Looking to Brazil to Expand Your Business? Keep These 5 Things in Mind
By Rich de la Rosa, Director, Advisory Services, Americas
Brazil as an expansion target isn’t as hot as it was a little over a year ago, but it’s still a market of interest for many companies. As the country readies itself for its dual coming out to the world — hosting the 2014 World Cup and the 2016 Olympics — many American businesses have discovered that Brazil is fertile ground in a time of stagnant growth at home: One-third of Fortune 500 companies invest directly here already. According to World Bank estimates from January, the country’s economy is expected to grow 3 percent in 2013 — twice the rate of the U.S. economy. Though the past couple months have brought signs that its short-term growth prospects might be softening, Brazil’s long-term prospects remain strong. In 2012, Brazil overtook the UK as the world’s 6th largest economy.
With a domestic market of 200 million people benefiting from low unemployment, Brazil is an attractive place to expand your business — especially as Europe careens from one crisis to the next. But Brazil is still in the process of moving away from a protectionist past, and any international expansion involves cultural barriers. So if you’re gazing southward, keep these 5 things in mind:
1. Brazil is a protected country.
Though the environment is slowly changing, the longstanding culture of protectionism provides advantages to local businesses.
2. Do your homework.
You’ll want to research your tax options. Brazil has a notoriously complex system, including two different income tax determination options for businesses: Actual (or Real) Profit when a company is taxed based on profit earned, and Presumed Profit, where taxes are based on a fixed percentage of gross revenue.
3. Avoid Contractors.
By opting to use contractors instead of hiring employees in Brazil, you can put your business at a disadvantage. Brazilian labor law highly favors its workers, so properly setting up an entity to employ individuals offers much more protection in the cased of labor claims, which are very common.
4. Choose the entity that’s right for you.
When you set up an entity in Brazil, you have the choice of establishing a limitada or an S/A. A limitada, similar to a limited liability company, is easier to set up and more flexible. An S/A, similar to a corporation, is suited to more complex operations. Branches are seldom used due to their highly-bureaucratic setup process.
5. Brazilians are social.
This means that you should communicate face-to-face when possible. While email is a mainstay in American business culture, Brazilians put a much higher value on the personal relationships that develop from in-person communication. Negotiations, planning and more are often conducted over face-to-face, more social activities.
Keep these in mind and you’ll be well on your way to toasting the opening of your first Brazilian office over cold caipirinhas.
Ready to dig deeper? Check out the : “Doing Business in Brazil: Common Pitfalls and How to Avoid Them,” or contact Radius.