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. ​

Has Eike and the "X" group mislead investors? My analysis

READ ALSO:  Eike Batista's OGX Austria and OGX Netherlands: left out of bankruptcy, but why do they exist?

Brazilian (not so) timid take on transnational jurisdiction: OGX Austria included in the Brazilian bankruptcy

I have been asked by Alternative Emerging Investors, a magazine, to evaluate OGX's relevant facts, in order to evaluate the claims that are being made against the company.

Please find the article below. I think it is very interesting.

If you have any comments, please leave them at the end of the post, or write me at contato@adler.net.br.

Note: This is just an exercise. I'm not connected to OGX or to any investors that has claims against the X group.

__________________________________________________________________________________________________________________________________________________________________

__________________________________________________________________________________________________________________________________________________________________

This article has originally been published at the fourth installment of - Alternative Emerging Investor.

To subscribe or purchase this issue, please visit www.aeinvestor.com, or contact Ms. Tiffany Swenson at tiffany@aeinvestor.com.

How much land may a foreigner purchase from the Amazon forest?

See also:

São Paulo Court allows purchase of rural land by foreigners

No to purchase of land by foreigners. Uruguay joins Brazilian sad club

Brazil and Argentina have restricted land acquisition by foreigners

Draft bill allows the purchase of land by foreigners

A smart and intrepid young man plans to purchase a large estate in Brazil, in order to pursue his objectives. Please read my comments on his plans, and on the limitations Brazil might impose on it. 

_______________

Dear Adler,

I read you previous post on the restriction imposed on foreigners regarding rural land acquisition in Brazil

However, foreigners (like me) have long bought rural land in Brazil! 

The primary restriction is on the purchase of extremely large (multi square miles, ) properties. 

Look it up!

Regards, 

Charles Francis Xavier

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

Hello Charles,  

I most certainly know that foreigners can purchase small properties. But the properties that are interesting for business, usually the very large ones, can't be purchased by foreigners directly, only through the incorporation of a Brazilian company.

Recently, the government has tried to prohibit companies owned by foreigner to purchase 

land. The decision I have shared has ruled such prohibition as unconstitutional.

Regards,

 Adler

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

Adler,

Few companies or individuals- other than huge agrobiz and/or land speculators (sometimes the same thing)- would be interested in the many hundred thousand hectare properties (10000 m2/hectare) foreign purchase of which the law is designed to regulate and (possibly, but not necessarily) restrict.

 Surely 99% of all foreign rural land purchases never had nor now have the slightest restriction. Except, perhaps, those promoted by somewhat over  eager lawyers. 

Regards,

Charles

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

Dear Charles,

Being very clear: the law allows for the purchase of up to 3 "modules of land" by a foreigner. 

Such modules vary in size from city to city. In some cities in the São Paulo State, 3 modules would be about 15 hectares. Not too small, but no so big.  

In other cities in the extreme North of Brazil, 3 modules would be as much as 210 hectares. 

Undoubtedly big, but still a much smaller than the large properties used for soy or sugar cane, which can easily reach 10 thousand hectares.

The biggest farms in Brazil have more than 200 thousand hectares.  

There is no comprehensive and reliable data comparing the purchase of land by foreign individuals x the purchase of land by Brazilian companies with foreign capital. However, since  the size of the properties that may be freely purchased is not so big, I would not bet on the 99% figure you have presented.   

15 hectares might be sufficient for an individual looking for retirement, or planning to grow a  small crop. But is not a suitable size for many kinds of large scale plantations: eucalyptus, for  instance.  

Regards, 

 Adler