This post is intended to provide some key information about the business environment in Brazil (especially in the city of São Paulo) for foreign individuals or companies looking to set up an entity in Brazil.
Company Formation
The most common type of entity in Brazil is a limited liability company (called “Limitada“) which can be set up with a single shareholder or multiple shareholders.
The shareholders may be foreign individuals or foreign entities, but non-resident shareholders must be represented by a resident in Brazil. The administrator of the Brazilian entity (called “Administrador“) may reside in Brazil or abroad. If the Administrador resides abroad, a representative resident in Brazil must be appointed with powers to receive judicial and administrative notices for at least three years after the end of the administrator’s term.
The basic steps to set up a “Limitada” in Brazil are:
- The shareholders should provide some documents, such as the passport (if individuals) or its bylaws (if entities);
- The shareholders should grant a Power of Attorney to their legal representative in Brazil;
- The documents above must be Apostilled in the country of issuance and then sent to Brazil in order to be sworn translated and registered in the public notary;
- The Articles of Association of the Brazilian entity should be drafted with all important aspects of the company, such as the company’s name, address, object and purpose, share capital, shareholders’ rights and obligations, appointment of the “Administrador“, etc.;
- The Articles of Association should be signed by the legal representative and then registered at the Public Registry of Mercantile Companies (JUCESP);
- The Brazilian entity should be registered in several other bodies, such as the Federal Revenue (CNPJ), Brazilian Central Bank (Bacen), Municipality of São Paulo (CCM), etc.
Once the company is formed it starts to incur several tax obligations, so it is very important to hire an accountancy firm to take care of all tax, accounting and payroll obligations in order to avoid penalties.
The next steps are usually to open a corporate bank account and call up the share capital, which should be paid up by the shareholders by way of an international wire transfer registered at the Brazilian Central Bank.
Tax Regimes
In Brazil, there are 3 different tax regimes on a federal level:
- Simplified Tax Basis (“Simples Nacional”);
- Presumed Tax Basis (“Lucro Presumido”);
- Real Tax Basis (“Lucro Real”).
The “Simplified Tax Basis” is not available for entities with foreign shareholders, so we will not cover this topic in this post.
We will explain the main differences between the other 2 tax basis, which can be freely chosen by the entity at the beginning of each year.
Presumed Tax Basis
The Presumed Tax Basis, as its name suggests, is a tax regime by which the Corporate Income Tax (“IRPJ”) is charged on a presumed profit equivalent to 35.2% of the company’s Gross Revenues (for the provision of services) or 8.8% of the company’s Gross Revenues (for the sale of goods). The tax rate of the IRPJ is 25%, which is applied on the presumed profit. In other words, the IRPJ is calculated as follows: Gross Revenues x [35.2% or 8.8%] x 25%.
There is another tax, similar to the Corporate Income Tax, called Social Contribution on Net Profit (“CSLL”) but in this case the presumed profit is 35.2% for services and 13.2% for the sale of goods; and the tax rate is 9%. Therefore, the CSLL is calculated as follows: Gross Revenues x [35.2% or 13.2%] x 9%.
There are 2 other Federal Taxes in Brazil called PIS and COFINS which are charged on the Gross Revenues of the company (similar to a VAT). The combined tax rate is 3.65%. Therefore, the PIS and COFINS (combined) are calculated as follows: Gross Revenues x 3.65%.
Usually, the company will also be charged a Municipal Tax (called “ISS”) on the provision of services or a State Tax (called “ICMS”) on the sale of goods. These taxes vary a lot depending on the type of service or goods sold (but usually range from 5% to 18%). However, these Municipal and State Taxes will not depend on the chosen Tax Basis (“Presumido” or “Real“) – these taxes will be exactly the same regardless of the chosen tax regime.
Real Tax Basis
Under the Real Tax Basis, instead of presuming the net profit of the company, the taxes IRPJ and CSLL are calculated on the actual profit of the company. The tax rates are exactly the same as in the Presumed Tax Basis – the difference is on the taxable base only.
The IRPJ is calculated as follows: Profit Before Tax x 25%
The CSLL is calculated as follows: Profit Before Tax x 9%
As for the PIS and COFINS there are also some changes. The combined tax rate is 9.25% (almost 3 times the rate of the other regime) but the company may take tax credits on certain costs and expenses. Therefore, the calculation is as follows: [Gross Revenues – Certain Costs and Expenses] x 9.25%.
As said before, the Municipal Tax (“ISS”) and the State Tax (“ICMS”) are the same under “Presumido” and “Real” and they vary a lot depending on the type of service or goods sold.
Presumed vs. Real Tax Basis
The following table summarizes the differences between these 2 tax regimes:
| Taxes | Presumed Tax Basis | Real Tax Basis |
| IRPJ | Gross Revenues x [35.2% or 8.8%] x 25% | Profit Before Tax x 25% |
| CSLL | Gross Revenues x [35.2% or 13.2%] x 9% | Profit Before Tax x 9% |
| PIS/COFINS | Gross Revenues x 3.65% | [Gross Revenues – Costs and Expenses] x 9.25% |
| ISS/ICMS | Vary according to the type of service or goods sold (usually range from 5% to 18%) | |
Therefore, a good rule of thumb is: if the net profit of the company is greater than 30% (for services providers) or 10% (for sellers of goods) the preferable tax regime would usually be the Presumed Tax Basis. On the other hand, if the profit of the company is significantly less than those percentages, the Real Tax Basis is usually preferable. Lastly, when the net profit is close to those percentages, the 2 tax regimes will be more or less the same.
