By Tiságoras Mariani, Lucas Euzébio and Layon Lopes*
Brazil is on the list of the top 20 countries in the world ranking of startups, according to a survey carried out by StartupBlink in 2020. Entrepreneurs are frequently opening companies in Brazil, but they often do not know how the country works and what care needs to be taken. Therefore, the purpose of this article is to give some tips on how to start a business in Brazil.
In any country in the world, for your business to be successful, you need a business plan. Brazil is a country of continental dimensions with different cultures, and therefore, it demands special attention, because depending on the product to be offered, it can be accepted in certain regions, and not others. Therefore, in addition to defining the business plan, it is essential that the entrepreneur knows the Brazilian public and checks if there is a cultural fit with the product to be offered.
The website Conta Azul gives a nice example about this: A revolutionary product that promises to heat a house in a few seconds may be a success in the south of the country, but it will certainly be a failure in the northeast. Before investing, the entrepreneur must make a rigorous study of the market. In addition to identifying future customers and their needs, presenting real solutions for them, the entrepreneur must know the services and prices practiced by the competition. In this way, he will be able to develop his differential to stand out in the market.
Regardless of the place, for a company to be successful, it is necessary to offer what can really solve consumer problems. Then think about how you can do this and what are the benefits of your product or service.
Hire a Brazilian law firm
If you are interested in opening a business in Brazil, it is essential that you hire a Brazilian law firm to help you structure the company and thus ensure that your business runs smoothly, avoiding the most frequent legal mistakes made by Startups in Brazil.
Brazil is known for being a very bureaucratic country, so you need to be surrounded with professionals that can help you in many areas, such as: corporate law, labor law, tax law, property law, compliance and data privacy. If you start your business in Brazil without legal assistance, you will probably have problems in the short term.
Moreover, if you want to open a fintech company in Brazil, you should know that you’ll be obligated to follow some regulatory rules from the Brazilian Central Bank, National Monetary Council etc.
For a company whose activities are regulated by any of the referred regulatory bodies, to act in Brazil it must have authorization. The process of authorization requires a lot of impositions regarding the implementation of a compliance program to ensure and guarantee that the company will follow the law related to the security of its activity. If you want to know more about it, we recommend an article about the Compliance Program.
Hire a Brazilian accountant
Tax regime in Brazil is complicated, with several peculiarities and restrictions, and if you choose the wrong tax regime, you might have legal and operational problems.
So, it is very important that the entrepreneur, before opening a business in Brazil, hire an experienced accountant to help make the best decisions and, in the long term, be safe.
Know your business costs
Depending on the location where you will open your business in Brazil, whether city or state, you will have different costs according to the reality of each region. If you open a business in the cities of São Paulo or Rio de Janeiro, which are the best known and most structured cities in Brazil, your costs will be much higher than in other Brazilian capitals, such as Porto Alegre, Florianópolis or Belo Horizonte.
Consequently, your costs with suppliers, employees and structure will depend on the location where you want to open your business.
Nowadays, remote work is popular in Brazil. Many companies have realized that it is possible to keep their employees telecommuting without any damage to their businesses, as in addition to not having to spend on physical space, they can hire employees from other locations. There is also the fact that employees have the freedom to carry out their activities wherever it suits them best.
So, you can start your business in a cheap city in Brazil and hire employees to work from home, that will help you with the bureaucracy costs.
Find an investor to help grow your business in Brazil
For you to start a business in Brazil, it is essential that you are surrounded by people with knowledge of the market and who can help the company financially so that the kick-off is given. Because of this, it is always important to seek an investor for your business to grow in Brazil.
It is important for you to know that foreign capital is permitted in Brazil. According to Apex Brazil, foreign capital may freely enter Brazil and is not subject to prior approval by the government and there are no conditions in respect of the total amount of investment that can be made in Brazil, with a small number of exceptions, such as: Healthcare services (unless an exception is expressly provided for by law), aerospace, financial institutions etc.
However, foreign investors are required to register all inflows of foreign capital into Brazil with the Brazilian Central Bank within 30 days of the funds entering Brazil.
If you are an American citizen, you should visit the U.S Embassy & Consulates in Brazil website available in this link.
Regarding the ways to invest in Brazil, the most popular instrument for this kind of inversion abroad is convertible notes, directly inspired by the North American ones. Technically, they consist of an instrument of debt, issued by the startup in favor of the investor, from a loan previously made by the investor to the startup. The investor, in turn, has the possibility of being paid off by the conversion of their credit into equity interest on the startup, instead of receiving the amount in cash. Therefore, the startup will have to issue new shares, which will be owned by the investor, in order to fulfill its obligation towards the investor.
If you want to know more about this, you should visit this article: how to set up a startup in Brazil.
Define the location
As said before, Brazil is a country with continental sizes, with 26 states and a Federal District. The Brazilian Constitution established federal, state and municipal taxes, so it is important for you, interested in opening a business in Brazil, to define the best location for you to open the company based on that city and state that can offer more benefits and, at the same time, with strong economic growth potential, being very important, therefore, for you to hire a law firm.
Be aware of the cost of living and the Brazilian economy
Faster Capital published that one important factor to be considered before opening a business in Brazil is the cost of living, because it can be quite expensive to operate a business in Brazil. The same website said that, additionally, the Brazilian economy is very unstable and there is a high chance that it will continue to be so for the foreseeable future, which means that businesses must be prepared for potential economic setbacks, which can impact their bottom line.
It is very relative to the “cost” of living in Brazil. If you open a limited company (LTDA), the most common type of Company in Brazil, the cost will be cheaper than a Corporation (S.A). Moreover, the cost of living in Brazil depends on where you will open the company. For example: the cost of living in São Paulo is higher than Porto Alegre or Florianopolis.
Unfortunately, the Brazilian economy is unstable, however, the country is the biggest economy in Latin America, and it is the leader in investments, attracting 41% of direct investment in Latin America.
Every country has problems, and Brazil isn’t different. However, being aware of the risks and equipped with the tips given in this article, the probability of success increases.
If you want to know more tips on how to open a business in Brazil, send us a message here on the website or in our social networks, because we can help you!
*Layon Lopes is the CEO of Silva | Lopes, Euzébio is a partner and Tiságoras Mariani is a member of the Silva | Lopes team.