A foreign company deciding to start operations in Brazil usually faces one question before all others: what should the entry structure be?
There is no single answer.
For many foreign groups, incorporating a Brazilian company controlled by the parent — usually a limited liability company (Ltda.) — is the simplest and most flexible path. In other situations, there may be specific reasons for the foreign company itself to operate in Brazil through a branch. And when the goal is not to start from scratch but to acquire market, contracts, a team, assets, technology or existing licenses, acquiring a Brazilian company can be a more efficient alternative.
The three structures produce quite different legal, tax and operational consequences. That is why the choice should precede the incorporation of the company, not follow from it.
Brazilian subsidiary: the most common alternative
In practice, one of the structures most used by foreign groups planning a permanent operation in Brazil is the incorporation of a Brazilian company controlled by the foreign company.
The company is incorporated under Brazilian law and has its own legal personality. The foreign parent holds its capital as quotaholder or shareholder.
The limited liability company — Ltda. — is usually particularly suitable because of its flexible governance. It can currently be formed by a single member, including a legal entity, and the DREI Registration Manual itself expressly contemplates the participation of a foreign legal entity.
This means that, except for specific restrictions arising from the activity carried out, there is no need to find a Brazilian partner merely to incorporate a subsidiary in the country. There are, however, activities and situations subject to restrictions or specific requirements for foreign participation, which need to be analyzed before the structure is defined.
When the subsidiary usually makes sense
It tends to be the natural starting point when the foreign group intends to:
build a Brazilian operation from scratch;
hire employees locally;
enter into contracts directly in Brazil;
import or sell products;
receive investments from the parent;
establish local governance;
legally separate the Brazilian operation from the foreign company;
develop a long-term presence in the country.
The subsidiary also allows the relations between the parent and the Brazilian operation to be structured more clearly: capital contributions, intragroup financings, technology licensing, service arrangements, distribution of results and governance rules can be organized from the outset.
This design, however, should not be done by corporate counsel in isolation. Corporate purpose, tax regime, financial flows, intragroup agreements, licenses and the operating model need to speak to each other.
A perfectly incorporated company can be a bad structure if it was designed before understanding how the business will actually work.
Can the foreign company be the sole owner?
In principle, yes.
A Brazilian limited liability company may have a single member, and that member may be a foreign legal entity, subject to the rules applicable to the activity carried out and to the investor’s documentation.
A legal entity domiciled abroad that holds capital in a Brazilian company must also observe the Brazilian registration rules. The Federal Revenue Service treats equity participation in a Brazilian legal entity as one of the situations requiring the foreign entity to enroll in the CNPJ (corporate taxpayer registry), and the Central Bank maintains the Non-Resident Declaratory Registry — CDNR — including to enable the identification of the foreign legal entity as a direct investor.
It is also necessary to deal correctly with the representation of the foreign entity in Brazil and with the corporate documentation coming from abroad.
This apparently administrative stage deserves attention: insufficient powers of attorney, improperly formalized foreign documents, inconsistencies in names or powers of representation can delay precisely the moment when the operation should begin.
Must the officer live in Brazil?
Not necessarily.
Current rules allow, including in limited liability companies, an officer resident abroad. In that case, however, a representative resident in Brazil must be appointed with the powers required by the business registration rules, including to receive service of process for the applicable period after the end of the term of office.
So the question is no longer simply "must a Brazilian be appointed?" but a more useful one: what management design makes sense for the operation?
In some groups, keeping a parent-company executive as officer preserves control and alignment. In others, a local officer makes banks, contracts, licenses, employment relations and day-to-day operations easier. It is a governance decision — not merely a registration one.
Branch of the foreign company itself: a different structure
A branch should not be confused with a subsidiary.
With a subsidiary, there is a Brazilian company distinct from the parent. With a branch, it is the foreign company itself that starts operating in Brazil through a local establishment. That difference has important consequences.
Brazilian law requires prior authorization for a foreign business company to operate in the country through a branch, agency or establishment. The procedure is currently conducted before the DREI, based, among other rules, on articles 1,134 et seq. of the Civil Code and DREI Normative Instruction No. 77/2020, as amended.
The process involves documentation of the foreign company itself, a corporate resolution on establishing in Brazil, indication of the activities to be carried out, capital allocated to the Brazilian operation and appointment of a representative in the country, among other requirements. Foreign documents must also comply with the applicable formalities to be effective before the Brazilian authorities.
In addition, later amendments to the foreign company’s constitutional documents may affect the authorization regime of the Brazilian branch.
Does that mean a branch is a bad structure?
No. It only means it should not be chosen because the word "branch" sounds simpler than "incorporating a Brazilian company."
In certain sectors, contracts, international structures or regulatory situations, operating directly through the foreign company can have a concrete justification. But for an ordinary business operation seeking a permanent presence in Brazil, it is important to carefully compare the branch with the incorporation of a Brazilian subsidiary before deciding.
The most legally direct form is not always the most operationally simple structure.
Acquiring an existing company: entering Brazil without starting from scratch
There is a third alternative that is often forgotten in the initial discussion: buying an operation that already exists.
If the investor is looking not merely for a legal presence but for market, revenue, contracts, employees, clients, technology, facilities, licenses or distribution channels, an acquisition can considerably reduce the time needed to build an operation. It is the logic of buy versus build.
But the gain in speed comes with a fundamental difference: when a new company is incorporated, you essentially start with a new structure. When you buy an existing company, you also buy its history. And that is exactly why an acquisition requires proper due diligence.
Buying the quotas or shares does not erase the company’s past
In a share deal, the investor buys equity in the existing company. The legal entity remains the same. If it has contracts, employees, licenses and assets, they stay in the same company — which is precisely one of the advantages of the transaction. But its liabilities and contingencies remain as well.
Due diligence must therefore identify what does not appear in the most obvious financial snapshot: tax and labor contingencies, regulatory problems, contracts with change-of-control clauses, litigation, environmental issues, intellectual property, compliance and obligations not adequately reflected in the financial statements.
The result of that analysis is not only for deciding whether the company should be bought. It also serves to structure price, holdbacks, escrow, indemnities, warranties, conditions precedent and, eventually, the very decision between acquiring the company or specific assets.
And does buying only the assets solve the problem?
Not always.
An asset deal can allow the investor to select what it wants to buy — certain equipment, contracts, intellectual property or establishments — without directly acquiring the quotas of the selling company. But that does not automatically mean there is no successor liability.
The Civil Code provides, for example, for the liability of the acquirer of a going concern for certain prior debts duly recorded. Tax law contains its own liability rules for the acquisition of a business or establishment, and labor law also governs business succession situations.
That is why an asset deal is not synonymous with a liability-free transaction. The structure must be analyzed in light of the assets acquired, the continuity of the activity, the employees involved, the contracts and the nature of the existing liabilities.