Branch or subsidiary in Brazil: why most foreign companies incorporate

When a foreign company decides to operate in Brazil, one of the first questions is whether to open a branch of the parent or to incorporate a Brazilian subsidiary. In many countries the two are close substitutes. In Brazil they are not. A branch needs a federal authorization before it can start, every change to the parent’s own bylaws has to be approved again, and the parent answers directly for everything the branch does. This short guide compares the two routes and explains why almost every foreign group ends up with a subsidiary.

What a branch is under Brazilian law

A branch (filial) is not a new company. It is the foreign company itself, operating in Brazil through a local establishment. The Civil Code sets the basic rule in article 1,134: a foreign company, whatever its purpose, cannot operate in Brazil without authorization from the Federal Executive, even through subordinate establishments.

Today the authorization requests are examined and decided by the National Department of Business Registration and Integration (DREI), under Normative Instruction DREI 77/2020, except where specific legislation gives the power to another federal body. The request is filed online through the federal government portal.

What it takes to open a branch

The DREI rules ask for a set of documents from the parent company, including:

• the parent’s resolution approving the operation in Brazil, stating the activities the branch will carry out and the amount of capital assigned to Brazil, in Brazilian reais;
• the full text of the parent’s bylaws or articles, and proof that it is validly incorporated in its home country;
• the appointment of a representative in Brazil, a power of attorney with powers to accept the conditions of the authorization, and the representative’s declaration accepting them;
• the parent’s latest balance sheet; and
• proof of payment of the federal fee.

Documents issued abroad must be legalized (by apostille, for countries that are party to the Hague Convention) and translated by a sworn translator.

Once the authorization is granted, it is published in the Federal Official Gazette with the capital assigned to the operations in Brazil. Only then can the branch be registered with the commercial registry (Junta Comercial) of the state where it will be based. The registration requires proof that the assigned capital has been deposited in cash in a bank. Under article 1,136 of the Civil Code, the branch cannot start its activities before this registration.

What comes with a branch after it opens

The obligations do not end with the authorization. Under the Civil Code and the DREI rules, a branch:

• must keep a permanent representative in Brazil with powers to resolve any matter and to receive service of process on behalf of the company (article 1,138);
• operates under the parent’s own corporate name, and may add “do Brasil” or “para o Brasil” (article 1,137);
• needs the Executive’s approval for any change to the parent’s articles or bylaws to have effect in Brazil (article 1,139);
• must republish in the Federal Official Gazette, and in the state gazette where applicable, the balance sheets, income statements and management acts that its home-country law requires it to publish, and publish the balance sheet and income statement of the Brazilian branch itself, under penalty of having its authorization revoked (article 1,140); and
• is subject to Brazilian law and courts for the acts and operations carried out in Brazil (article 1,137).

For a multinational group, the point about the parent’s bylaws is often decisive. Every amendment approved at headquarters, in any jurisdiction, becomes a filing in Brasília before it is valid for the Brazilian operation.

How a subsidiary compares

A subsidiary is a Brazilian company, usually a limited liability company (Ltda), whose quotas are held by the foreign parent. It is registered directly with the Junta Comercial, with no prior federal authorization. Since the 2019 reform of the Civil Code, a single foreign company can hold all the quotas (article 1,052, paragraph 1).

What about taxes?

For income tax purposes, the difference is smaller than many expect. The Income Tax Regulation treats branches, agencies and representations in Brazil of foreign companies as legal entities for tax purposes (Decree 9,580/2018, article 159, item II). In practice a branch keeps Brazilian books and pays corporate income tax and the other taxes on its Brazilian activity, as a subsidiary does. Neither can use the Simples Nacional regime.

Two points deserve a specific analysis. First, royalties and technical assistance paid by a branch to its own head office. The old rules that barred or limited the deduction of these payments were revoked from 2024 by the transfer pricing law (Law 14,596/2023, article 46). Since then, such payments must follow the arm’s length principle and cannot be deducted when the deduction would result in double non-taxation (article 44). Second, the treatment of branch profits under the new 10% withholding on dividends paid abroad in force since 2026. The 2018 Regulation, written before that change, treats branch profits as automatically received by the head office without withholding (article 757). How it interacts with the new rule should be confirmed case by case. For subsidiaries, see our article on Brazil’s 10% tax on dividends paid abroad.

When a branch can still make sense

A branch is not forbidden, and in some sectors it is the expected format, for example where a regulator or a client requires the foreign entity itself to hold a license or sign a contract. For most operating businesses, however, the authorization step, the dependence on approvals for every change at headquarters, the publication duties and the parent’s direct liability outweigh the benefits. That is why the subsidiary is the default route. Our guide on how to set up a subsidiary in Brazil walks through it step by step.

How Solidy can help

Solidy already serves subsidiaries of multinational companies in Brazil. Our consultants help foreign groups compare the routes for their specific case, set up the chosen structure and keep it compliant with accounting, tax and reporting obligations. Talk to our consultants.