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DOING BUSINESS IN BRAZIL
Rayes & Fagundes
João Paulo F. A. Fagundes and Lia Esposito Roston
São Paulo - Rio de Janeiro - Belo Horizonte
| www.rayesfagundes.com.br
DOING BUSINESS IN BRAZIL
General Picture
• 5th largest country in the world
• Population: 192 million
• 7th economy in the world
• No ethnical or religious conflict
• Divided into 5 geographic regions, 26 states plus 1 Federal district
and 5,565 cities
São Paulo - Rio de Janeiro - Belo Horizonte
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DOING BUSINESS IN BRAZIL
General Picture
GDP 2010: almost USD 2.2 trillion
Credit Ratings:
Moody’s: Baa2 POS
S&P:
BBB+ STA
Fitch:
BBB- POS
São Paulo - Rio de Janeiro - Belo Horizonte
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DOING BUSINESS IN BRAZIL
Events
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DOING BUSINESS IN BRAZIL
What people are saying about Brazil
BY DESIGN OR DEFAULT, BRAZIL EMERGES AS LEADER
“Bye, bye, Mexico. As of this weekend, Brazil will become – whether by design or
default – the de facto spokesman for Latin America in the United States, and the most
important player in U.S.- Latin American relations.” (The Miami Herald. 2009.03.12)
DON’T BUY US STOCKS – BRAZIL IS A MUCH BETTER BET
“Mind you, Brazil's economy is growing at rates we Brits can only dream about. Which
means that long-term, the country still looks a good investment bet.” (MoneyWeek.
2010.06.11)
INVESTING IN BRAZIL: WHAT YOU NEED TO KNOW
“Brazil has one of the most liberal investment climates for outside investors. Nonresident investors, both individuals and legal entities, can invest in most of the
financial and capital market instruments available to resident investors, without any
restrictions.” (Forbes. 2010.04.30)
São Paulo - Rio de Janeiro - Belo Horizonte
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DOING BUSINESS IN BRAZIL
BRAZIL TAKES OFF – NOW THE RISK FOR
LATIN AMERICA’S BIG SUCCESS STORY IS
HUBRIS
“Forecasts vary, but sometime in the decade after
2014 — rather sooner than Goldman Sachs
envisaged — Brazil is likely to become the world’s
fifth-largest economy, overtaking Britain and
France. By 2025 São Paulo will be its fifthwealthiest city, according to PwC, a consultancy.
And, in some ways, Brazil outclasses the other
BRICs. Unlike China, it is a democracy. Unlike India,
it has no insurgents, no ethnic and religious
conflicts nor hostile neighbors. Unlike Russia, it
exports more than oil and arms, and treats foreign
investors
with
respect.”
(The
Economist.
12."11.2009)
São Paulo - Rio de Janeiro - Belo Horizonte
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DOING BUSINESS IN BRAZIL
Basics on Brazilian Legal System
• Consolidated democracy, ruled by a Federal Constitution
• Executive, Judiciary and Legislative are organized independently
• Civil law system (based on written statutes), but influenced by case
law
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DOING BUSINESS IN BRAZIL
Basics on Brazilian Legal System
• Court decisions are based on the laws enacted by the legislative
authorities
• Laws are enacted by the federal government, states and cities
• In situations where there are no specific legal provision, a case is
decided based on customs and general legal principles
São Paulo - Rio de Janeiro - Belo Horizonte
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DOING BUSINESS IN BRAZIL
Basics on Brazilian Legal System
• In addition to the legislative authorities ► Regulatory Agencies
• Regulatory Agencies issue their own rules, in full compliance with
superior laws and statutes
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DOING BUSINESS IN BRAZIL
Regulatory Agencies
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ANATEL – Telecommunication Agency
ANEEL – Electric Power Agency
ANP – Oil Agency
ANTT –Transportation Agency
ANS – Health Agency
ANVISA – Sanitary Agency
CADE – Antitrust Agency
CVM – Brazilian SEC
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DOING BUSINESS IN BRAZIL
Litigation
• Federal and State Courts
• Court System divided into three levels
• First level ► single judge
• Second level ► Court of Appeals (3 judges deciding the case)
• Third Level ► Supreme Court of Justice (STJ) and Brazilian Supreme
Court (STF)
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DOING BUSINESS IN BRAZIL
Litigation
• Federal Courts specialized in labor matters
• Judicial Courts take a long time to rule a case, but arbitration is an
frequent alternative
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DOING BUSINESS IN BRAZIL
Treatment of Foreign Investment
• Foreign and domestic investments in Brazil receive the same
treatment, except for some specific statutory restrictions
• No minimum capital required
• Payment in cash or in goods
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DOING BUSINESS IN BRAZIL
Treatment of Foreign Investment
• Brazilian Central Bank – Brazilian authority in charge of controlling the
entrance, remittances and exits of capital in and out of Brazil
• Foreign investments should be registered with the Brazilian Central
Bank
• The registration with the Central Bank entitles the investor to remit
profits abroad and repatriate the invested capital
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DOING BUSINESS IN BRAZIL
Treatment of Foreign Investment
• If the Brazilian subsidiary makes profit and the initial investments are
registered with the Brazilian Central Bank, dividends can be remitted
abroad with no limitation.
