4. Strategic Considerations
Political Risk
-The ability of government to respond to political risk
-The ability of government to NOT cause political risk
P E S T
The unit of measurement
for political risk is
STABILITY
Stable Republic Since 1985
Multiple Peaceful Elections
Democratic Constitution
Functioning Executive, Legislative and Judicial Branches
Multiple Party System
Increasingly developed services: Fire, Police, EMS
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
5. Strategic Considerations
Political Risk
-The ability of government to respond to political risk
-The ability of government to NOT cause political risk
Article 62 of 1988 Constitution grants the president
Under situations of extreme urgency
The power to issue “provisional measures” medidas provisorias
Force of law for 30 days
Then, made law by Congress or Invalid
Oversight After Delegation
The unit of measurement
for political risk is
STABILITY
Executive Decree Authority
P E S T
Brazilian legislatures historically endow presidents with broad authority, then
monitor case-by-case through amendments
Reality
All Brazilian presidents have used for routine legislation – not simply extraordinary
circumstances
If Congress fails to consider within 30 days, presidents often reissue expired decrees
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
6. Strategic Considerations
Political Risk
-The ability of government to respond to political risk
-The ability of government to NOT cause political risk
P E S T
The unit of measurement
for political risk is
STABILITY
Appropriation concerns
Brazil
Long history of privatization & recent commitments
1980s operating 250 institutions
1991 Federal Privatization Program (NPD) – 186 firms within 2 years
Recent LatAm
Argentina
Nationalization of YPF – Spanish oil firm Repsol – April 2012
President Cristina Fernandez de Kirchner, the expropriation was aimed at
“recovering sovereignty” over natural resources
Bolivia
Nationalization of Transportadora de Electricidad, Spanish – May 2012
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
7. Strategic Considerations
P E S T
The unit of measurement
for political risk is
STABILITY
Political Risk
-The ability of government to respond to political risk
-The ability of government to NOT cause political risk
Level of Corruption
Transparency International 2012 CPI index
The abuse of entrusted power for private gain
Perception of corruption in public sector
2012
USA 19th of 176
Brazil 69rd of 176
89th percentile
60th percentile
1995 (year 1 of CPI)
USA: 15 of 41
Denmark
1st
USA
19th
Chile
20th
Brazil
69th
China
Colombia
80th
94th
India
94th
Russia
133rd
North
Korea, So
malia
174th
63rd percentile
Brazil: 36 of 41
13th percentile
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
8. Strategic Considerations
P E S T
Foreign Corrupt Practices Act 1977 (FCPA)
Two key provisions:
Prevention of bribery of (foreign) governmental officials
Anything of value to a foreign official
Duty to keep accurate financial books and records and have
adequate internal controls to accurately reflect the transactions
of the business
Does it apply to me?
Applies to US companies, citizens, foreign
subsidiary, officer, director, employee, or agent of a US company or its foreign
subsidiary, any stockholder acting on behalf of the company, foreign
companies with US registered securities
Scope and operation of FCPA not restricted to USA territorial boundaries
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
9. Strategic Considerations
P E S T
Foreign Corrupt Practices Act 1977 (FCPA)
US has pursued 3.5 formal foreign bribery enforcement actions for
every one action pursued by ALL other countries
Companies settle, pay fines and forfeit profits
2011 – Johnson & Johnson $70M, JGC $219M
Recent – Wal-Mart, Morgan Stanley, Avon
US Justice Dept. continues to focus on individuals
Guilty employees go to jail, pay fines and must make restitution
Average jail term is two years in federal prison, but range is very
broad with one sentence up to 15 years
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
10. Strategic Considerations
P E S T
Best practices
Financial controls
Monitoring process, legitimate vendor transactions, employee
advances, petty cash, training
Contract review
Analyze all current and future contracts to ensure scope of
services does not violate FCPA
Outsourcing bribery
Compliance program & culture
UK Bribery Act, compliance defense – NOT under FCPA
Broad definition of bribery, includes commercial bribery
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
11. Strategic Considerations
Increasing domestic demand
Growing Middle Class
Macro Trends
Over 35 million Brazilians entered the middle
class from 2003 to 2009
estimates predict an additional 20 million
will climb the ladder by 2014
Per Capita GDP larger than China or India
Brazil
China
India
$12,079
$6,076
$1,492
Brazil
Chin
a
Source: IMF 2012
Rich Commodities Base –
energy, mining, agribusiness
Largest Latin American economy
6th largest in the World
Developed financial markets
Young workforce
P E S T
Brazil
United States
China
39.3%
30.5%
29.4%
Competes with Australia as worlds largest
exporter of iron ore
Fertile Land: 1/3rd global coffee, ½ of all global
sugarcane exports, major world player in
beef, poultry, soybeans and corn
Recent oil field discovery 15bn to 70-100bn
barrels
NPV of this discovery is apx $500bn, apx 20%
of GDP
Rainforest, hydro
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
12. Strategic Considerations
P E S T
96% of Brazilian
households have a
television
Population
Millions
1U.S.
2Japan
3China
4Brazil
5India
6Russia
7Mexico
8Indonesia
9Philippines
10Pakistan
313
126
1348
197
1241
143
115
242
95
177
Source: UN World Population Prospects, IMF, 2011
Private
Consumption
US$ Trillions
10.7
3.6
2.6
1.3
0.9
0.9
0.7
0.4
0.2
0.2
Consumption
Per Capita US'
000
34.2
28.1
1.9
6.8
0.8
6
5.8
1.8
1.7
1
Macro Trends
99% of Brazilian
households have
electric lighting
Source: World Development Indicators, Haver, 2010
Mortgage debt 4.8% of GDP
9.7% in Mexico
89.4% in U.S.
