Small Business Options in Brazil

By Vânia Maciel, Contributing Reporter

RIO DE JANEIRO, BRAZIL – With it’s thriving economy and growing middle class, Brazil is becoming more attractive to foreign investment. To do business in Brazil however, it is essential to set up a registered company, and while new options exist it is not a process free of legal hurdles.

Permanent visa holders and naturalized citizens are, as a rule, permitted to set up a company, however to get a permanent visa depends on the fulfillment of certain criteria.

According to Michael Royster, an American attorney with a law firm in Rio; “If you’re here on a ‘work contract’ visa with a Brazilian company you can apply to convert that into a permanent visa after four years here.”

“Otherwise,” he says, “you must be married to a Brazilian citizen or be in a “união estável” or common law marriage with a Brazilian citizen, or have a Brazilian citizen child. A “união estável” (registered cohabitation) between same sex persons is also grounds for a permanent visa.”

“The most conservative position is that, if you hold a permanent visa (or are under the Amnesty law) you can open up a micro or small business. If you are here under any other type of visa, you cannot.”

“A slightly less conservative position”, Mr Royster adds, “is that a micro business, which requires two owners, is not a firma individual (sole company). So, if you are here under a work contract visa for one year or more, you can open a micro business if the Ministry of Justice and the Ministry of Labor give their approval.”

He added, “On the other hand, Article 99 of Brazilian Immigration law very clearly prohibits you from managing that company. All of which means that if you’re a foreigner domiciled here but with a temporary visa, you will need to find a Brazilian or a foreigner with a permanent visa to set up the company together with you and manage the company.”

Under Brazilian law, there are several company classifications, based upon gross annual revenue, and the government grants smaller companies benefits, some operational, some tax-related and some financial, through credit lines to encourage business growth.

Essentially three company categories can benefit from these incentives: Microempresa (microbusiness); Empresa de Pequeno Porte (small business); and Micro Empreendedor Individual (individual entrepreneur) known respectively as ME, PPE and MEI.

ME’s and PPE’s, are defined by law in terms of gross yearly revenue – up to R$240,000 (around US$141,000) for a ME, and between R$240,000 and R$2.4 million (US$1.4 million) for a PPE.

Both with an average set-up cost of R$2,850 and the advantages of the Simples Nacional, a system where almost all company taxes (federal, state and municipal) can be made by one monthly payment; they also enjoy substantial tax exemptions or reductions and cost much less to set up, making them a very good option for the small entrepreneur.

The first and compulsory step for anyone wishing to do business in Brazil is to get a CPF – Cadastro de Pessoa Física – the Brazilian individual taxpayer identification number registering an individual as liable to income tax. Relatively easy to obtain, the CPF is mandatory even for individuals residing abroad who own properties and investments in Brazil.

Other pre-requisites to opening ME’s and PPE’s are prior research on the company name, and the availability of a permit (“alvará”) for the business premises. With these in hand, the “Contrato Social” (Company Articles) or the “Declaração de Empresário” (entrepreneur declaration) can be formed.

Thereafter, the company will need the various registrations: CNPJ (the company equivalent to a CPF), social security and labor, state and municipal tax, business permits, plus obligatory company books and records, including tax invoices (“notas fiscais”).

The other option for a foreign entrepreneur on a permanent visa is the MEI. This is the most recent Brazilian company model, targeting professionals with gross monthly income of up to R$3,000 (around US$1,700), and is the cheapest and easiest to set up. It also comes under the umbrella of the Simples Nacional and receives direct support from Sebrae, a nonprofit Brazilian agency supporting small business.

A MEI can have up to one employee and enjoys further tax reliefs and more relaxed functional rules than its bigger siblings such as not being obliged to hire a registered accountant. To register an MEI the only conditions are the CPF and the availability of a doing business permit or alvará.

Nevertheless the MEI does not apply to all trading categories, just the ones listed by the Brazilian Ministry of Social Welfare, others must apply for Microempresa status.

More detailed information about how to set up a small Brazilian business (ME, PPE or MEI) can be found on the Sebrae website, and before setting up any company in Brazil it is always advisable to get professional help, but the rewards in this growing market can be great.