Branch or subsidiary in Brazil?

Here is part of an email exchange with a potential client. 

We were discussing the differences between having a branch in Brazil or incorporation a new company, owned and controlled by a foreign entity. 

• What is the procedure to create a branch. What has changed lately?

​The branch (filial) requires express approval by the Federal Government. This is not a new procedure. The approval has been required for decades. 

The changes in procedure are regarding the new model of power of attorney that must be used. But this is a relatively small change.  

• How much time does the special approval take (on top of the usual time for incorporation of a new company)?

​Between 40 to 60 days. ​

 

• How could a new company be controlled by a foreign investor?

​The procedures for incorporation of a new company with foreign partners are, broadly speaking, the same procedures required to open a regular Brazilian company, with Brazilian owners. Therefore, we will avoid the need for Federal approval, which is part of the process of creating a branch.

The new company would be owned and controlled by the Swiss company. It would also need another partner, which can be another Swiss company, a Swiss investors or a Brazilian investor. 

Please notice that the new company may be 100% owned by Swiss investors. There is no need for a Brazilian partner.

• Is there any down side of using a subsidiary (new company) instead of a branch?

​Basically, no. ​

 

​The Brazilian entities would work just the same. Actually, a new company is subject to less government control and scrutiny than a branch. ​

• Would it be legal for the investing company abroad and the new company in Brazil to conduct transactions and have financial ties?

​Yes. They would be subject to the exact same rules (transfer pricing rules, tax rules, etc.) that would apply over a transaction between an investing company and its branch in Brazil.

• How long does it take to open a new company? 

​About 60 to 90 days, depending on the amount of documents to be translated. ​

Incorporating a Brazilian company, step by step

There are several posts in this blog dealing with company incorporation.

For example:

Practical Guide - Incorporating in Brazil

How to incorporate a Brazilian company through foreign direct investment

List of documents for setting up a company in Brazil

Power of Attorney for setting up a company in Brazil- new rules

But, since it is not easy, the readers are always asking fo better instructions.

I have drafted a more detailed guide that indicates which actions are to be performed by the investor and which ones will be done by my team in Brazil.

I  hope it helps. Please take a look:

You can also download it here.

New Brazilian investment guide - Brazilian Agency for promotion of exports

SEE ALSO:
How to incorporate a Brazilian company through foreign direct investment
List of documents for setting up a company in Brazil
Power of Attorney for setting up a company in Brazil

Apex, the Brazilian agency for promotion of exports, has published a new Investment Guide to Brazil.

The material is beautiful.  The agency in charge of the design did good work.

Compared to the earlier versions, I think that the legal part has  improved. It is more detailed and fairly close to reality.  The main slides regarding company incorporation are reproduced below.

The problem with this guide is excessive optimism and misleading information. For example, it lists as "Tax Incentives"some programs that are, in reality, very limited in scope.

It is also a publicity piece, with government agencies fighting to shine in their respective areas.  Brazilian Development Bank (BNDES) almost convinced me that obtaining loans is easy.

If you already know Brazil, I don't think the guide will add much. If you are a beginner, go for it (link below):

INVESTMENT GUIDE TO BRASIL 2014

Investing x importing - Just to prove that I'm a genius in economic and legal analysis

Do you need  proof that this blog is putting some serious effort in interpreting Brazil for you?

On November, 2012, I wrote the article below:

Why do they invest in Brazil if importing seems so cheap right now?

And concluded that:

 Half the world knows that the Brazilian Real is way too appreciated right now. This is not going to last forever. (Some anticipate an exchange rate crisis somewhere in the next 3 years).

It is 2013 now. I see imports getting more and more expensive, now that the Real has started to come closer to its real value. 

So, when are you going to invest in Brazil?  

When you do, make sure to read: How to incorporate a Brazilian company through foreign direct investment

*By the way, the genius part may have been an overstatement. Let's just say I read the official economic forecast by the Federal government and always bet on the opposite. 

Brazil closer to international registration of Marks

Brazil has taken the very first steps towards entering to the 

Madrid System for the International Registration of Marks. 

This will avoid accidents such as the recent scandal of iphone brand "stolen" by a Brazilian company.

