Key practical considerations for companies investing in Brazil

As the global economic landscape evolves and technology advances, Chinese manufacturing enterprises are actively seeking optimal strategies for global expansion. But in the face of escalating geopolitical tensions and rising trade protectionism, reliance on exports alone no longer meets strategic needs. An increasing number of enterprises are choosing to establish overseas manufacturing facilities to better serve international markets.

This case study of investment in Brazil examines the key legal and labour policy considerations that Chinese companies should address during the feasibility study phase of considering investment, providing practical guidance for corporate decision making.

Q: What is the legal framework for foreign investment in Brazil?

A: In Brazil, a Limitada company is similar to limited liability companies, limited partnerships and private companies under English and US law. Generally, a Limitada must comply with the Brazilian Civil Code and its articles of association. It is also subject to other relevant legislation, such as the 1976 Brazilian Corporations Law.

Liability overview. If the company’s capital has been fully paid in, partners (investors) are liable for the company’s obligations only up to the amount of their capital contributions. If the capital has not been fully paid in, all partners are jointly liable for the unpaid portion. In addition, partners may be held liable for losses caused to the company due to negligence or wilful misconduct, or for failure to comply with legal or statutory obligations. The general rule limiting partner liability to paid-in capital may not apply in certain circumstances, most commonly in relation to tax, labour and social security liabilities.

Partners (investors). Prior to mid-2019, a limited liability company was required to have at least two partners, who could be individuals or legal entities, Brazilian or foreign. But, following enactment of the Economic Freedom Law in 2019, a Limitada may be established by a single partner, who may be an individual or a legal entity, Brazilian or foreign. All partners must be registered as Brazilian taxpayers with the Federal Revenue Service. Foreign legal entities must also register with the National Register of Legal Entities (CNPJ) and the Central Bank of Brazil. Registration with these authorities is required for foreign entities to hold assets in Brazil.

Legal representative. Under Brazilian law, foreign investors must appoint a resident legal representative in Brazil and formally grant them authority to receive legal documents and act on behalf of the foreign entity.

This power of attorney must be issued before the foreign entity registers with the CNPJ, enabling the representative to participate in company matters as a partner, such as attending meetings and exercising partner rights, and to interact with government agencies on behalf of the foreign entity.

Company capital. There is no statutory minimum capital requirement for establishing a limited liability company. However, it is generally advis-
able for the initial capital to be sufficient to meet the company’s operating needs until it generates revenue.

Q: What is the Brazilian policy on labour and associated dispute resolution?

A: General provisions of labour law. All foreign employees working in Brazil, including Chinese managers assigned to the country, are subject to and protected by Brazilian labour law. Foreign employees must obtain the appropriate work visa, with the specific visa category determined after a preliminary analysis of the scope of work.

Brazilian labour law generally favours employee protection. The principle of employee protection is the main rule in handling labour law conflicts, employment contract changes and employment relationship issues.

Regulations on wages and working hours. Employers with more than 10 employees must record employees’ working and rest hours. The standard workday is eight hours, with four hours on Saturdays, and the standard workweek is 44 hours.

Working hours exceeding these limits are considered overtime and must be paid at a rate of at least 1.5 times the regular wage. These rules do not apply to: (1) external employees (those working outside the employer’s premises whose working hours cannot be tracked); (2) home-based employees hired on a task basis; and (3) employees in positions of trust (typically managers, directors and supervisors).

Termination of employment. Employers may dismiss employees at any time without cause – except for a few protected employees – provided that at least 30 days’ notice is given (with an additional three days for each year of service). Employers may also choose to pay wages in lieu of notice.

Employees have up to two years after the end of the notice period to bring claims against their employer and may assert rights retroactively for up to five years from the date the claim is filed.

Labour dispute resolution: mediation and arbitration. Employees may bring claims against their former employer within two years after the end of the notice period, asserting rights retroactively for up to five years from the date of filing.

Brazilian courts generally refuse to enforce waiver and arbitration clauses on public policy grounds. As a result, disputes are usually resolved through the judiciary. Labour litigation is common, with nearly four million labour disputes filed annually.

However, recent labour law reform has introduced new rules allowing arbitration in the following circumstances: (1) the employee’s monthly salary exceeds BRL15,572 (USD2,735); (2) the employee holds a university degree; and (3) the employee consents to arbitration.

Ryan Pan is a partner and April Li is an associate at Ronly & Tenwen Partners