, then these profits re subject to new registrtion s dditionl foreign cpitl ssocited with the originl investment. Hector Grci Lopez, GMS, is founder nd mnging prtner of Setup Globl, So Pulo, BRAZIL, prtner of Living In Brzil Interntionl Executive Mobility Mngement, So Pulo, nd co-founder of The Person Plce. He cn be reched t +55 11 3013 2073 or e-mil hglopez@setupglobl.com. Worldwide ERC is the premier membership ssocition of over 13,000 professionls who mnge or service mobile workforce. Copyright 2007, The Employee Reloction Council/Worldwide ERC. All rights reserved. Worldwide ERC Hedqurters 1717 Pennsylvni Ave. NW, Suite 800 Wshington, DC 20006 Direct +1 202 857 0857 Fx +1 202 659 8631 webmster@erc.org Worldwide ERC lso hs offices locted in Brussels, Belgium nd Shnghi, Chin.