Source: Insights Global Macro Trends, KKR May 2012
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
16. Strategic Considerations
P E S T
Currency Risk
Transaction exposure – commitment to make payment at future date
Solutions:
Translation exposure – accounting based changes in consolidated FS
Taking the value on 1 day and reporting on your statements
Solutions:
Forward Contracts
Risk Sharing Agreements
Foreign Currency Options
Swap (assets, debts, and/or liabilities with someone else, e.g., a bank or another
company)
Economic exposure – non zero changes in expected cash flows due to
changes in currency (real not just nominal)
Solutions:
Diversification
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
17. Strategic Considerations
P E S T
Education
Past
(2000)
- ½ Brazilian students graduated grade
school
- 3 out of 4 adults were functionally
illiterate
Present
-Goal to reach OECD standard over
next decade
-Science Without Borders - 75,000
scholarships to attend world’s top
universities (only 9,000 a few months
ago)
-SENAI, SENAC
-Bolsa Escola/Bolsa Familia
OECD Programme for International Student
Assessment (PISA)
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
18. Strategic Considerations
P E S T
“Culture eats strategy for breakfast”
– Oded Shenkar
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
19. Strategic Considerations
P E S T
90
80
70
60
50
Brazil
40
Latin America
30
20
10
0
100
90
80
70
60
50
40
30
20
10
0
PDI
IDV
MAS
UAI
Geert Hofstede’s Cultural Dimensions
US
Brazil
Latin America
PDI
IDV
MAS
Power Distance
Individualism
Masculinity
Uncertainty Avoidance
Long-Term Orientation
www.geert-hofstede.com
UAI
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
20. Strategic Considerations
Social Risk
-The ability of stakeholders to identify vulnerabilities &
apply pressure to the company to change its behavior
How substantive is the
stakeholder?
How intense is the threat?
Stakeholders
P E S T
Shareholders, NGOs, Interest Groups, Consumers, Local
Communities. . .
Factors
Cultural Norms, Languages
Demographics
GINI index (inequality of income)
Ethnic Conflict
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
21. Strategic Considerations
Social Risk
-The ability of stakeholders to identify vulnerabilities &
apply pressure to the company to change its behavior
P E S T
How substantive is the
stakeholder?
How intense is the threat?
Solutions
Decouple your brands / products
Partner with NGOs
Charge premium on specific brands for CSR projects, not all
consumers
Reputational benefit, they understand the industry and may help keep
you up to date with shifts in pressure
Admit Wrongs
People are more likely to believe your CSR reports when you tell
them what you are doing wrong (and how you are addressing it)
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
22. Strategic Considerations
P E S T
Technological
Infrastructure
Government
Incentives
Intellectual Property
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
23. Available Structures & Features
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
24. Available Structures & Features
May require a subsidiary
holding company presence
Direct Sale
from U.S.
-Freight
Forwarder
-Trading
Company
Non-Equity
Alliance
-License
-Agent
-Distributor
-Franchise
-Joint venture
Equity
Alliance
-Joint venture
-Joint company
Entry Method
Wholly Owned
Subsidiary
-M&A
-Greenfield
-Brownfield
Investment &
Operations
Agents, Distri
butors and
Labor
25. Available Structures & Features
Joint Venture
May be created with or without a full joint company
Low cost entry and exit to new markets, industries and
industry segments
Opportunity for learning
Provides a “contractual” framework for operations without
generating many issues associated with an agency
relationship
Enables each party to take full responsibility for its
contribution to the venture while minimizing the issues
associated with exclusivity
Enables low cost entry and exit
May later evolve into full equity alliance
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
26. Available Structures & Features
Issues to consider
Restrictions
on foreign ownership?
Requirement of foreign partner?
Minimum or maximum capital requirements?
Partner liability limited to capital contributions?
Maintenance costs?
Product liability?
Intellectual property protection?
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
27. Available Structures & Features
Empresa Individual de Responsabilidade
Limitada (EIRELI)*
Sociedade Limitada (LTDA)
Sociedade Anônima (SA)
Sociedade Simples
Sociedade em Nome Coletivo
Sociedade em Comandita Simples
Sociedade em Comandita por ações
Sociedade em Comum
Sociedade em conta de Participação
Associações
Fundações
Cooperativas
Consórcio
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
28. Available Structures & Features
Sociedade
Limitada
(LTDA)
Similar to U.S.
LLC
Sociedade
Anônima (SA)
Similar to U.S.
corporation
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
29. Available Structures & Features
Sociedade Limitada (LTDA) & Sociedade Anônima (SA)
Common Features
-Normally, no restrictions on foreign ownership*
-Normally, no minimum or maximum capital requirements*
-Partner and parent company liability generally limited to
capital contributions
-Corporate veil may be pierced (Article 50, Brazilian Civil
Code 2002 Requires a deviation of purpose or
commingling of assets, not mere insolvency - intent is
also considered )
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
30. Available Structures & Features
Sociedade Limitada (LTDA)
-Formal requirements
-Must have 2 partners (person or entity)
-Partners are not required to be Brazilian
-Each partner receives quotas representing their
interest in the LTDA
-Must be managed by an individual residing in Brazil
(may be a Brazilian citizen, or a foreign citizen with
the proper documentation)
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
31. Available Structures & Features
Sociedade Limitada (LTDA)
-Simple to form and operate
-Liability limited to partner’s quotas
-Quotas may be freely transferred in
accordance with the articles of association
-Quotas may NOT be traded publically
-No obligation to publish annual financial statements
-Lower maintenance costs
-May be converted into a corporation (SA)*
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
32. Available Structures & Features
Sociedade Limitada (LTDA)
-Pursuant to C.F.R. §301.7701-3(b)(2)(B) U.S. tax law
treats a Limitada as an association
-The Limitada may elect to be taxed under U.S. law as a
partnership or a corporation which will determine how the
U.S. owner(s) will be taxed on any income derived from
the Limitada
-The tax consequences of a change in classification, need
to be studied
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
33. Available Structures & Features
Sociedade Anônima (SA)
-May issue securities, debentures and may be publically
held
-Higher maintenance costs
-More formal requirements
-Generally preferred for ventures comprised of a large
number of different shareholder groups
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
34. Investment and Operations in
Brazil
Import
Process, Tariffs, Taxes & Incentives
Regulatory Changes & Trends
“If you’re honest and want to comply with the tax code, you
need an accountant and a tax lawyer for life”
-The Economist, September 24, 2011 quoting a São Paulo based
economist
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
35. Import Process, Tariffs, Taxes &
Incentives
General Import
Process & Timeline
Importing a container of
goods to Brazil requires 8
documents, takes 17 days
and costs $2,275
Baseline:
-medium size business
-ship to economy’s
largest business city
-private, LLC
-non hazardous goods
-dry cargo, 20-foot full
container
-Document Preparation (8
days)
-Customs clearance and
technical control (4 days)
-Ports and terminal handling
(3 days)
-Inland transportation and
handling (2 days)
Importing a container of
goods to India requires 11
documents, takes 20 days
and costs $1,200
24 Days
17 Days
Importing a container of
goods to China requires 5
documents, takes 24 days
and costs $615
20 Days
-Document Preparation (15
days)
-Customs clearance and
technical control (4 days)
-Ports and terminal handling
(3 days)
-Inland transportation and
handling (2 days)
-Document Preparation (8
days)
-Customs clearance and
technical control (4 days)
-Ports and terminal handling
(5 days)
-Inland transportation and
handling (3 days)
* All US exports are also subject to US export controls *
Source: World Bank, Doing Business
2013
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
36. Import Process, Tariffs, Taxes &
Incentives
Import Export Process
Register with the governmental registration system
Obtain import license, if required
Secretary of Foreign Trade SECEX, SISCOMEX system
Subject to significant variability
Automatic
Non-Automatic (process may take several months)
ANVISA, IBAMA, MAPA, DECEX, CNEN, ANP, ANEEL,
DPF, COMEX, MCT . . .
