By Daniela Froener and Layon Lopes*
Many entrepreneurs ask me what would be better, or less worse: exporting software to Brazil or opening a company in Brazil to license the software? How the opening of a tech company in Brazil can impact the company’s business model?
According to Brazilian law, whenever a service is imported from another country, the customer located in Brazil is responsible for paying the taxes levied on the service imported from the foreign company.
In other words, in addition to paying for software licensing, the Brazilian customer must pay to the Brazilian government the taxes that the foreign company that imported the software would pay if it were a Brazilian company.
The obligation to the Brazilian client to pay taxes related to the service provided by the company located outside of Brazil is a way that the Brazilian government found to encourage the hiring, by Brazilians, of Brazilian companies, being a way of promoting the national market. Therefore, it ends up being cheaper for the Brazilian customers to hire software developed and licensed by a Brazilian company rather than hire software developed and licensed by a foreign company.
So, when we are talking about the business models of a company who licenses software to Brazilian customers, a strategic indication is to open a company in Brazil, for the Brazilian customers don’t need to pay the taxes involved, a situation that can increase sales and make the company more attractive to consumers, increasing revenue.
However, we cannot forget that starting a business in Brazil, such as opening a company, brings with it all the bureaucracy of opening and maintenance of the company (and if you didn’t know, Brazil is a very bureaucratic country), which should not only exist on paper, but should truly exist with employees, headquarters and electricity bills, for example.
Still, another point that can be negative about opening a company in Brazil is related to the law that protects consumers. It is obvious that when you have a Brazilian client, but your company is in another country, perhaps even in another continent, it is difficult for the client to sue the company for problems with your service provision.
However, in Brazil this situation is different because the access to justice for consumers in Brazil is very easy and without cost to a certain reduced value. In other words, when opening a company in Brazil, you must be prepared to comply with all national legislation as well as to respond to lawsuits filed by dissatisfied consumers.
Finally, we have good news: profits and dividends distributed by Brazilian companies to their foreign partners are exempt from income tax.
Thus, the decision to open or not a company in Brazil needs to evaluate these points: the burden of taxes on the Brazilian client; the amount of bureaucracy faced by the company; and, the cost that will exist with the consumer lawsuits.Always hire local advisors who can help you in this important decision and in the opening and maintenance of a company in Brazil.