How tough it is to do business in Brazil (not only for foreigners)
By Mark Hillary
I knew that I would need a company in Brazil so my income from writing books, journalism, blogs, and advisory work could all be channeled into a single place. This has become IT Decisions, which is a limited company registered in São Paulo run by my wife and I, but with a large team of writers and translators all contributing to what we do.
Getting to the point where I could say I was on the board of a Brazilian company was quite a journey and I don’t want to bore you with some of the more tedious details, but here are some of my observations on the very strange company law system in Brazil.
First, the entire system is awash with bureaucracy. Just registering a company takes months and requires an enormous amount of paperwork. It is essential to have a knowledgeable accountant or lawyer to guide you through the process because it is not as simple as choosing a company name, listing the directors and – boom – you have a company.
I recall sitting with my accountant at a cartório one day. I had to complete some additional forms because I was a foreigner and wanted to sit on the board of a Brazilian company. I was fed up that the process was taking so long and once one set of forms had been completed, another needed to be done. I showed my accountant while we were waiting in line to sign a form that I could start a British company on my phone in less time than it took for me to get my signature verified in the cartório.
She actually did not believe me, even though I had gone ahead and set up a company using the web browser on my phone and stopped only at the point that I needed to pay the registration cost – which was only about $50.
One of the big complexities with the system in Brazil is that every industry – or type of company – is assessed for tax at different rates. So when registering a company you need to write a detailed description of what exactly you do and if the description falls between the blurred edges of two industries then the description gets filed and you just have to wait and see what kind of tax rate you are going to end up with.
With my own company it was difficult because we engage in a number of activities and wanted to have all the services running from a single organisation. It was possible in the end, but it took a lot of creative writing effort and research by the accountant to make sure we could describe the company in a way that satisfied the authorities.
Companies in Brazil are heavily scrutinised by the unions, tax authorities, and city, state, and federal bodies all want to know what you are up to. Once a company is up and running – even a fairly small company like mine – you need to endlessly report to the authorities. Brazilian companies do not just file accounts at the end of the financial year, there is an ongoing obligation to detail what is going through your books.
Practically this means that my company has to file dozens of reports a month to various authorities, and pay corporation tax on our revenue received in the previous month. Once the company becomes bigger, it becomes possible to start offsetting cost against revenue, but for the small and medium sized players it is just a straight tax on whatever hits your business account.
And the goalposts are always moving. New reports are needed and old ones are scrapped or changed. There is no way I could run my company and also manage the accounts. It’s normal in the UK and USA to have an accountant to help with a small business, but usually just when you need to prepare end of year reports or for other specific filings. In Brazil, you need constant ongoing support from an accountant that will monitor any changes in the law and will file everything you need to get filed.
The lesson I learned from all of this is that you need to find a trustworthy accountant. The accountant is going to guide you through all the paperwork needed to launch a company and then be there as an ongoing presence because of all the reports that need to be filed once you are trading.
The accountant that I first asked for help never bothered calling back when they had promised to, but looking back I think this was a good thing. They had a big impressive office in a smart district of São Paulo and though this might be assuring it is ultimately the client who is paying for all those coloured lights in the office garden.
A friend once asked me why I bother getting paid in Brazil when I could just use offshore accounts and probably dodge all my taxes. I replied that I would rather sleep easy at night and know that I am paying my share for the roads, schools, and hospitals in the country. There is a big difference between asking your accountant to make sure we are paying a reasonable amount of tax and asking your accountant to set up an offshore fund in the Caribbean so we can get paid with anyone in Brazil knowing about it.
Mark Hillary is a British writer who moved to Brazil almost three years ago. He has continued to write books about technology, work, and globalisation along with writing for the media from Brazil. His tenth book was just released last month and explores his own experience of being a foreigner who moved to Brazil, started a publishing company, bought a house, and how it was difficult, but possible. The book is called ‘Reality Check: Life in Brazil through the eyes of a foreigner’ and is available on Amazon here.