In franchising and expansion in the US, Brazilian companies that want to franchise or open operations in the US basically follow two routes: structuring their own operation (LLC or C-Corp) with L-1 or E-2 visas, or converting the model into a franchise offering with FDD.
Each route requires corporate, immigration, state, and tax compliance, including transfer pricing documentation. We offer comprehensive consulting services at each of these stages, from entity selection to state registration.
In summary:
- Those testing market acceptance in the US can start with their own operation; franchising grows with third-party capital, but requires standardized processes and careful selection.
- The L-1A visa requires a qualified corporate relationship between companies; the E-2 visa requires nationality of a treaty country and at least 50% ownership or control.
- U.S. entities with at least 25% of foreign ownership, including sole proprietorship LLCs, must file Form 5472 regarding related party transactions.
- The FDD requires 23 items, contracts, and audited or reviewed financial statements; the FTC mandates delivery to the applicant 14 days prior to signing or payment.
- Operating physically in another state requires local registration; fees can exceed US$300, so consider recurring costs, not just setup costs.
Index
- Franchising and expansion in the US: own operation or franchise the brand.
- Visas for franchising and expansion in the USA: L-1A, L-1B and E-2
- Franchising and expansion in the USA: corporate structure, Form 5472 and LLC or C-Corp
- Franchising and expansion in the USA: choosing the state and foreign qualifications.
- Franchising and expansion in the US: FDD and FTC rules
- Transfer pricing and contracts between companies within the same group.
- Timeline and costs of franchising and expansion in the US up to the first unit.
- Risk checklist for franchising and expansion in the USA.
- How does Naventia structure franchising and expansion in the US in practice?
- How we can help with your franchising and expansion in the USA.
- Frequently Asked Questions
- Sources
Own operation or franchise your brand in the US: which route makes sense?
Opening a wholly owned branch or subsidiary means forming an LLC or C-Corp, hiring local staff, and operating directly while maintaining full control over brand, pricing, and service. Franchising the brand means transforming your replicable business model into an FTC-regulated offering, selling units to third parties in exchange for royalties and entry fees.
The choice between the two depends on available capital, desired growth rate, and the operational maturity of the model.
- Owning your own operation requires more capital per unit, but preserves quality control and margin.
- Franchising scales faster with third-party capital, but depends on robust documentation and well-selected franchisees.
- Business models with processes already standardized in Brazil (food service, education, services) tend to adapt better to American franchising.
For companies still testing product acceptance in the American market, operating their own business is often the safest path before taking on the regulatory commitment of franchising.
Visas for expansion: what do L-1A, L-1B and E-2 visas require?
The choice of visa shapes the entire expansion timeline, because without immigration authorization there is no way to put a Brazilian executive in charge of the American operation.
- L-1A Transfers an executive or manager from a foreign affiliate to the US operation, requiring a qualified corporate relationship between the companies and, in the case of new office, This proves that the branch will have the physical space and financial capacity to support the function.
- L-1B It follows a similar logic, but for professionals with specialized knowledge, with its own rules regarding prior employment time abroad.
- E-2 requires the investor to be a national of a country with a trade treaty with the U.S. and to hold at least 50% of ownership or operational control over the substantial investment Done.
USCIS treats the ownership and control requirement on the E-2 visa as a disqualifying condition., It's not just a recommendation: without this minimum documented percentage, the application will not proceed. We detail the qualification options for Brazilians in... Guide to the E-2 visa.
Financial documents, lease agreements, and organizational charts from the parent company are typically required across all categories, and missing attachments are the most common reason for requests for additional evidence.
Corporate Structure and Form 5472: Choosing Between LLC and C-Corp
The type of entity you choose in the U.S. determines how the IRS treats your business for tax purposes and what level of accounting bureaucracy you undertake from year one.
- An LLC with a single foreign partner is treated by default as disregarded entity, However, you may choose to be taxed as a corporation using Form 8832 when this is more advantageous for tax planning.
- An LLC with more than one partner is treated as a partnership, unless otherwise chosen.
- A C-Corp pays its own corporate tax and allows for dividend distribution, a common structure for those planning to raise investment or go public in the future.
Any U.S. entity with 25% or more foreign ownership, including disregarded entities with a foreign sole proprietorship, must file Form 5472 detailing transactions with related parties. Failure to comply with this obligation results in significant penalties and draws unwanted attention from the IRS to the entire corporate structure between Brazil and the U.S. We address this point in depth in the content about... Structuring for Brazilians.
State choice and foreign qualification: what impacts ongoing costs?
The state where you incorporate your company is not just a formality: it determines franchise tax, annual reporting fees, and registration requirements that accompany operations every year.
- Delaware, Nevada, and Wyoming are popular for their flexible corporate rules, but this does not eliminate obligations in other states.
- Operating physically in a state different from the state of constitution requires foreign qualification, with a Certificate of Authority and, usually, a Certificate of Good Standing from the original state.
- Labor costs, local tax incentives, and industry-specific licensing requirements vary widely between states and directly affect the viability of a business.
Pro tip: Evaluate the total cost over a five- to ten-year horizon, not just the opening fee, because recurring franchise tax often outweighs the initial incorporation fee.
FDD and FTC rules for those who will franchise the brand.
If the chosen route is franchising, the central document in the process is the Franchise Disclosure Document, and without it, there is no legal sale of a franchise in the USA.
