Brazil is one of the most complex places to set up and run a business, according to a ranking released Monday by TMF Group, an international consultancy focused on business development worldwide.
For the second year running, Brazil tops the ranking in TMF’s Global Business Complexity Index, which measures the complexity of establishing and operating businesses — that is to say, of complying with accounting and tax obligations — in 77 countries and territories.
Brazil’s position in the ranking has worsened in recent years. There are several reasons for this. Some are methodological, as accounting has gained more weight in the introduction the changes that Brazilian legislation has impacted, while in the context of the pandemic retraction of certain regulations, have also had an subsequent pandemic.
The consultancy also highlights the obligations that companies must meet as a result of the Brazilian authorities’ increasing transparency requirements.
More changes mean less predictability, which in turn affects the level of complexity of owning a business in Brazil.
While, on the one hand, there has been progress thanks to the digitalization process driven by the Covid pandemic, on the other hand, it remains challenging to open and close a business in the country.
It can take up to 45 days to open a company in the country and more than nine months to dissolve it.
This data differs from that recently released by the Economy Ministry’s Secretariat for Productivity and Competitiveness, which calculated that it now takes less than a day to open a company in Brazil, because TMF takes into account more aspects than just the opening process itself and also considers the complexity faced by international companies and investors.
Although there has been a reduction in jurisdictions requiring companies to pay corporation or income tax worldwide, Brazil’s complexity remains high.
To operate in Brazil, multinational companies must register a legal entity, known as the Cadastro Nacional da Pessoa Jurídica, or CNPJ, and create a tax ID, in addition to selecting their tax regime and paying taxes at both the state and municipal levels. Corporations must also have a resident as a representative, which adds to the complexity for international investors.
The glass half-full side to this is that Brazil’s gigantic consumer market — a population of 213 million — can sometimes justify all the effort.
“Brazil is still a leading market in key segments and a great place for investments in general — companies worldwide are aware of this. The challenges of operating here can be daunting at first, but with all the country has to offer, this state of mind changes quickly for those looking for good investment opportunities.
Assets under management in Brazil are at an all-time high, and we see moves towards a more global approach when it comes to managing entities,” says Rodrigo Zambon, managing director at TMF Brazil.
Tax reform and simplification will likely be an inevitable issue to tackle the government that takes office in 2023, whoever wins the elections next month.
High levels of complexity and bureaucracy to keep a business running appear to be a regional characteristic in Latin America. Eight countries in the region are in the 20 most complex of TMF’s 2022 ranking.
Peru, for example, climbed 21 positions in the list. According to TMF, this follows the political unrest of the past six years, with corruption cases leading to caretaker governments. The election of President Pedro in 2021 has contributed to uncertainty due to a perceived lack of political experience.