Note: Brazil is transitioning to a new consumption tax system. From 2027 to 2033 (transition period), the taxes PIS, COFINS, ISS and ICMS will be replaced by the CBS and IBS. The tax rates have not been defined yet.Tax on Dividends
Since January 2026, dividends paid or credited to shareholders outside Brazil are generally subject to 10% withholding income tax. Transitional rules and applicable tax treaties should be reviewed before a distribution.
Main Tax Obligations
It is important to hire a local accountant to prepare and file all tax obligations in due time. The following is a summary of some of the main tax obligations on a Federal level:
| Tax Obligation | Frequency | Content | General Deadline |
| DCTFWeb | Monthly | Federal tax debts reported through eSocial, EFD-Reinf and MIT | Last working day of the following month |
| EFD-Reinf | Monthly | Withholding taxes and other specified information | Generally the 15th day of the following month |
| eSocial | Monthly and event-based | Employment, payroll, payment and health and safety information | Depends on the event; monthly payroll is generally closed by the 15th |
| FGTS Digital | Monthly | Employee severance fund calculated from eSocial information | Generally the 20th day of the following month |
| EFD-Contribuições | Monthly | PIS and COFINS assessment | 10th working day of the second following month |
| ECD | Annual | Digital accounting bookkeeping | Last working day of June of the following year |
| ECF | Annual | Corporate income tax information | Last working day of July of the following year |
Please note that we are simplifying the explanation of the Brazilian tax system because otherwise this post would have hundreds of pages. There are several nuances and other tax rules related to, for example, transfer pricing, capital gains, property tax, excise tax, importation taxes, withholding taxes, financial transaction taxes, etc.Hiring Costs
Hiring an employee in Brazil requires a lot of attention due to the complexity of the Brazilian labor laws and the risk of labor suits. On top of the labor laws, there are Collective Bargaining Agreements signed by the Labor and Trade Unions which create additional burdens for the companies.
Brazil has a high volume of employment litigation. According to the Superior Labor Court, the Labor Courts received 4,090,375 cases and appeals in 2024, the highest volume in twenty years.
Main labor rights
The basic labor rights in Brazil are:
- Salary shall never be reduced;
- Limit of 44 work hours per week;
- Overtime payment with an addition of 50% to 100%;
- Thirteenth salary (i.e. one additional monthly salary per year);
- Paid holidays of 30 days per year with an addition of 33.33%;
- Severance fund called “FGTS” (i.e., the company deposits 8% on top of the monthly salary into a special fund under the employee’s name);
- Transportation vouchers, when applicable, with an employee contribution of up to 6% of the base salary, limited to the cost of the benefit;
- Other mandatory benefits on the Collective Bargaining Agreements, such as an annual mandatory salary increase to allow for the inflation, meal vouchers, life insurance, etc.
Most companies offer additional benefits to their employees to be more competitive in the hiring process. These include meal or food vouchers, health and dental plans, life insurance, and bonuses. The benefits offered and their values vary significantly depending on the business segment, union category, position, and region.
Payroll taxation
The main payroll taxes are as follows:
- Personal Income Tax (IRRF) withheld from the employee, which ranges from 0% to 27.5%;
- National Insurance (INSS) withheld from the employee, which ranges from 7.5% to 14%;
- National Insurance (INSS) charged on the employer, which ranges from 26.3% to 28.8%.
Therefore, due to the several labor rights and taxes involved, it is difficult to say exactly what the total hiring costs will be. But a good rule of thumb would be twice the base salary of the employee. For example, if the base salary of an employee is BRL 10,000.00/month, the total cost to the company could be something around BRL 20,000.00/month. At the same time, the employee will receive a net payment of around BRL 7,500.00 + benefits.
Hiring through a legal entity (PJ)
In some industries, companies engage professionals through their own legal entities, known as a PJ arrangement, instead of hiring them as CLT employees. This is often intended to reduce payroll and benefit costs and allow the professional to receive a higher net amount.
This arrangement can be valid when the service provider is genuinely independent. However, if the daily relationship has the characteristics of employment, such as personal and regular services, payment and subordination, a court may recognize an employment relationship and order retroactive payment of vacation, 13th salary, FGTS, overtime, social security charges and other amounts.
Hybrid work and working hours
Many companies have adopted hybrid work arrangements, combining office and remote workdays. The arrangement should be documented in the employment contract or in an amendment. Brazilian labor law is generally stricter than that of other countries regarding the employer-employee relationship. For example, companies must record each employee’s working hours in order to calculate overtime, remote work does not eliminate exposure to overtime claims, and time bank arrangements must comply with applicable union rules.
Termination costs
A termination without cause may involve salary through the termination date, notice of at least 30 days and up to 90 days according to the employee’s length of service, proportional 13th salary, accrued and proportional vacation plus one-third, FGTS on the applicable amounts and a 40% FGTS termination penalty. Collective Bargaining Agreements and protected employment periods may create additional costs, and disputes may still arise even when the termination amounts are paid.
Labor compliance
Labor compliance in Brazil is complex and involves sending payroll-related events to the government through a system called eSocial, including payroll processing, tax and social charge calculations, time records, vacation periods, applicable union rules and Collective Bargaining Agreement information, inflation-related salary adjustments, and occupational health and safety requirements. Many events have short deadlines and may affect payroll, social security, FGTS, and labor records at the same time.
Conclusion
The business environment in Brazil is complex, especially in relation to taxes, payroll and labor compliance.
This, however, should not be a reason not to invest in Brazil. It does mean that the company should plan its structure, tax regime, hiring model and internal processes before starting operations.
It is important to be diligent when operating in Brazil, relying on good accountants and lawyers, especially in the first stages of the Brazilian entity.
