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International Taxation: how do foreign companies invest in Brazil?

In the globalized, interconnected and increasingly transparent world we live in, issues related to international taxation have become one of the biggest challenges in day-to-day business.

So today, we’re going to talk about international taxation and how to find more effective solutions.

First of all, let’s define the concept of international taxation:

What is international taxation?

In short, international taxation is the establishment of tax administration rules that compete with each other to preserve the tax base, by introducing mechanisms that must be replicated by countries.

In addition, there are connecting criteria in international law that are important for assessing conflicts of laws in space, such as:

residence;

domicile

nationality;

source;

and others.

Brazil has one of the highest tax burdens in the world. To get a better understanding, the Brazilian tax burden is equivalent to 35.04% of GDP.

Similarly, we have one of the most complex tax systems in the world, which is already difficult for Brazilians to understand. Imagine, then, for foreigners.

What does it take and how can a foreign company invest directly in Brazil?

Law 4.131/62 stipulates the treatment of foreign investment and its respective definition:

Art. 1 Foreign capital is considered, for the purposes of this law, to be goods, machinery and equipment, brought into Brazil without an initial outlay of foreign currency, destined for the production of goods or services, as well as financial or monetary resources, introduced into the country, for application in economic activities provided that, in both cases, they belong to individuals or legal entities resident, domiciled or headquartered abroad.

Thus, foreign capital invested in the country can enjoy the same legal treatment as domestic capital under the same conditions, and any discrimination is prohibited (article 2 of Law 4.131/62).

It is important to note that before the first inflow of funds from Brazil, the registration of foreign capital in the country is mandatory and must be registered with the Central Bank.

In terms of taxation, foreign direct investment capital entering the country is not taxed, except at the IOF rate.

Having explained direct investment, let’s now take a look at the second type of investment by foreign companies.

How can a foreign company come to Brazil?

For a foreign company to come to Brazil, it can:

● Open its branch in Brazil;

● Or become a partner in an existing Brazilian company.

Basically, these are two different ways of achieving the same result, each way has its own particularities, but the second option can tend to reduce bureaucracy.

In terms of taxation, subsidiaries of international companies must be registered with the commercial board, the state treasury and the city hall. Consequently, their taxation methods are the same as those applied to Brazilian companies.

However, the possible differences are related to the remittance procedure abroad. Even so, there won’t be any rules that differ from Brazilian companies, since the principle of international taxation is to aim for non-discrimination between countries.

With regard to tax incentives, it is possible to negotiate with the Brazilian government to obtain an agreement before the foreign company enters Brazil – it can be municipal, state or federal. And the impact of this is a huge gain for the organization.

So, in this interconnected world, international tax issues have increasingly become a business challenge.

Here, you’ve seen some basics about international taxation and the main points that a foreign company needs to be able to invest in Brazil.

Zanini Auditoria has a team specialized in this subject and if you have any questions, just call us on +55 019 3475-7070 and talk to us!

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