The procedure for approval has just started, and may take many years to be completed. It is a legal update most needed for Brazil, which is already to enter the information age, at least under a legal perspective. 

CISG is closer to entering into force too. 2013 is being a good year. 

Power of Attorney for setting up a company in Brazil

SEE ALSO:

NEW RULES FOR POWER OF ATTORNEY - 2017

Incorporating a Brazilian company, step by step
How to incorporate a Brazilian company through foreign direct investment
List of documents for setting up a company in Brazil


--------------

Dear Mr. Adler 

I have read your blog "List of documents for setting up a company in Brazil" dated 19 November 2012 on the website http://brazilianlawblog.blogspot.nl/2012/11/list-of-documents-for-setting-up.html#uds-search-results.
 
For an assignment at my university in the Netherlands (setting up a LDTA and I have chosen Brazil as country of corporation) I would much appreciate if you could forward me the "power of attorney to a Brazilian representative" referred to in your blog for information, and if possible, please advise which "powers" are mandatory according to Brasilian law.
 
To my understanding two power of attorney's (PoA's) need to be granted to a legal representative resident in Brazil:

·    one for corporate purposes; and

·    one for tax identification number purposes (CNPJ/MF). 

Is this correct?

If so, could you please provide both PoA's?

Looking forward to hearing from you.

Kind Regards,

Lieke

--------------------------

Hello Lieke, 

Thank you for your contact. 

I don't usually provide models.

Regardin the PoAs, there are two contractual relationships that need attention. The first is the more general one, where the grantor gives the agent powers to incorporate a company. 

Since incorporation of a company involves several agencies in Brazil, this PoA will usually be explicit about powers to represent the grantor before many agencies, including the Brazilian Revenue Service (Receita Federal), where the CNPJ is granted. 

The second Power of Attorney (which is usually granted within the same document) may or may not be given to the same person that receives the first one.

It is mandatory, for the law states that any foreign investor in Brazil must have, permanently, a local representative with powers to receive court summoning. This is mainly to avoid delays in summoning should the foreign investor be actioned in any lawsuit here in Brazil. 

Please draft a template and I will review it for you. 

Good luck in your studies. 

Adler

_____________

Hello Adler,

Thank you for your responding to my email!

Your help is much appreciated, thank you for clarifying.

I hope you don't mind me asking you some more questions.

While searching the internet I came across another PoA - please refer to the following: http://www.sec.gov/Archives/edgar/data/1439746/000114420411056375/v236335_ex10-10.htm.

This other PoA seems to be more broadly written, e.g. to attend and vote for, in the name of Grantor, in all and any meetings + appoint officers + etc.

The differences between it and your mail are a bit confusing. 

Should I indeed assume many sorts of PoA templates are used in Brazil?

If so, how do I know which one should be used in practice?

More importantly; how many and which absolute powers should a legal representative be given (in accordance with Brazilian law)?

OR - do the differences between the two templates relate to:

a) there being PoA's which only relate to powers to incorporate a company; and
b) there being PoA's which relate to powers to incorporate a company AND to grant powers once the company has been incorporated?

If this is stretching your kindness too far, I will completely understand!

Kind Regards,

Lieke

______________

Dear Lieke, 

Basically, there is no standard template for a Power of Attorney. You will find hundreds of models, covering from very specific acts to virtually all possible powers.

(Actually, it is funny you ask. Only a foreigner would make such a question. In Brazil we are used to not having anything standardized. Not that this is good. In fact, it is very bad for business. But it is a reality.)

I'm forwarding this email to Mr. Nuno, my colleague, who will help you with your other doubts. 

I'd like to ask your permission to post those messages in my blog, since the discussion is getting interesting. 

Regards, 

Adler

________________

Dear Adler,

Thank you for your response and for forwarding my message to Mr. Nuno.

I would certainly not mind if you post the messages in your blog.

Best Regards,

Lieke

-------------


RELATED POSTS:

Verifying a Brazilian Power of Attorney - Question from Korea

SEE ALSO:

Incorporating a Brazilian company, step by step

How to incorporate a Brazilian company through foreign direct investment

List of documents for setting up a company in Brazil

Power of Attorney for setting up a company in Brazil