• Payment of dividends/profits to shareholders is tax exempt
• Taxes are imposed only at the corporate level
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DOING BUSINESS IN BRAZIL
Statutory Restrictions for Foreign Investments
• Few restrictions to foreign investments
• Restrictions are basically imposed on certain activities considered to
be somehow of “public interest”
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DOING BUSINESS IN BRAZIL
Statutory Restrictions for Foreign Investments
• Nuclear Energy Activities
• Postal and Telegraph Services
• Public Aviation Services
• Assistance to health
• Real state property in the Brazilian country side
• Property and management of newspaper, magazine, radio and TV
Activities in the border zone, specially broadcasting services, mining
activities, and real state properties
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DOING BUSINESS IN BRAZIL
Brazilian Tax System
• In Brazil, the major tax guidelines are determined by the Federal
Constitution
• The Federal Constitution sets down general all tax principles and the
limits for the taxing authorities
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DOING BUSINESS IN BRAZIL
Brazilian Tax System
• The Federal Constitution allocates taxing power between the Union,
the states and the municipalities, determining which types of taxes
can be imposed by each of them
• The Union, states and cities create and impose taxes in full
compliance with the Federal Constitution
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DOING BUSINESS IN BRAZIL
Brazilian Tax System
• The major corporate taxes in Brazil are: corporate income tax (34%),
tax on sales (18% VAT) and tax on services (2%)
• Brazilians and foreigners residing in Brazil must pay individual income
tax – exempt, 7,5%, 15% or 27,5%
São Paulo - Rio de Janeiro - Belo Horizonte
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DOING BUSINESS IN BRAZIL
Rayes & Fagundes
Lia Esposito Roston
São Paulo - Rio de Janeiro - Belo Horizonte
| www.rayesfagundes.com.br
DOING BUSINESS IN BRAZIL
1. Possible Business Structures
Risks
Commitment of capital
 Exportation of products or services
 Sales Agents
 Commercial Distribution
Approach with the clients
LESS
 Franchise
 Commercial Partnerships
 Consortium
 Acquisition of corporate partnership
 Incorporation of Brazilian Subsidiary
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DOING BUSINESS IN BRAZIL
2. Incorporating or Acquiring a Brazilian subsidiary
• Following all the formalities, the subsidiary incorporated will form a
legal entity different from its partners
• Clear separation between the rights and obligations of the subsidiary
and the rights and obligations of its partners
• Assets of the subsidiary may be used only for pursuing its corporate
purposes
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DOING BUSINESS IN BRAZIL
3. Incorporating or Acquiring a Brazilian subsidiary
• Limitation of liability of the partners
• Piercing the corporate veil – labor, consumer and environmental
issues
• In case of acquisition, due diligence is essential
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DOING BUSINESS IN BRAZIL
3.1. Types of business companies
• 2 most usual types of legal entities:
 Limited liability company (sociedade limitada): more flexible
structure, less formalities, advisable for foreign partners with
common controlling entity.
 Corporation (sociedade anônima): may issue debentures and
other securities, higher protection in case there are different
groups of shareholders, shares can be negotiated in the stock
market. Listed companies must adopt this form and are subject to
the ruling of CVM (Brazilian SEC).
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DOING BUSINESS IN BRAZIL
3.2. Registration at the Board of Trade
• Registration is mandatory for becoming a legal entity
• Partners must draft the Articles of Association or the Bylaws, as well
as the applicable Shareholders/Quotaholders Agreement
• Need of a Brazilian legal representative for the foreign partners
• Need of a local manager for the Brazilian company
• Definition of the corporate purpose, address, resolution quorums,
capital, management bodies, etc.
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DOING BUSINESS IN BRAZIL
4. Contracts between private parties and with government
• Brazilian Civil Code rules private transactions and parties are free to
determine its rights and obligations in the contract
• Government selects the best contractor through a public bid and
according to Law 8666
• Authorization, concession and permission for public services, such as
telecommunication services, railway and waterway transport, ports,
airports
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DOING BUSINESS IN BRAZIL
5. Intellectual Property
• Copyrights
• Software
• Domain Names
• Trademarks
• Patents
Registration at INPI
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DOING BUSINESS IN BRAZIL
6. Labor Relations
• Employee or Service Provider?
• Service against payment on a personal, subordinate and regular basis
= employee
• Employment relationship is ruled by Federal Constitution, Labor Laws
Consolidation and Collective Bargaining Agreements with the Union
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DOING BUSINESS IN BRAZIL
6.1. Labor Rights
• General rule: 44 weekly hours or up to 8 daily hours
• Overtime is compensated with 50% increase, except for trustworthy
positions
• Minimum wage of R$545,00 (US$1,00=R$1,7)
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DOING BUSINESS IN BRAZIL
6.1. Labor Rights
• Christmas Bonus
• After 12 months, annual vacation of 30 days increased by 1/3 of the
monthly salary
• Prior notice of 30 days and penalty in case of dismissal without cause
– 50% over the balance of the pension fund
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DOING BUSINESS IN BRAZIL
6.1. Labor Rights
• Additional Costs:
(i) Social Security Contribution – 20% over the gross salary
(ii) Pension Fund (FGTS) – 8% per month
(iii) SESC – 1,5%
(iv) Education Salary – 2,5%
(v) SEBRAE - 0,6%
(vi) SAT – 1 to 3%
• Total cost of an employee: ~ 2,1 times the salary
São Paulo - Rio de Janeiro - Belo Horizonte
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DOING BUSINESS IN BRAZIL
6.2. Outsourcing
• Service provider must have technical independence and be free of
subordination
• Risk if the service is inserted in the corporate purpose of the company
or there is subordination between the service provider and the
contracting party
• Joint liability of the contracting party for the labor obligations of the
contractor if outsourcing is disregarded
São Paulo - Rio de Janeiro - Belo Horizonte
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DOING BUSINESS IN BRAZIL
CONTACT INFORMATION
RAYES & FAGUNDES ASSOCIATE LAWYERS
Telephone: 55 11 2165 2002
E-mails: [email protected] and [email protected]
São Paulo - Rio de Janeiro - Belo Horizonte
| www.rayesfagundes.com.br