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Doing Business in Brazil

By: Walther Bottaro 

To see in pdf please click here.


Brazil is worldwide recognized as one of the most complex places in terms of legal and tax requirements. In this sense, this material was produced in order to summarize the main features which the foreign investor should be aware when conducting business in Brazil.

This material was divided in three parts: 1) Establishment of business 2) Taxes 3) Labor charges.

For more information, please contact: This email address is being protected from spambots. You need JavaScript enabled to view it.

General information about Brazil:

Brazil is the largest country in South America and in the Latin American region, and the world's fifth largest by land area (equivalent to 47% of the South American territory). Brazil’s population is over 202 millions of citizens. It is the only country in America where the population mainly speaks Portuguese as well as being one of the most multicultural nations and ethnically diversity, due the strong immigration from many immigrants of the world, especially from Italy, Germany and Japan.

Brazil’s economy is the largest in Latin America and in the Southern Hemisphere and the seventh largest in the world, both nominally and by purchasing power parity.


1. Establishment of Companies in Brazil

1.1. Subsidiary in Brazil:

For a foreign company to invest and create a subsidiary in Brazil it is required a registry in the National Registry of Legal Entities - CNPJ of the Ministry of Finance. With the CNPJ, the foreign company may be a partner of any Brazilian company (exception to some regulated segments).

There is a debate whether Brazilian companies with foreign partners (eg, a Brazilian subsidiary of an Italian group) need a Brazilian partner. In the past, it was very common that foreign companies allocated, symbolically, 1% of the capital for a Brazilian entrepreneur, usually the CEO and the founder of the subsidiary in Brazil. However, this practice is not necessary and it is not recommended, as a possible demise of this "partner", the company will be involved in inheritance processes that can become bureaucratic and should pay for this "1%".

It is worth noting that Brazilian law does not require that every company has a local partner, yet the law requires that a company made up exclusively of foreign partners, has an administrator and representative of Brazilian or foreign nationals with permanent visa. This person will represent the companies with local agencies such as the IRS and the Board of Trade. Importantly, the foreign partners have authority to dismiss them at any time and should allocate another local representative.

1.2. Foreign citizens:

Just as happens with foreign companies, foreign nationals partners of Brazilian companies should have a Physical Person Registration (CPF), similar to the CNPJ. With this document, the foreign person is able to be a partner in a Brazilian company.


If the foreign partner lives in Brazil and has a permanent visa, a Brazilian representative becomes unnecessary to represent the foreign company.

If none of the foreign partners are resident in Brazil, the company must have a representative in Brazil, as in the case of foreign companies.


2. Taxes

Brazil is renowned in the world for the complexity of taxes and there is a considerable list of them imposed on the operations in the country. We will address taxes into two major groups, income tax and indirect taxes.

2.1. Income tax

There are mainly two taxes in Brazil: Income and CSLL - Social Contribution on Net Income. Income tax in Brazil has three optional modes: SIMPLES, Lucro Presumido (presumed income) and Lucro Real, which option is restricted to some factors.

The rate of income tax is fixed at 15%. Profits exceeding R$ 20 thousand a month are taxed at a 10%,  totaling 25%. The Social Contribution on Net Profit (CSLL) is fixed at 9%, with the exception of financial institutions which are 15%.


SIMPLES mode was created in 2000 in order to facilitate and unify all taxes (including taxes on operations) in a single tax rate on revenues which varies according to turnover and according to the business’ activity. However, this option is forbidden for companies with foreign partners residing abroad. For this reason, we will not go into details. For more information, please contact us: This email address is being protected from spambots. You need JavaScript enabled to view it.

2.1.2 Lucro Presumido

The Lucro Presumido mode is the form of tax where the income tax and social contribution tax are paid on a presumed income previously defined in relation to the Company's activity which varies according to the company's activity:


Presumed Profit by tax authorities in relation to billing

Approximate tax rate on revenues

Commerce and Industry

8% to income tax and 12% to CSLL

2% to income tax and 1.08% to CSLL


32% to IRPJ and CSLL

8% to income tax and 2.88% to CSLL


Commercial and industries classified in the presumed income pay about R$ 3.08 for every R$ 100 billed, since the service providers pay R$ 10,88 for every R$ 100 billed.

Companies that earned up to R$ 48 million per year can choose from the presumed income and taxable income. Companies with revenues exceeding this limit are compulsorily unframed presumed income.

2.1.3 Lucro Real 

Some companies such as banks and insurance companies are required to Lucro Real mode. In this scheme, the income tax is determined from the accounting profit plus adjustments (positive and negative). This tax scheme requires rigorous controls of financial transactions, since the rules to the costs can be deducted from the TAX basis. All company’s expenses must be supported by valid documents and fiscally covered suitability. Food expenses of board members and directors, donations, gifts and accruals (except related to 13° wages, vacation and technical reserves) are disregarded for tax expenses and should be removed from the calculation basis of income tax and added to profit accounting for the calculation of income tax.

2.1.4 Tax Planning – Lucro Real  VS Lucro Presumido

The choice between Lucro Real and Lucro Presumido must to be accompanied by a detailed study in order to minimize the tax burden. The Lucro Real is generally recommended for companies with lower net margins presumed margins in the form of Lucro Presumido. Such analysis should be done taking account the effects of taxes: PIS and COFINS, as tax rates change in Lucro Real and Lucro Presumido schemes. On Lucro Presumido, the tax rates of PIS and COFINS on billings are respectively 3% and 0.65%. For companies in “Lucro Real” the tax rates are respectively 7.6% and 1.65%, however in this case, such taxes can be deducted of the goods costs.

