Doing business in Brazil
Brazil is an attractive location for companies looking to invest in South America, containing roughly half the region’s wealth. However, the complex business environment and high costs can make doing business in Brazil a challenge. The key to successful expansion is a thorough understanding of the economic system and the regulations that companies need to follow.
Brazil, officially the Federative Republic of Brazil, is the fifth largest country in the world by size and the largest in South America, with a territory spanning around 8.5 million square kilometres.
The country is comprised of 26 states (estados) and one federal district (distrito federal), which is the seat of the government and the nation’s federal capital, Brasilia. Brazil has the tenth largest gross domestic product (GDP) and the eighth largest purchasing power parity in the world. It contains an estimated US$21.8 trillion of natural resources including gold, uranium, iron and timber.
Brazil is a member of several important global economic organisations including MERCOSUR (the Southern Common Market), the Union of South American Nations (UNASUR), the G20, the World Trade Organization (WTO) and the Cairns Group.
In recent years, the Brazilian government has implemented a raft of business reforms with the aim of simplifying processes for foreign companies. These include user-friendly online portals for registering business licences and a new law that encourages parties to settle disputes with mediation.
While it is an attractive market for foreign investors, it is also a complicated one, with the country ranking as the third most complex business environment in the world in TMF Group’s Global Business Complexity Index (GBCI) 2026.
Doing business in Brazil therefore requires a thorough understanding of the local environment, including the complex accounting and tax processes and the increased operational costs associated with certain business activities, referred to in Portuguese as the “Custo Brasil”.
Business opportunities in Brazil
In 2018, the Brazil Competitiveness and Inclusive Growth Lab report by the World Economic Forum found that too much dependence on its large domestic market and commodities exports had caused the country to fall behind other emerging markets in terms of productivity growth.
However, Brazil’s economy is now on the path to recovery, thanks in part to a number of government initiatives launched to achieve fiscal sustainability and liberalise the market. This has made it a far more attractive environment for international investors.
Brazil is investing heavily in new infrastructure projects, such as the construction of new highways, ports and airports. These investments are expected to boost economic growth by increasing productivity, creating jobs and improving transport and logistics.
These efforts have strengthened Brazil’s competitiveness and boosted private sector development, resulting in a spike of interest from international companies that have long sought to expand into Latin America’s largest economy and tap into its lucrative consumer market of more than 200 million people.
Despite the challenges of doing business in Brazil, it remains the top destination for companies looking to invest in South America as it is home to approximately half of the region’s wealth. The US is now one of the largest exporters to Brazil and also one of the leading sources of foreign direct investment (FDI).
While the country was hit hard by the Covid-19 pandemic, it prompted the government and businesses to modernise their practices, such as the use of electronic documents for a wider range of business activities.
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Historically, the best places for doing business in Brazil have been Sao Paulo and Rio de Janeiro, two cities located in the south-east of the country that have typically offered the most opportunities.
More recently, other locations have emerged as appealing hubs for those seeking to start businesses in the country. According to research by the National School of Public Administration (ENAP) in 2022, the best cities for entrepreneurship now include Florianopolis and Curitiba.
Brazil’s economic system
Business rules and requirements are complex and change frequently, so potential investors must build a thorough understanding of the country’s dynamic economic system.
A corporate taxpayer identification number, known as a CNPJ (corporate) or CPF (individual) number, is required for non-residents that own certain properties or have rights in the country, including the right to have equity interest in Brazilian entities. The Banco Central do Brasil, the country’s central bank, actively monitors and regulates all foreign exchange transactions that move money in or out of Brazil.
While Brazil is open to foreign investment, there are a number of sectors that are restricted to nationals or require government oversight. These include financial institutions, press and broadcasting services, airlines with domestic flight concessions, postal services, private security, transport and nuclear energy.
Challenges of doing business in Brazil
Navigating Brazilian bureaucracy can be a daunting challenge. The country has multiple layers of administration, featuring a large number of government departments and agencies.
A lack of understanding of these processes can lead to costly delays in operations and quickly increase overheads. To succeed in Brazil, you will need to be agile and prepared to respond quickly to any changes as they emerge. To help you better understand the potential pitfalls, read our article on the top challenges of doing business in Brazil.
Brazil’s complexity is due in part to the country’s legacy of comprehensively protecting local businesses and their employees, which has resulted in a plethora of local rules and regulations. Brazil’s tax environment is another key contributing factor, with various taxes levied at each level of government, meaning tax rates differ from state to state and from city to city.
Corruption is another complication. Despite encouraging signs of progress in recent years, the country continues to have a reputation for unethical business practices. Companies operating in Brazil must therefore implement robust anti-corruption measures, actively promote transparent and ethical business practices and stay vigilant to mitigate any corruption risks.
Accounting and tax in Brazil
Accounting and tax considerations are perhaps the most complex and risk-sensitive aspects of operating in Brazil. While recent reforms and digitalisation initiatives have improved transparency and enforcement, they have also significantly increased compliance obligations and exposure to penalties.
Brazilian companies are required to maintain statutory accounting records in accordance with Brazilian GAAP (BRGAAP), which is largely aligned with IFRS, following convergence promoted by the Brazilian Accounting Pronouncements Committee (CPC).
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When it comes to corporate tax, Brazil’s system is characterised by multiple overlapping taxes, levied at federal, state and municipal levels, with different rules, tax bases and reporting requirements.