Radar
Simplified
Ordinary
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
37. Import Process, Tariffs, Taxes &
Incentives
II-Import Duty
0-35%
varies based on product
& Country of origin
(NCM, HS)
Associated Taxes &
Duties
IPI-Industrial Product
Tax
Import Duty
20% avg
VAT
0-35%
12%
avg
Import Duty
6%
16%
0-5% raw materials,
20% finished consumer
goods, 35% autos and
luxury items
VAT
19%
Varies based on product
(CNM) up to 300%
tobacco
PIS-Social Integration
Program Contribution
1.65%
COFINS-Social
Security Financing
Contribution
7.6%
ICMS-State Tax
7-25%*
SP 18%
*Current legislation & recent
Supreme Court decisions may
impact the applicable ICMS rate.
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
38. Import Process, Tariffs, Taxes &
Incentives
Brazil: 2,600
LatAm: 367
OECD: 176
Additional Tax
Considerations
Baseline:
-medium size business
-taxes & mandatory
contributions are measured
at all levels of government
-a range of standard
deductions & exemptions is
also factored
On average, firms make 9
tax payments per year and
spend 2600 hours per year
filing, preparing and paying
taxes
Corporate Tax
On average, firms make 9
tax payments per year and
spend 203 hours per year
filing, preparing and paying
taxes
On average, firms make 9
tax payments per year and
spend 291 hours per year
filing, preparing and paying
taxes
15%
Corporate Tax
33%
Corporate Tax
20%
Yes
Transfer Price
Considerations
Yes
Transfer Price
Considerations
Yes
Plus 10% on taxable
income over R$240,000
-may choose deemed
profit system if under
threshold
Transfer Price
Considerations
Source: World Bank, Doing Business
2012
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
39. Import Process, Tariffs, Taxes &
Incentives
Recent Tax Changes
General
April 2012 – Brazilian government
granted a series of important
benefits to enhance economic
activity
-Payroll tax exemption in certain sectors:
IT, pharmaceutical, hotels, chemicals, plastics, textiles, automotiv
e, metallurgy, electronics, consumer goods
-Automotive industry companies that invest in technological
innovation may now use a presumed credit of the excise tax
-Deductions from Corporate Income Tax IRPJ for donations to
institutions that fight cancer
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
40. Import Process, Tariffs, Taxes &
Incentives
Recent Tax Changes
Transfer Price
April 2012 – Brazilian government
granted a series of important
benefits to enhance economic
activity
Three Methods
1. Cost Plus Method (CPL)
2. Method of Comparative
Independent Price (PIC)
3. Resale Price Minus Profit Method
(PRL)
Margin
DECREASE
60% to 20%
CHANGES:
1. PRL Margin decreased from 60% to 20%
30% for chemical products, glass products, cellulose, paper, metallurgy
40% for petroleum, specific machinery & equipment
2. Standardization of calculation rules, regardless of whether value is added in Brazil
freight & Ins now excluded from calculation
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
41. Import Process, Tariffs, Taxes &
Incentives
Ex-tarifário Program
If no similar good is produced
domestically, an importer may qualify for
reduced or eliminated tariffs
Tariff reductions generally reduce the applicable tariff
from 16% to 0-2%, II and may also reduce IPI
Resolução CAMEX 35/2006
The importer must file for the Ex-tarifário
A certificate or statement from the appropriate
body, technical reports, public consultation among
other things may be considered to determine the
existence of a similar domestic good
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
42. Import Process, Tariffs, Taxes &
Incentives
Ex-tarifário Program
Even if a domestic good performs a
similar function, an importer may qualify
for the program if:
Higher quality product or service
Higher productivity of equipment (may consider part of an
integrated system that increases overall productivity)
Increased efficiency
Supplies required
Consumption of energy or raw materials
Reduced delivery time
Other specific performance factors may be considered
depending on product
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
43. Import Process, Tariffs, Taxes &
Incentives
Free Trade
Manaus Free Trade Zone - ZFM
Western Amazon - AO
Free Trade Areas - ALC
General Process
Cert of importer eligibility on the SISCOMEX
Classification of imported goods HS / NCM
Submit Invoice
Register Transaction on SISCOMEX
Import Licenses
IRPJ reduced 75%
until 2013
ICMS credit to
importer
II/IPI 0%
or 88% reduction
PIS/COFINS reduced
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
44. Import Process, Tariffs, Taxes &
Incentives
Growth Acceleration Program
(PAC)
Launched by govt in 2007 to
promote large scale projects
R$ 604B planned expenditures
Key PAC Projects
Infrastructure R$ 504B
Science & Tech R$ 35B
Security R$ 6.7B
Health Care R$ 4B
Espírito Santo (primary port
Vitória)
law # 2508
FUNDAP program, State bank
provides 0% financing for ICMS
payments
Regions
Northeast
Bahia, Ceará and Pernambuco
ICMS reduction
IRPJ reduction 25-75%
Industries, Ports, Infrastructure
Porto Maravilha, Rio, Porto do
Açu, Rio
Belo Monte dam
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
45. Import Process, Tariffs, Taxes &
Incentives
MERCOSUL
Member
Countries
Brazil
Argentina
Uruguay
Paraguay
Bolivia
Chile
Columbia
Ecuador
Peru
Observer of
Agreement
Applied
Venezuela
Not yet ratified by
Paraguay
Free from import duty with certificate of origin
Exceptions to Common External Tariff (CET)
Brazil is permitted 93 exceptions to the CET
June, 2009 the trade minister raised several import duty
rates:
August, 2009 MERCOSUL members approved tariff
increases on hundreds of products within the CET
Primarily dairy, textiles, bags, backpacks, suitcases up
to the bound level, apx 31.4%
Associate
Member
Mexico
southern common market
Mexico / Brazil revised auto tariff structure
Decision No. 39/11 of the Mercosul Common Market
Council permits and outlines procedures for the
countries to negotiate these topics
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
46. Getting Paid
Collection
Civil law system generally favors the debtor – NOT
creditor
in Brazil
Dual registration system for statutory lien (Alienação
Fiduciária)
Registry of Deeds and Documents
Real State Registry
Best Practices
Collateral
Pledge equipment being sold & statutory lien
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
47. Regulatory Changes & Trends
Recent Regulatory Changes
July, 2011
August, 2011
1% tax on foreign derivatives, Real reached 12 year high of 1.529 per dollar
Three prong plan to continue to spur economic growth – Payroll tax exemptions,
Subsidized loans, Govt preference of 25%
September, 2011
30% Increase in industrial product tax on cars (37-55%) – Decree No. 7.567/2011
Exempt if 65% domestic parts (Brazil, Mexico or Mercosul country)
Oct 6, 2011 Renault SA announced plans to increase its Brazilian production