2.2 Indirect Taxes

Unlike most countries, Brazilian taxes burden is concentrated mainly in indirect taxes. Such taxes are responsible for the great Brazilian tax burden and amount to about 50% of total revenue. In developed countries, this percentage is 30% and in emerging countries it is 25%.

The main taxes in this category are: ICMS, ISS, PIS, COFINS and IPI.

2.2.1. ICMS:

The ICMS (Tax on Circulation of Goods and Services) is a tribute of competence of the states. Such tax is due mainly on the movement of goods. In this case, whether the sale of merchandise was committed or not, what matters is that there was circulation and it is charged. The ICMS is not a cumulative tax, and it focuses on each step of the movement of goods separately. In practice, ICMS is a VAT paid by companies on product gross margin.

The applicable tax rates change in the type of operations: operation within the state and interstate operations. Operations within the state:

The states adopt cheaper rates for basic services and other more expensive merchandise particularly as regards superfluous products, such as alcohol, smoke and perfumes, whose rate is 25%

For conventional goods ICMS internal rate is 18% in São Paulo state, 19% in the state of Rio de Janeiro and 17% in the other states. Aliquots Interstate:

In transactions between states the tax rates vary according to the region of Brazil where the goods is being sent and if the goods are sold to ICMS taxpayer:

ICMS taxpayers:

Rate 7% to:

• North (Acre, Amazonas, Roraima, Rondonia, Para, Amapa and Tocantins states).

• Northeast Region (Maranhao, Piaui, Ceara, Rio Grande do Norte, Paraiba, Pernambuco, Alagoas, Sergipe and Bahia states).

• Central West Region (Goiás, Mato Grosso, Mato Grosso do Sul states and the District Capital)

Rate of 12% to:

• Southeast (Minas Gerais, Espírito Santo and Rio de Janeiro states)

• Southern Region (Paraná, Santa Catarina and Rio Grande do Sul states).

In some states, ICMS ST - Tax Substitution is adopted, which transfers (substitute) for Industry the obligation to collect the ICMS that will be generated along the production chain, hence the Tax Substitution name. This ICMS-ST is calculated based on the Value Added Index, which varies by product. Thus products with ICMS ST do not generate ICMS during his chain, only at baseline.

2.2.2. IPI - Tax on Industrialized Products

IPI (Tax on Industrialized Products) is applied both to industry and to importers. This tax is used by the government for economic control, thus its rate varies according to the type of product. The list of product codes (NCM) can be found on the website of the Receita Federal (Brazilian Tax Entity). Its rate may vary between 0% and 15%.

2.2.3 PIS and COFINS Cumulative system

PIS and COFINS are certainly two of the most complex Brazilian taxes. Companies classified in the “Lucro Presumido” regime have fixed rates of 0.65% and 3% levied on revenue, and named Cumulative system. However, if these companies perform imports, tax rates on imports are 7.6% and 1.65% respectively, and they cannot take credit. Because of these characteristics, it is very important that foreign importing companies make a tax planning to choose the best regime. Not Cumulative system

The non-cumulative system of PIS and COFINS is to be deducted from each contribution calculated debts of their claims allowed by law. Hence the name not cumulative, as the tax will be paid on "added value" of the product. It is noteworthy that just a few credits are allowed. In this case, PIS and COFINS are respectively 1.65% and 7.6% levied on the income.

Costs that are generally accepted to shoot down the basis for calculation of PIS and COFINS are: cost of goods purchased for resale, cost of goods and services used as inputs in the manufacture of products intended for sale or provision of services, electricity, rents paid to companies and depreciation on buildings and improvements in own or third party real estate.

2.2.4 ISS - Service Tax

The service tax is the responsibility of the municipalities and is applicable to the provision of services. In rare cases the incidence of ISS or the IPI and the definition of the operation with industrialization or Service Delivery can be confusing. In this sense, it validates the list of consultation of relevant services defined in Law 116/2003.

These rates vary from 2% to 5% according to the municipality and the type of service.

2.2.5 Importation Taxes

In the importation of goods the taxes already mentioned before: ICMS, IPI, PIS and COFINS are incidents and must be paid at the time of clearance of goods. Additionally the II - Import tax is due and must be calculated on the FOB value of the product, with varying rates.

In the case of import of services the taxes due are: ISS (5%), PIS, COFINS and the import duty will be applied.

In the case of foreign currency payment will be due the IOF - Tax on financial transactions in  the rate of 0.38%.


3. Labor Charges

Brazil has a established and consolidated labor law system. When a company hires  employees in Brazil,  shall take into account tax and labor costs, worth mentioning:

• Holidays - To each year of service the employee is entitled to 30 days of paid vacation. Paid holidays correspond to the value of one month's salary over a third.

• 13th salary (salary bonus) - Brazilian law requires that at the end of the year the company pays the employee an extra salary bonus. For employees hired during the year, the company will pay the 13th salary in proportion for the worked months.

• FGTS. The company is obliged to pay the monthly 8% above the employee's salary. This amount is deposited in the employee's name and may be redeemed by him in the  dismissal by the Company or upon retirement.

• INSS - Social Security. The company should collect monthly Social Security tax whose value ranges from 20% to 23% of the employee's salary. Such taxed is intended to fund the Brazilian public welfare.

In addition, the company is required to collect other amounts on income tax and employee social security, but such values are deducted from paid employee salary.


Final Considerations

This material does not intend to exhaust all subjects, but sketch and answer the most frequently asked questions regarding the legal aspects of foreign investment in Brazil. If you have additional questions or need clarification, do not hesitate to contact us:  This email address is being protected from spambots. You need JavaScript enabled to view it..

The BC Consulting is a company specialized in financial-accounting consulting and administrative accounting outsourcing by foreign companies.