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| The combined effective corporate tax burden is therefore approximately 34%. Companies may also opt for different tax regimes, depending on size and activity. These include: |
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Indirect taxes and VAT reform in Brazil
| Historically, Brazil’s indirect tax system has been one of the most fragmented in the world, including: |
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| Brazil has now approved a landmark tax reform (Constitutional Amendment No. 132/2023) that will profoundly reshape indirect taxation over the next decade. The key elements include: |
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While these reforms aim to simplify the system in the long term, the transition period will significantly increase complexity, requiring parallel tax calculations, enhanced Enterprise Resource Planning (ERP) capabilities and robust tax governance.
Transfer pricing and international taxation
Brazil implemented a new transfer pricing framework aligned with the OECD standard, effective from 1 January 2024, replacing the long‑standing fixed margin methodology that historically distinguished Brazil from international practices. Under the new regime, transactions between related parties must comply with the arm’s length principle, bringing Brazil closer to global transfer pricing norms and increasing consistency with multinational groups’ global tax policies.
The new rules introduce significantly higher compliance requirements, including mandatory functional and economic analyses, benchmarking studies and enhanced documentation standards.
From a strategic perspective, multinational groups operating in Brazil must now reassess intercompany pricing models, documentation processes and governance structures to ensure full alignment with the OECD‑based framework.
Taxation of dividends
Under Law 15,270/2025, effective 1 January 2026, Brazil reintroduced the taxation of profits and dividends distributed by legal entities. As a result, dividends paid or made available from 2026 onwards are generally subject to a withholding tax (IRRF), marking a structural shift from the long‑standing exemption regime previously applied to shareholder distributions.
For Brazilian resident individual shareholders, dividend distributions remain exempt up to R$50,000 per month per paying company. When this threshold is exceeded, a 10% IRRF applies to the full amount distributed, not only to the excess. For foreign shareholders (individuals or legal entities), dividends are subject to a flat 10% IRRF regardless of the amount or jurisdiction of residence, except for specific statutory exemptions. The Brazilian paying company is responsible for withholding, reporting and remitting the tax, including compliance via tax obligations.
The law also establishes transitional relief for accumulated profits. Profits generated and properly recorded up to 31 December 2025 remain exempt from withholding tax, provided the distribution is formally approved by that date and paid in accordance with the approved terms, no later than 31 December 2028. From a corporate perspective, the new rules increase the cost of cash repatriation and require companies and investors to reassess dividend policies, timing of distributions and overall tax planning strategies.
HR and payroll in Brazil
With unemployment standing at around 7.5%, the Brazilian labour environment is very competitive. The Federal Constitution and Consolidated Labour Laws (CLT) govern employment in Brazil and guarantee every Brazilian employee a number of rights, including the right to protection against arbitrary dismissal, maternity and paternity leave and occupational insurance.
In addition, the CLT strictly prohibits any kind of discrimination in employment. Employees’ rights are guaranteed by law and cannot be suppressed, reflecting the constitutionally mandated paternalistic ethos of the Brazilian labour system.
In 2018, the Brazilian government simplified the reporting process of employment and tax-related information for private employers with a new digital bookkeeping system called eSocial.
eSocial is a prominent part of the Brazilian government’s SPED initiative and was conceived as a way to strengthen the government’s ability to enforce employment laws, reduce fraud, promote administrative transparency and make the reporting process smoother for both employers and the tax authority.
According to the Brazilian payroll system, employers are obliged to deduct certain payments at source in each pay cycle – including alimony, pension plan contributions, income tax and social security contributions – which they then pay to the authorities. Employees in Brazil are taxed at a progressive rate of between 7.5% and 27.5%, depending on their salary.
Residency status affects the amount of income tax paid in Brazil with residents taxed on all global income, while non-residents are taxed only on income sourced from within the country.
Social security in Brazil is a social insurance scheme where workers make monthly contributions. These contributions guarantee insured workers an income when they can no longer work or have retired. The social security fund is compulsory and is comprised of contributions from employers (a 20% payroll contribution), employees (7.5 to 14% of salary) and the federal government, through social contributions and fiscal budget receipts.
The regulatory environment in Brazil
There is a wide range of business regulations in Brazil that foreign companies must familiarise themselves with. One of the most complex challenges is the country’s extensive labour regulation, which is known for its lack of flexibility and oppressive tax aspects. Much of the labour law dates back to the 1940s, though a series of reforms in the last few years have provided employers with more flexibility and led to a relaxation of strict unionisation requirements.
The government is also taking steps to introduce reforms aimed at making Brazil’s business environment more welcoming and to ease operational complexities. In 2019, for example, the government instituted the Economic Freedom Act, which has reduced bureaucracy for businesspeople and legal entities. Some of the most important innovations introduced include streamlining processes to establish new companies and their branches, and the waiving of business licences for commercial activities that are considered low risk.
The Brazilian Anti-Corruption Act (Lei anticorrupcao), commonly referred to as the Clean Company Act, was applied in August 2013 to encourage better business ethics in Brazil.
Starting a business in Brazil
A limited liability company (sociedade limitada, limitada, or Ltda) is the most commonly used company structure in Brazil, with around 90-95% of companies registered this way. It is also the most widely used form of business representation by foreign investors.
Starting and operating a business in Brazil is complex, requiring an in-depth understanding of all the rules and regulations. To operate locally, you will need to navigate the long process of incorporation. You can read about the five main steps in our guide to incorporating in Brazil.
The entire process can take between 60 and 90 days, not including the time needed to open a bank account, which can also be a troublesome and time-consuming process due to Anti-Money Laundering (AML) and Know Your Customer (KYC) rules.
TMF Group helps companies set up their business in Brazil while staying compliant with the latest local regulations. Our local experts will assist with your company setup and ongoing growth.
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