capacity by 100,000 vehicles
Brazil will be the companies 2nd largest market after France
Expects sales of 3 million vehicles annually by 2013 with 25% from Brazil
October 10, 2011 Chinese auto maker JAC announced it would build a factory
in Brazil – output set to begin in 2014
January, 2012
Ministry of Development, Industry & Foreign Trade (MDIC) reduced IPI on 18
automakers by 30% until December 2012 The IPI, industrial products tax, is
levied on passenger cars, light commercial vehicles and trucks produced in
Brazil, Mercosul and Mexico
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
48. Regulatory Changes & Trends
Recent Regulatory Changes
January, 2012
February, 2012
Multi-prong tax package, reduced IRPJ, IPI, PIS/COFINS, payroll
tax, change to transfer price rules
May, 2012
6% IOF tax (financial transactions tax) on foreign loans with maturities of
up to five years
April, 2012
Trade ministry team to publish list of products the govt may levy higher
import taxes, list will be valid until December 2014
March, 2012
95% reduction on IPI for iPads manufactured in Brazil
Pension Reform Bill – limits government payments to retired public
workers
March 2013
Brazil adopted the United Nations Convention on Contracts for the
International Sale of Goods (“CISG”)
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
49. Regulatory Changes & Trends
A Bigger Brazil:
US$
16 Billion in tax breaks (over 2 years)
Eliminate
Buy
3 prong plan to continue to spur economic growth
payroll taxes for labor intensive industries
Brazil Initiative
Allows
government agencies to pay up to 25% more
for locally produced products than similar foreign
goods
Particularly when purchasing for defense, health, or high
tech communications equipment
Subsidized
Loan Programs
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
50. Regulatory Changes & Trends
Privatization
Airport operating rights - Auction method, public private partnership
2011
São Gonçalo do Amarante Airport, Natal – R$ 170 million (3x reserve)
2012
São Paulo Guarulhos – R$16.2 B (12.9B expected)
Brasilia – R$4.5B
Campinas – R$3.8B
Oilfield Rights
Roads and Railways
2012 (announced in August) R$133B investment over 30 years to boost growth
Government will sell licenses for private companies to operate 4,660 miles (7,500km) of
roads and 10,000 km of railways
The Brazilian President’s office emphasized, “[t]he government does not intend to get involved in
these investments. These investments are going to be a long-term, private sector affair. The
private sector must play a key role.”
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
51. Regulatory Changes & Trends
Intellectual Property Protection
Protected by Article 5 of the Brazilian Constitution & codified IP law
Provides for contracts involving technology transfer, technical and
scientific services, franchising and protection against unfair competition
Instituto Nacional da Propriedade Industrial (INPI)
Federal agency in charge of regulating and registering
patents, trademarks, industrial designs, approving licensing and other
agreements
Copyright Law, Law No. 9610, as amended (Feb 20, 1998)(Braz).
Regulates Brazilian Copyrights and some Software Law
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
52. Regulatory Changes & Trends
Brazilian Patent law
Brazilian patentLaw
Industrial Property Law, Law No. 9279/96, as amended (May 15, 1996)(Braz); article 5 §§29 of the
Brazilian Constitution
How to obtain Brazilian patent protection
First to File
Absolute novelty
Average time for granting patents is 5-7 years
20 year term, from date of filing (15 for utility model)
How can a Brazilian patent help?
Right to prevent third parties from manufacturing, using, and offering to sell
Patent infringement is both a tort and criminal offense
Damages, destruction of products, fines, imprisonment
Remedies generally only available AFTER a patent grant
Prior to grant, an applicant may send a cease-and-desist letter
A few rare cases have resulted in a cease-and-desist order during application (prior to grant)
Patent infringement trials average 3-6 years
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
53. Regulatory Changes & Trends
Brazilian trademark law
Industrial Property Industrial Property Law, Law No. 9279/96, as amended (May 15, 1996)(Braz); article 5
§§29 of the Brazilian Constitution, and international treaties
How to obtain trademark protection?
Register trademark at the National Institute of Industrial Property (INPI)
“any visually perceptive distinctive sign, when not prohibited under law, is
susceptible of registration as a trademark.”
10 year term, from date of issuance
How can a trademark help?
Owner is guaranteed exclusive use throughout Brazil
Trademark applicants may now enforce their rights against infringers, even
before the registration is granted
Brazilian Superior Court of Justice (STJ), Special Appeal No. 1.032.104-RS, published
decision on August 24, 2011
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
54. Regulatory Changes & Trends
Brazilian trade secret law
Industrial Property Law, Law No. 195, and international agreements
The Basics
Protected under unfair competition law
It is a crime to disclose, exploit, or use
confidential knowledge, data, or
information, without consent
Exceptions
are provided for public information
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
56. Agents & Distributors
Agent
Distributor
Activities subject to some control by supplier
Activities subject to only minimal control by
supplier
Does NOT take title to goods
Takes title to goods, buys and sells for own
account
May handle products of other suppliers; but, is
less likely to do so than distributor
May handle products of other suppliers
Generally compensated on a commission basis
Earnings based on resale profit margin
Usually does not warehouse goods
Usually warehouses and physically delivers
goods
Usually does not use own capital
Uses own capital
Bears no risk of failure of payment
Bears economic risk of failure of payment by
customer
May have power to contract on behalf of the
supplier
Has no power to bind the supplier contractually
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
57. Agents & Distributors
Agent
Under Brazilian law 4.886/65, amended by Law
8.420/92, a commercial representative is:
one that acts as an intermediary promoting a
product or service, looking for customers,
negotiating proposals and orders and forwarding
them to the seller with whom it has a contractual
relationship.
The Civil Code (Law 10406 of 10/01/2002)
refers to Commercial Representation as
"Agency".
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
58. Agents & Distributors
Agent
Often the commercial representative facilitates the
process of importing the products into Brazil as well
as domestic deliveries to buyers by working with
freight forwarders and transportation companies.
