Ten tips to open your business in Brazil

Published 05/10/2016 por Isis Magri Teixeira

We’ve said it before and we’ll say it again: Brazil is a land of opportunity. If you find it difficult to return to the corporate world or if you have trouble obtaining a visa, maybe it’s time to reinvent your life and start over. How about becoming an entrepreneur?

You should know that in Brazil, opening a business allows you to apply for an investor visa. Of course, there are conditions to comply with – so first things first, I’ll advise you to consult the Brazilian Consulate website of your country of residence to find out more about this visa.

While European countries have very strict policies about entrepreneurship, starting your own business is much easier in Brazil. However, be careful not to fall into snake pits. Here are 10 pieces of advice to help start your business in Brazil.

Surround Yourself With Good Experts

Nothing replaces the advice of a good lawyer or accountant. Brazilian laws are numerous and complex regarding taxation and taxes for businesses. Turn to a professional to assess whether your business can be realistically located in Brazil, or not.

Tip: Compare the total tax revenue in Brazil to the total tax revenue of your country, take advantage of tax incentives and international agreements, and avoid double taxation.

Get To Know Your Partner Better

Never sign a partnership agreement without performing due diligence to investigate the legal status of your future business partners. If this is not possible, stipulate in the contract that the effectiveness of the partnership is subject to the lawfulness of all concerned parties.

Tip: Find information about taxes, social welfare, debt and possible trials in which your future partners might be involved.

Check Documents

Despite the mutual trust that you will develop with your partner, always ask for official certificates certifying the information provided by him. If the joint venture depends on real estate contributions, real actions or shares of other companies, you must obtain certificates that attest to the property.

Tip: If you partner with a company older than your joint venture, analyse the company documents filed in the Board of Trade (Junta Commercial) to assess the company’s consistency.

Copyright And Privacy: Trust No One!

If your joint venture involves technology development or transfer, be careful with the development of intellectual property and confidentiality agreements. If the technology is developed in cooperation, the partnership agreement must include explicit provisions indicating who owns the intellectual property of the product or process developed.

Note that Brazilian courts are generally reluctant to award punitive damages. Therefore, when there is an infringement of intellectual property or confidentiality agreements, it is often difficult for the injured party to prove prejudice and recover the actual losses in cases where new technologies are involved.

Tip: A possible solution is to write a clause about “liquidated damages” to be certain you will receive at least a predetermined amount.

Restrictions On Real Estate Properties In Brazil

Although the issue still is under discussion in Brazil, there are several restrictions on foreign real estate ownership and Brazilian companies controlled by foreign entities. Therefore, if your joint venture requires the acquisition of large areas of territory, do not overlook these restrictions.

In addition, since March 2011 the government has blocked mergers and acquisitions of foreign companies with Brazilian companies holding land in rural areas in Brazil. As such, your joint venture could be blocked if it involves a merger or acquisition of a large landowning Brazilian entity.

Tip: there are ways to overcome those difficulties, mainly through shareholders’ agreements. However, the subject deserves a careful analysis by a lawyer.

Foreign Capital: Not On All Markets

In Brazil, some markets are closed to foreign capital. Among them: state media (newspapers, magazines, radio and television stations), service providers of public administration, and domestic flights. If your joint venture intends to act on these markets, it is necessary to conduct a thorough analysis of the legislation to ensure that the partnership does not violate the law. Also keep in mind that foreign capital cannot participate in the following activities:

  • Development of activities related to nuclear energy
  • Provision of health services
  • Official postal services
  • Manufacturing of aerospace technology

Management In Brazil: Permanent Residence Needed

Only Brazilians or foreigners with permanent residence can participate directly in the management of Brazilian companies. The only exception to the non-residency requirement is participating on a company board. However, in this case, the foreigner must appoint a representative with the power to take judicial notice.

Politics And Business: Contractual Relations With The Government And Corruption

Be careful if your partner has ties with the local or federal government. While this may sound like an advantage, if your joint venture wants to obtain government contracts, it could become a disadvantage. In Brazil, corruption is omnipresent, and it is common for the media and authorities to interpret governmental ties as a sign of irregularity in a tendering process, which may harm your business’s image.

Social Security Contributions And Labor: Subcontractors And Outsourced Service Providers

If you wish to subcontract or outsource some services, be clear in the contracts you sign that the outsourcing company will be responsible for their employees. In Brazil, it is quite common that outsourcing companies file lawsuits to transfer those obligations to the hiring company. They usually win when the contract is not clear on the issue. Do not take that risk.

Brokers And Agencies

If you are negotiating a joint venture through a broker or someone similar, pay attention to the Broker Agreement. In many cases, these agreements contain clauses that hold your business responsible if the broker’s commission owed by your Brazilian partner is not paid.

Bonus: Time Is Money

What entrepreneurs complain about the most are the overall time limits in Brazil: business creation, visas, environmental licenses, etc. Procedures are sometimes endless. Some companies are built in 10 days, others in 5 months. It depends on many factors; some can be controlled, others cannot. Do not lose hope. Things are improving, but slowly. The hard truth is that making money in Brazil takes time.

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