- The FDD (Franchisee Data Declaration) includes 23 mandatory items, including litigation history, fees, franchisee obligations, and franchisor financial statements.
- A The FTC requires the delivery of the FDD. at least 14 days before any contract signing or payment by the prospective franchisee.
- Audited or reviewed financial statements, as required in Item 19, are usually the factor that most convinces or deters serious investors.
- Franchise agreements and operational manuals need to be ready before publication, because the FDD (Franchise Disclosure Document) directly references both.
- The absence of declared litigation when it exists, or financial projections without a supporting document, are red flags that delay or stall regulatory approval in several states.
Preparing this set of documents requires a lawyer specializing in American franchising and, in most cases, months of work before the first contract is signed.
Transfer pricing and contracts between companies within the same group.
When the American operation purchases services, royalties, or products from the Brazilian parent company, the price charged between the two companies must comply with specific rules of the American tax authorities.
- IRC §482 requires that transactions between related parties follow the arm's length principle, as if they were negotiated between independent companies.
- The expected documentation includes functional analysis, a study of market comparators, and justification of the chosen method under the best method rule.
- Intercompany transactions without a formal contract or supporting documentation increase the risk of tax adjustments and penalties under Form 5472.
Poorly drafted intercompany contracts are one of the points that generate the most questions in audits, because they mix royalties, management services, and expense reimbursement without a clear separation.
Timeline and estimated costs for the first unit in operation.
Planning deadlines avoids the most common mistake: underestimating how much time each immigration and corporate step actually takes.
- Diagnosing the route (own operation versus franchising) and choosing a state usually takes two to four weeks.
- The formation of the entity and obtaining EIN (Economic Identity) proceed in parallel, generally completed within a few weeks of the decision.
- L-1 or E-2 visa processing varies by category and consulate, and is the most variable step in the entire timeline.
- Registration of foreign qualifications in the states where the operation will take place occurs along with the opening of a bank account and local hiring.
- Preparing the FDD, when applicable, is the longest step listed, as it depends on a full financial audit and legal review.
Foreign qualifications often require state fees that can exceed US$$ 300. This is just for registration purposes, not including fees for registered representatives and recurring annual reports. Parallelizing the company formation process with the visa application process reduces waiting times by months.
Risk checklist before franchising or opening an operation.
Some signs should stall the decision until they are resolved, regardless of the pressure for speed:
- Incomplete FDDs or financial statements without proper auditing expose the franchisor to regulatory scrutiny and loss of candidate confidence.
- Vague intercompany contracts or the absence of a transfer pricing study leave the structure exposed to retroactive tax adjustments.
- The undercapitalization of the American entity compromises both visa approval and the credibility of the operation with suppliers and banks.
- A lack of a business plan tailored to the local market, including sector-specific licenses and state requirements, often delays opening beyond the expected timeframe.
Pro tip: Treat each item on this list as a prerequisite, not as a detail to be resolved after opening the doors.
Naventia Perspective: How we structure this process in practice
In our experience, the greatest risk is not the lack of information about visas or entities, but treating each step as isolated when, in practice, visas, corporate structure, and tax compliance affect each other.
Choosing the wrong state compromises the foreign qualification budget; a poorly designed intercompany contract jeopardizes both Form 5472 and the defense in a potential audit. We work with experts living in the United States precisely to translate these dependencies into clear timelines and responsibilities before they become a problem.
— Flavio Inacarato
How we helped structure your expansion into the US.
We offer strategic consulting for entering the American market, covering company formation, tax planning, business visas, and asset structuring. We also assist in preparing the necessary documentation for franchise operations, including intercompany agreements and transfer pricing analysis related to Form 5472.
If you are evaluating which route makes the most sense for your company, learn more about our... internationalization services and schedule an initial assessment before committing capital or visa terms.
Frequently Asked Questions
Which visa is most suitable for franchising and expansion in the US with a company-owned branch?
It depends on the company's structure and available capital: the L-1A is used to transfer an executive or manager from an existing company, while the E-2 It requires nationality from a treaty country and substantial investment with operational control of at least 50%. The correct choice depends on the track record of the Brazilian company and who will assume management in the US.
Does every LLC with a Brazilian partner need to file Form 5472?
Yes, when there are 25% or more foreign-owned entities, including single-owner LLCs treated as disregarded entities, filing Form 5472 is mandatory to report related-party transactions. Failure to file results in penalties and attracts additional tax scrutiny over the entire structure.
What is a foreign qualification and when is it mandatory?
Foreign qualification is the registration required when a company physically operates in a state different from the one where it was incorporated, with a Certificate of Authority issued by the destination state. Without this registration, the company is considered irregular in the state where it actually operates, even if it is up-to-date with its obligations in its state of origin.
How long before the sale does the FDD (Franchisee Development Document) need to be delivered to the franchisee?
The FTC requires that the Franchise Disclosure Document be delivered to the applicant at least 14 days before any contract signing or payment. This timeframe is a minimum and applies to all franchisors operating in the United States, regardless of the state of origin of the brand.
Does transfer pricing apply to small businesses that are starting out in the US?
Yes, the arm's length principle of IRC §482 applies to any transaction between related parties, regardless of the size of the operation. Even small companies that charge royalties or management services between parent company and subsidiary need to document the pricing method chosen.
Sources
- L-1A Intracompany Transferee Executive or Manager | USCIS
- E-2 Treaty Investors | USCIS
- FTC — Consumers guide to buying a franchise
- SBA – Grow your business