Commercial representatives may also work with
customers to facilitate product installations, product
training, warranty coverage, service, repairs and the
sale of replacement parts.
The compensation of a commercial representative is
generally structured on a commission basis.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
59. Agents & Distributors
Commercial Representative Agreement
Mandatory Provisions
Agent
Term of the agency
Obligations of the parties
Description of the products or goods that are the object of the
agency
Description of the territory
Exclusivity
Payment structure (commission and time of payment)
Termination
Commercial Representative must register with the
Regional Council of Commercial Representatives.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
60. Agents & Distributors
Agent
The agreement with the representative need not
be registered with the government.*
This allows for confidentiality of compensation and
other commercially important information.
This is an important distinction when compared to
license and royalty agreements, which may require
registration with the Brazilian Central Bank.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
61. Agents & Distributors
Agent
Termination
Brazilian law requires that all disputes between a foreign
company and its commercial representative be venued in
Brazil and judged in accordance with Brazilian law.
Article 35 of the Brazilian Civil Code provides a list of “just
cause” reasons for the termination of a commercial
representative agreement.
If the relationship is terminated for cause, no
indemnification is owed to the commercial representative.
However, if the relationship is terminated for reasons other
than those listed in Article 35, Brazilian law may require an
indemnification payment to the commercial representative.
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
62. Agents & Distributors
Agent
Termination - FOR CAUSE
Art. 35 provides a list of just reasons for termination of
an agency agreement, these include:
neglect of the agent in the accomplishment of his obligation(s)
under the contract,
engaging in acts which result in loss of commercial credit of
the represented,
conviction for a crime considered injurious to the represented.
The represented may retain the commissions due to the
agent if there is just cause for the termination of the
agreement, so long as retaining the funds is made with
the purpose of recovering damages caused by the
agent.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
63. Agents & Distributors
Agent
Termination - WITHOUT CAUSE
Generally, an agent is entitled to no less than 1/12th of the
total amount received during the time of agency.
If the agency is for a specific term, the agent is generally
entitled to an amount equal to the monthly average
compensation received multiplied by the remaining months
left in the agency contract term.
Plus, investments made to open the market.
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
64. Agents & Distributors
Distributor
Unlike an agent, a distributor buys
products from the foreign company; takes
title to them, then sells the products on its
own account.
The distributor’s earnings come from its
resale profit margin.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
65. Agents & Distributors
Distributor
Distributorship relationships are primarily
regulated by Brazilian contract law; and,
unlike commercial representative
relationships, there are very few statutory
provisions governing distributorships.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
66. Agents & Distributors
Distributor
Brazilian contract law is primarily derived from the
Civil Code.
As long as the parties comply with the provisions
of the Civil Code respecting commercial contracts,
they are free to define their business relationship
as they see fit.
This includes agreement as to sales prices,
territory, trademarks, service and maintenance of
products, inventory requirements and termination.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
67. Agents & Distributors
Distributor
Termination
Distributorship
relationships allow greater
flexibility in defining "just cause" for termination.
Disputes over distributorship terminations can be
made subject to arbitration procedures which
Brazilian courts may be more likely to enforce
than clauses calling for the application of foreign
law or a foreign venue.
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
68. Agents & Distributors
Agent
Distributor
Creation
Statutory requirements
Contract law
Compensation
Commission
Sells on own account
Termination
Enumerated “just cause”
reasons
Contract law
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
69. Agents & Distributors
Best Practices
If properly structured commercial representative and distributorship
agreements require less up-front investment than a more direct
presence in the Brazilian market.
The tradeoff for this can be less control over how the product is
promoted, sold and serviced in the market.
Regardless, using commercial representatives or distributors may
make sense as a means to first enter the market or even as a
permanent business model.
However, if the proper safeguards are not in place, mismanagement
of the product by the commercial representative or distributor can
permanently damage a brand.
Foreign companies should structure commercial representative and
distribution agreements with a long term strategy that preserves
maximum flexibility and may include a future more direct presence
in the Brazilian market. For this strategy to work a well-crafted
written agreement is imperative.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
70. Agents & Distributors
Best Practices
Care must be exercised to not blur the difference between a
commercial representative and a distributor.
Long term exclusive contracts should be avoided.
Short term contracts once renewed may be considered contracts for
"indefinite terms" after the first renewal, by Brazilian courts.
Foreign companies should fully understand the facts and Brazilian law
before terminating a commercial representative or distributorship
relationship.
Minimum sales requirements should be established in the contract.
Standards for product service and maintenance should be set out.
Regular and adequate reporting should be required.
Other key points to address are termination and causes for termination,
distribution points and control over distribution in case of termination.
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
71. Labor
Labor: It’s more than just the 13th salary
Labor rights are outlined in the Brazilian
Constitution, as well as
laws, decrees, provisional
measures, ordinances and
regulations, international conventions and
treaties (ratified by the Brazilian
government), company policies, Supreme
Court decisions, Superior Labor Court
decisions and customs
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
72. Labor
The worker is considered the weaker party in the relationship
In labor-related conflicts, whenever there is a doubt regarding
evidence, the court’s decision will generally favor the worker
The law most favorable to the worker will be applied
The conditions most favorable to the worker will be presumed
Actual facts prevail over written documents
Protected salary (generally cannot lower an employee’s
salary)
Nondiscriminatory practices
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
73. Labor
Contractual agreements with employees to
resolve conflicts are not enforceable.
The Brazilian constitution provides the right to sue
as an individual guarantee.
There are settlement methods.
Arbitration, union conciliation commissions . . .
But settlement does NOT extinguish the right of the
individual’s claim!
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
74. Labor Considerations
13th Salary
R$674.96 per month
Vacation
Mandatory “Christmas bonus” equal to 1/12 the salary
for each month of that year
Min wage currently
Every 12 months employees are entitled to 30
calendar days paid vacation, in addition to the 13th
salary
Overtime
Reading email on your cell phone, may qualify as overtime!
Daily and weekly calculation
Base rate + 50%
100% for work on Sunday or a public holiday
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
75. Labor
Termination
Employment is NOT “at will” (must have cause)
Advanced notice (generally, 30 day min)
Payment of salary owed
Vacation
13th Salary
FGTS
Every month the employer must deposit amount equal to 8%
of employee’s salary into an individual social security fund
(FGTS).
Upon termination, the employee may withdraw the amount.
If termination is not “for cause”, employer must pay a penalty
equal to 40% of the amount and an additional 10% penalty to
the government.
