Offshore Company In Brazil

1. Why Brazil?

After fifteen years of macro-economic policy based on the three pillars of inflation targeting, floating exchange rate and primary fiscal surplus, the Brazilian economy displays clear signs of stability with regard to external accounts and public finances. Further more, since 2003, there has been increasing evidence of improved performance in production, sales, exports and employment. This scenario reveals and development, and favors the fulfillment of the main objectives of the Brazilian government in its quest for social justice. Brazil's current development trajectory requires further public policies aimed at increasing economic efficiency and reducing external vulnerability, along with measures to stimulate investment and savings as proportions of GD(Gross Domestic Products). The government has contributed to the recovery in demand, for example by stimulating credit and temporarily reducing tax rates. Inflation is falling as a result of a sound fiscal policy that has allowed the public debt to be significantly reduced in recent years. GDP grew by more than 1.9% in the second quarter of 2009, showing that the economy is bouncing back, and Moody's recently be came the third major credit- rating agency in eighteen months to award Brazil investment grade status, citing the solidly and resilience of the Brazilian economy in the face of the global financial crisis.

2. Legal Framework

Brazil's legal frame work is based on the Federal Constitution, 1988./ In its 250 articles it will be found the citizens' fundamental rights and guarantees, the political and administrative organisation of the federal Republic of Brazil, the individual spheres of authority of the executive, Legislative and judicial branches, the out lines of the Brazilian tax system and the fundamental labor rights, among other matters. Constitutional rulings are hierarchically superior to those of any other law. The legislative authority of the federal government, states and municipalities is specified and laid out in the Federal government, states and municipalities is specified and laid out in the Federal Constitution, thus avoiding the issuance of redundant or conflicting laws by each sphere of power. Federal laws take precedence and are hierarchically superior to any state or municipal law. The federal government has the exclusive authority to legislate on civil, commercial, penal, procedural, labor, electoral, agrarian  maritime, aeronautical and space matters. Its also exclusively Federal the authority to rule on matters such as expropriation energy, telecommunications, insurance, foreign trade, nationality and citizenship among others.

3. Banking

The National Monetary Council (CMN). formulates monetary and credit policy and it includes representatives from both the government and the private sector. The Central Bank of Brazil (BACEN) administers monetary policy through specific mechanisms.

4. Financial Regulatory Authority

Administrative monetary policy by CMN is controlled through the following mechanisms:P establishing reserve requirements (compulsory deposits) for the commercial banking system; purchasing or selling government securities on the open market; determining the BACEN and setting the primary interest rates for the economy. Loans for longer terms are granted by the following entities; Government financial entities; foreign private banks, in foreign currency equivalent; and multinationals to their subsidiaries. Foreign loans are subject to registration before BACEN (Brazilian Central Bank).

5. Taxation

5. a. Corporate Tax

Brazilian companies are subject to corporate income tax on their worldwide income (including capital gains). Brazilian corporate income tax is charged at a 15% rate, with a surtax of 10% applicable to profits exceeding Rs240,000 a year. In addition, Brazil imposes a social contribution tax on corporate profits. the social contribution tax works similarly to income tax and it is charged at a 9% rate.

5. b. Personal Tax Rates

Residents of Brazil are taxed on their worldwide income. Non-residents are taxed on their Brazilian-Source income only. The rates of personal income tax are 15% and 27.5% (those who receive up to Rs 1.499,15 per month have exempt). Capital gains are taxable at a rate of 15%.

5. c. Social Security

Social Security Contributions (INSS), on monthly Salary: paid by employer (26% to 30%); paid by employee, depending on the salary (amount may not exceed Rs 375,81 7.65% to 11%. Severance Pay Indemnity Fund (FGTS) on monthly salary: 8%.

5. d. Customs & Excise Duties

As a MERCOSUL member, Brazilian customs follow the MERCOSUL customs procedures. In general, goods from MERCOSUL members states are subject to VAT, while goods outside the MERCOSUL are subject to Customs and Excise rules. Capital goods (from any country), in general, and tax-free from Customs and Excise duties.

5. e. V.A.T.

Federal VAT (imposto sobre productos industrialzados or IPI) is charged on imports of goods, on the first sale of imported goods and on transactions involving manufactured goods (0% to 365%(cigars) rate) Exports are tax exempt. State VAT (Imposto sobre operacoes relatives a circulacao de mercadorias e sobre prestacoes de services de transporte interestadual e intermunicipal e de comunicacoes or ICMS) is levied on the import of goods and on the movement out of imported and manufactured goods, even if between branches of the sale legal entity 

(7% to 18%, depending on the state). Exports are tax exempt. ICMS paid on imports as well as on local acquisitions generally becomes a tax credit to offset ICMS due on subsequent transactions. Special rules apply to the offset of ICMS tax credits associated with the acquisition on fixed assets. Social Integrated Programmer (PIS) and Social Security Financing Contribution (COFINS) taxes, levied on gross income (1.65%-PIS and 7.6%- COFINS). The tax is a non-cumulative tax for certain taxpayers; certain companies are subject to the cumulative system and the rates are 0.6%-PLS and 3%-COFINS. The tax is also levied on imports (1.65%-PLS and  7.6%-COFINS).

5. f. Tax Incentives

Brazil provides a large list of incentives. The main incentives are: Tax Incentives in the Northeast States and the States of Amanzonas and Espirito Santo; Industrial and Agricultural Technology Programs; REPES and RECAP - Tax Incentives on Exports; Manaus Free Trade Zone (MFTZ) and Special Free Trade Zones. The Brazilian states and municipal districts also provide incentives for the ICMS (state VAT tax) and ISS (municipal tax).

Notes: Transfer Pricing rules apply only to cross-borders transactions between Brazilian companies and foreign related parties.

6. Main Types of Corporate Forms

The main corporate forms in Brazil are: Corporation (S/A) and limited liability company (LTDA). Corporations are similar in form to both US and European corporations. Limited liability companies are similar in form to European limited libility companies (such as French SALs and German GmbHs). Trusts are not recognized as entities under Brazilian law.

7. Company Incorporation

As a general rule, a Brazilian limited liability company (LTDA) may be established with in a 10 to 30 day period. A foreign equity investment must be registered with the BACEN with in 30 days to allow future repatriation of the original amount invested as well as payments of dividends in foreign currency. The companies are registered at Board of Trade (Commercial Registry) of the domiciled State, and automatically registered before the Internal Revenue Services (Federal Tax Office) and State Tax Office.

8. Reporting & Auditing

Both corporations and limited liability companies (limitadas) must hold annual general shareholders' meetings within four months after the end of their fiscal year. Public Corporations must have their financial statements audited once a year by independent auditors. Limited liability companies are not subject to audit requirements. Corporations must prepare and publish their financial statements, they are not required to publish them. All Brazilian companies must file annual tax returns based on their consolidated results for the calender year.

9. Special Notes / Country Update

Companies operating in Brazil have started the countdown to the 2010 mandatory adoption of the IFRS standards, where banks will be required to adjust to the Basel II standards for a revised international capital framework.