Opening a Company in Brazil: Subsidiary vs. Branch

After distribution, the next step of expanding to Brazil is controlling another company here. There are at least two business models you will get to choose: a subsidiary or a branch.

Subsidiary: The Most Common Route

When foreign companies decide to enter Brazil, the most common approach is to establish a subsidiary. A subsidiary in Brazil is a separate legal entity, even though it is controlled by the parent company. This separation offers a significant advantage—it limits the parent company’s liability to the amount invested in the subsidiary, shielding the parent from direct exposure to the Brazilian market’s risks.

Steps to Open a Subsidiary in Brazil

1. Documentation: The parent company needs to prepare essential documents like articles of incorporation, bylaws, and a power of attorney. These documents must be notarized and apostilled in the parent company’s home country.
2. Translation: A sworn translator in Brazil will need to translate all documents into Portuguese.
3. Registry: Most Brazilian States don't require the translated documents to be filed with a Titles and Documents Registry, but this is more safe for the company in the long run. Getting advice from a certified attorney is the best way to decide on this matter.
4. Tax Registration: The legal representative in Brazil will then apply for a tax ID and register the parent company with the Central Bank of Brazil.
5. Leasing Headquarters: If the subsidiary doesn’t have a physical location, the legal representative must lease office space.
6. Incorporation: Finally, the subsidiary’s articles of incorporation must be filed with the state where the subsidiary will operate, granting the company legal existence in Brazil.

Branch: A Less Common, More Bureaucratic Path

While opening a branch in Brazil is less common, it can be a viable option depending on your business objectives. A branch is not a separate legal entity; it is an extension of the parent company. This setup means that the parent company is fully liable for all activities conducted by the branch in Brazil.

One reason a branch might be chosen over a subsidiary is tax efficiency. Brazil has treaties with various countries to avoid double taxation, which can sometimes make a branch more tax-efficient than a subsidiary. However, the trade-off is that opening a branch is far more bureaucratic. It requires federal government approval, which can be time-consuming and complex.

Only a consult with, or, even better, a legal opinion from a certified attorney in Brazil will be needed in order to make the right choice.

Steps to Open a Branch in Brazil

Besides producing valid documents, translating them, and filing them before the

1. Petition to open;
2. Publish the Decree in the newspapers;
3. Register in the local commercial boards.

Key Differences: Liability and Bureaucracy

• Liability: A subsidiary offers limited liability, protecting the parent company from direct exposure to Brazil’s market risks. In contrast, a branch exposes the parent company to full liability.
• Bureaucracy: Establishing a subsidiary is generally quicker and less complex, while a branch requires federal approval and involves more red tape.

Why Your Decision Matters

Choosing between a subsidiary and a branch in Brazil is not just about legalities. It’s about your business strategy. The subsidiary route may be the safer bet for most companies, but in specific cases, a branch might offer strategic advantages, especially in terms of tax benefits. However, the decision should not be made lightly, and a good legal counsel is crucial to guide you through these intricacies.

Ready to Expand to Brazil?

Making the right decision when entering the Brazilian market requires more than just a surface understanding. It’s about carefully weighing the pros and cons, understanding the legal implications, and ensuring that your business is set up for long-term success.

Next week we will deep dive on the types of companies in Brazil.

And as always, if you need tailored advice, don’t hesitate to get in touch.

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