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
76. Labor
Not at will
30 days prior notice (some agreements may require longer period of time)
Notice shall specify whether the 30 days must be worked or not worked
If worked may be absent for 7 consecutive days or may leave 2 hours early every day
For cause if:
A dishonest act
Improper conduct
Regularly doing business on behalf of himself or for a third party
Criminal conviction
Inadequate discharge of duty
Habitual drunkenness
Currently debate on this cause; many courts consider it a social problem and not a just cause
Violation of trade secrets
Act of disobedience or insubordination
Abandonment of employment
Injurious act to the honor of any person during working hours (except in self defense)
Persistent gambling
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
77. Labor
Brazilian v. Non-Brazilian
Staff
of companies with three or more employees
must be 2/3rd Brazilian
at least 2/3rd of the payroll must be paid to
Brazilians
And,
Salaries
paid to employees in Brazil cannot be
based on foreign currency
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
78. Labor
Ok, but they aren’t employees; they are . . .
It does not matter what the parties call the
relationship, regardless of whether there is a
written contract
Courts will weigh factors, including:
The regular payment of salary
Required personal rendering of service
Subordination (direct control by employer, hours
worked, benchmarks)
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
79. Labor
To avoid the inadvertent creation of an employment relationship, foreign
companies must be mindful of how they interact with their commercial
representatives and distributors.
Regardless of how the relationship is described by the parties, Brazilian
courts will look to the actual behavior of the parties.
Brazilian courts consistently hold that subordination is a key factor in the
existence of an employment relationship.
If the court determines that the parties' relationship is an employment
relationship, the foreign company will be subject to Brazilian labor laws
including liability for social and welfare contributions and possibly other
taxes.
As such, while it is permissible to contract with an individual to act as a
commercial representative, to avoid employment issues the better practice
is to contract with an entity having at least two partners.
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
80. Labor
What is the relationship?
Taxes, benefits
Reimbursement for investments made to promote the company?
Exclusivity?
Termination
Compensation, territory, products, time of payment?
Rights and duties?
Review and Best
Practices
Is a written agreement required?
Agent, distributor, . . . employee?
For cause?
Permanent Establishment?
Treaties
Effectively Connected Income (ECI)
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
81. Labor (the other side)
Business Visa
Permanent Visa
Legal
Entity Administrator
Private Investor
Foreign Bank Representative
Temporary Visa
Permanent
Visa
Establishment Issues
Technical Visa 1 year / 90 Days
Apprenticeship / Professional Training
Touring Vessel
Labor
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
82. Labor (the other side)
Business Visa
To attend meetings, make commercial contacts
Permanent Visa
Legal Entity Administrator
90 days, may be extended additional 90 days in 12 month period
5 years, R$ 600k registered with Central Bank of Brazil, or R$150k & plan to
generate at least 10 new Brazilian jobs within 2 years*
Temporary Visa
Technical Visa 1 year / 90 Days
3 years experience in the functional field
Permanent
Specific for customer, or training plan
Establishment Issues
Resume
Criminal background check
File with Ministry of Labor in Brasilia
When enter Brazil, register with Federal Police to obtain RNE
If d/n register, then daily fine
Entry Method
Investment &
Operations
Agents, Distri
butors and
Labor
83. Business in Brazil: Regulatory and Legal
Considerations
The content of this presentation is for educational purposes
only. Each legal issue is fact dependent, and this
presentation should not be used or viewed as legal advice;
your legal counsel should be consulted on the application
of your particular factual situation to the current law.
Entry Method
Investment &
Operations
Agents,
Distributors
and Labor
When you considerhow to enter Brazil, what do you think about? What questions jump into your mind. I generally begin with asking why? Why should you enter Brazil?Is it because your competitor entered? Is it because an article in the WSJ said Brazil is the largest economy in Latin America and the 6th largest in the world. Did your largest customer enter Brazil? Is it because the middle class is growing at an explosive rate? Is it because your organization’s core competencies can be leveraged to do xyz? All of those could be great reasons, but the way you approach the information we are about to discuss, and the decisions you make will vary greatly based on the answer to that question.
-First elections under the new constitution were not held until 1989-several parties (over a dozen) are represented in Congress-Police in Bahia on strike – military in Salvador-Executive Decree authority-The Brazil Senate has 81 Seats (3 from each state), majority election, 8 year term-Lower House, Chamber of Deputies, 513 seats (proportional) 4 year term
-Executive Decree authority-Argentina Kirchner, import changes - Brazil changes while on boat
-New Zealand was 1st (2011)-Denmark was tied for 1st with New Zealand & Singapore (2010)-Scale is 10 – 1 , 10 is best-Somalia is worst, tied with North Korea
Brazil Nominal GDP 2.09 T, US apx 15T2010 7.5% growth2011 even with EU issues, projected to grow steadily at at least 3.5%Source BradescoGDP & Per Capita GDP source 2010 IMF numbers1/3rd global coffee, ½ of all global sugarcane exports, major world player in beef and poultry, soybeans and corn
Brazil Nominal GDP 2.09 T, US apx 15T2010 7.5% growth2011 even with EU issues, projected to grow steadily at at least 3.5%Source BradescoGDP & Per Capita GDP source 2010 IMF numbers1/3rd global coffee, ½ of all global sugarcane exports, major world player in beef and poultry, soybeans and corn
-SELIC rate is set by the COPOM, Monetary Policy Committee (link to current SELIC rate http://www.bcb.gov.br/?INTEREST) 2011 SELIC was 12.5%, began to cut, dropped to 7.25%, then raised 25bps April 2013-VIES, Brazilian Central Bank’s president right to set higher or lower rate than the current rate
-SELIC rate is set by the COPOM, Monetary Policy Committee (link to current SELIC rate http://www.bcb.gov.br/?INTEREST) 2011 SELIC was 12.5%, began to cut, dropped to 7.25%, then raised 25bps April 2013-VIES, Brazilian Central Bank’s president right to set higher or lower rate than the current rate
Highlight this slide & mention it may be useful for them to come back to and analyze for their particular situation
Highlight this slide & mention it may be useful for them to come back to and analyze for their particular situation http://www.google.com/finance?q=USDBRL&ei=-qaHUeiMKNCdqwGRWQ
-OECD, organization for economic co-operation & development (primarily wealthy countries, or the countries we traditionally think of as wealthy, with current EU crisis, as I’m sure Angela Merkel would argue, that is debatable-in 2000 these countries decided to quantify what children were learning in school (Program for International Student Assessment)-at the time of the initial studyonly ½ Brazilian children completed grade school and 3 out of 4 adults were functionally illiterate. -since enrolled in the study have shown solid gains-Brazil has set a goal to reach the OECD standard over the next decade -Dilma 75,000 scholarships-roughly 80 countries in current tests and Brazil ranks in the low 50s above the bottom 3rd (but not too far, 35 percentile)
Power Distance expresses the degree to which the less powerful members of a society accept and expect that power is distributed unequally. The fundamental issue here is how a society handles inequalities among people. People in societies exhibiting a large degree of power distance accept a hierarchical order in which everybody has a place and which needs no further justification. In societies with low power distance, people strive to equalize the distribution of power and demand justification for inequalities of power.Individualism v. Collectivism The high side of this dimension, called Individualism, can be defined as a preference for a loosely-knit social framework in which individuals are expected to take care of themselves and their immediate families only. Its opposite, Collectivism, represents a preference for a tightly-knit framework in society in which individuals can expect their relatives or members of a particular in-group to look after them in exchange for unquestioning loyalty. A society's position on this dimension is reflected in whether people’s self-image is defined in terms of “I” or “we.”Masculinity v. Femininity The masculinity side of this dimension represents a preference in society for achievement, heroism, assertiveness and material reward for success. Society at large is more competitive. Its opposite, femininity, stands for a preference for cooperation, modesty, caring for the weak and quality of life. Society at large is more consensus-oriented.Uncertainty Avoidance The uncertainty avoidance dimension expresses the degree to which the members of a society feel uncomfortable with uncertainty and ambiguity. The fundamental issue here is how a society deals with the fact that the future can never be known: should we try to control the future or just let it happen? Countries exhibiting strong UAI maintain rigid codes of belief and behavior and are intolerant of unorthodox behavior and ideas. Weak UAI societies maintain a more relaxed attitude in which practice counts more than principles.Long Term v. Short Term Orientation The long-term orientation dimension can be interpreted as dealing with society’s search for virtue. Societies with a short-term orientation generally have a strong concern with establishing the absolute Truth. They are normative in their thinking. They exhibit great respect for traditions, a relatively small propensity to save for the future, and a focus on achieving quick results. In societies with a long-term orientation, people believe that truth depends very much on situation, context and time. They show an ability to adapt traditions to changed conditions, a strong propensity to save and invest, thriftiness, and perseverance in achieving results.
-Mention World Bank EODB ranking for Brazil taxes. -Overall 2012 to 2013 ranking dropped from 128th to 130th-Paying taxes dropped from 154th to 156th. According to the 2013 WB study a medium sized business will need to devote 2,600 hours to the administrative burden of paying taxes (the average in Latin America is 367 hours, in OECD countries 176 hours, and in the US 175 hours) (these numbers come from a Price Waterhouse study – wholly domestic limited liability company with 60 employs that manufacturers and sells ceramic flower pots, no special tax regimes, no import / export.)http://www.doingbusiness.org/data/exploreeconomies/brazil/When you considerhow to enter Brazil, what do you think about? What questions jump into your mind. I generally begin with asking why? Why should you enter Brazil?Is it because your competitor entered? Is it because an article in the WSJ said Brazil is the largest economy in Latin America and the 6th largest in the world. Did your largest customer enter Brazil? Is it because the middle class is growing at an explosive rate? Is it because your organizations’ core competencies can be leveraged to do xyz? All of those could be great reasons, but the way you approach the information we are about to discuss, and the decisions you make will vary greatly based on the answer to that question.
-list of several available organizational structures, take a moment on this slide to discuss the importance of research, culture and selecting the right local partner. Mention that we will likely hear several stories related to this topic during the panel discussion later today. Provide a list of some research tools. Should you vertically integrate?Acquire or develop capabilities rather than enter a joint venture?Integrate some or all of the value chain?Transaction CostsIs the exchange subject to high threats of opportunism due to high transaction specific investments?Is the exchange subject to high threats of opportunism due to uncertainty and complexity?CapabilitiesDo you have valuable, rare and costly to imitate resources? Real OptionsTo retain flexibility: exchanges characterized by high levels of uncertainty should not be vertically integrated
-Mention World Bank EODB ranking for Brazil taxes. -Overall 2012 to 2013 ranking dropped from 128th to 130th-Paying taxes dropped from 154th to 156th. According to the 2013 WB study a medium sized business will need to devote 2,600 hours to the administrative burden of paying taxes (the average in Latin America is 367 hours, in OECD countries 176 hours, and in the US 175 hours) (these numbers come from a Price Waterhouse study – wholly domestic limited liability company with 60 employs that manufacturers and sells ceramic flower pots, no special tax regimes, no import / export.)http://www.doingbusiness.org/data/exploreeconomies/brazil/
-EIRELI is fairly new (January 2012), A Lei nº 12.441, de 201 and thelawsurrounding it, isnotyetclear.-Capital invesment must beequal to atleast100xminumumwage (apx US $31k)-must use EIRELIattheendofthename-The partnermayhaveonly 1 Eireli.
-you may decide that you need an actual legal presence in Brazil to execute your desired entry method. These are the most common structures employed by foreigners when creating a subsidiary for the purpose of importation. And, the LTDA is quite often the preferred tool.
-Judicial treatment must be granted to foreign & domestic capital under the same terms*Foreign Investment is prohibited in Nuclear energyHealth ServicesRural land, abutting international bordersPost office & telegraph servicesAirlines (except domestic routes)Foreign Investment is limited inFinancial ServicesMediaRural land in certain districts % threshold
A special LTDA now exists, that can be used with only one partner
-Tax impact of conversion should be considered.
A special LTDA now exists, that can be used with only one partner
*Foreign Investment is prohibited in Nuclear energyHealth ServicesRural land, abutting international bordersPost office & telegraph servicesAirlines (except domestic routes)Foreign Investment is limited inFinancial ServicesMediaRural land in certain districts % threshold
This is a very generic process, the way that you import will vary greatly based on your individual circumstances. If you decide it is best to register as an importer, then you will need to allocate time to navigate the that process. In Brazil: Siscomex registration, RADAR registration (ordinary or simple), licensing with various ministries (by product)Colombia: Chamber of Commerce registration, obtain tax registration, locate tariff sub-regimeTell Argentina Kirchner story
Some non-automatic, Brazilian environmental agency, used materials, restricted & tax benefits, RadarSimplified 150,000 import / 300,000 export from brazil every 6 monthsOrdinary real location, employees, volume of operation depends on investment
Also touch on specialty taxes Tax on donations (ITCD) – state tax, usually 3%, some apply a progressive rate from 3-8%Tax on Services (ISS)Contribuição de Intervenção no Domínio Econômico (CIDE)Tax on the transfer of technology – generally 10%Law n 10.168, 2000 Transfer Price considerations – Brazilian entity and affiliated foreign company OR Brazilian entity and unaffiliated foreign company in a Tax Haven (Article 24 of Law 9.340/96 country that does not tax income @ at least 20%3 MethodsCost Plus Method (CPL)Profit Margin is fixed, average production cost for identical or similar goods and services + 20% marginMethod of Comparative Independent Price (PIC) – OECD modelResale Price Method (PRL)Average resell price minus, taxes, commissions and profit margin used to be 60%, recent change to 20% (30% for chemical products, glass and glass products . . . )
Also touch on specialty taxes Tax on donations (ITCD) – state tax, usually 3%, some apply a progressive rate from 3-8%Tax on Services (ISS)Contribuição de Intervenção no Domínio Econômico (CIDE)Tax on the transfer of technology – generally 10%Law n 10.168, 2000 Transfer Price considerations – Brazilian entity and affiliated foreign company OR Brazilian entity and unaffiliated foreign company in a Tax Haven (Article 24 of Law 9.340/96 country that does not tax income @ at least 20%3 MethodsCost Plus Method (CPL)Profit Margin is fixed, average production cost for identical or similar goods and services + 20% marginMethod of Comparative Independent Price (PIC) – OECD modelResale Price Method (PRL)Average resell price minus, taxes, commissions and profit margin used to be 60%, recent change to 20% (30% for chemical products, glass and glass products . . . )
Also touch on specialty taxes Tax on donations (ITCD) – state tax, usually 3%, some apply a progressive rate from 3-8%Tax on Services (ISS)Contribuição de Intervenção no Domínio Econômico (CIDE)Tax on the transfer of technology – generally 10%Law n 10.168, 2000 Transfer Price considerations – Brazilian entity and affiliated foreign company OR Brazilian entity and unaffiliated foreign company in a Tax Haven (Article 24 of Law 9.340/96 country that does not tax income @ at least 20%3 MethodsCost Plus Method (CPL)Profit Margin is fixed, average production cost for identical or similar goods and services + 20% marginMethod of Comparative Independent Price (PIC) – OECD modelResale Price Method (PRL)Average resell price minus, taxes, commissions and profit margin used to be 60%, recent change to 20% (30% for chemical products, glass and glass products . . . )
-Venezuela signed membership agreement in 2006, not yet ratified
http://brazilportal.wordpress.com/2011/12/20/brazil-may-take-steps-to-prevent-excessive-gains-in-real-mantega-says/ http://www.desenvolvimento.gov.br/sitio/interna/noticia.php?area=2&noticia=11279http://www.desenvolvimento.gov.br/sitio/interna/noticia.php?area=2&noticia=11265What did Brazil adopt?On March 4, 2013 Brazil joined the United States by adopting the United Nations Convention on Contracts for the International Sale of Goods (“CISG”). The CISG is an international treaty designed to reduce the uncertainty that often exists when doing business in a foreign country. The treaty’s stated purpose is to promote the development of international trade through a system of uniform rules which govern contracts for the international sale of goods. In general, the CISG applies when the parties to the contract are located in different countries, and those countries have adopted the CISG. As of this writing, 79 countries including the United States and now Brazil have adopted the CISG. Pros:Rather than juggling the domestic laws of both Brazil and the United States, with the CISG companies will now have a single uniform set of rules and regulations. This may enable your company to increase certainty, improve risk management and reduce transaction costs. Cons:In some transactions, your company may not want the CISG to apply. The CISG replaces a large portion of the Uniform Commercial Code (the foundation of U.S. law related to the sale of goods). The CISG incorporates concepts of traditional common law, but also civil law and socialist law. This unique combination leads to concepts that differ significantly from the UCC. The CISG will automatically apply, unless your company takes specific actions.When Brazil’s adoption of the treaty enters into force on April 1, 2014, the CISG will automatically apply to govern international trade between U.S. and Brazilian companies. Companies (and lawyers) should understand that unless the companies include specific contractual language, the CISG will be the governing law for all commercial contracts for the sale of goods between the companies. What 2 things should my company do today?Review all existing Agreements (contracts & purchase orders). If the other party’s place of business is in Brazil, then the CISG rules may soon apply to that agreement. Your company should evaluate each agreement, and determine whether it should opt-out of the CISG. Incorporate CISG analysis in all future contracts. Create a process to evaluate future contracts to determine whether it is in your interest to opt-out of the CISG. Your company should include applicable contractual provisions in each agreement, to ensure the CISG is a resource, and not a lurking disaster.
-payroll tax break may be extended-payroll tax breaks will be partially offset by additional 1.5% tax companies will pay on sales
Source: Industrial Property Law, Law No. 9279, as amended (May 15, 1996)(Braz)
Source: Industrial Property Law, Law No. 9279, as amended (May 15, 1996)(Braz)
Source: Industrial Property Law, Law No. 9279, as amended (May 15, 1996)(Braz)
However, if the representative agreement contains clauses that restrict trade or competition then it must be registered with the Conselho Administrativo de Defesa Econômica (“CADE”).
Law No. 6,729/1979 amended by Law No. 8,132/1990Addresses the relationship between auto dealers and auto manufacturesLaw No. 7,646/1987Addresses the distribution of software products
http://riotimesonline.com/brazil-news/rio-politics/brazil-to-increase-2013-minimum-wage/#http://www.ft.com/cms/s/0/7c5b23d8-4392-11e1-adda-00144feab49a.html#axzz2QjO7WJWS January 2012 Overtime cellphone lawFemale employees are entitled to 120 – day paid maternity leave8 hours per day, 44 hours per week
Invest at least R$150,000, or An exception may be made if the investment is less than R$150,000. 1. The old rules (from 2004) stated that the applicant must submit a plan for a business that creates at least 10 Brazilian jobs within 5 years. Even with a plan the issuance of a visa was at the discretion of the National Immigration Council (NIC). 2. The guidance under the new 2009 resolution simply states that the NIC may consider factors such as; the number of jobs created, the type of industry, the geographic location, and the type of production or technology contribution that the investment will provide (which is even more vague).
Invest at least R$150,000, or An exception may be made if the investment is less than R$150,000. 1. The old rules (from 2004) stated that the applicant must submit a plan for a business that creates at least 10 Brazilian jobs within 5 years. Even with a plan the issuance of a visa was at the discretion of the National Immigration Council (NIC). 2. The guidance under the new 2009 resolution simply states that the NIC may consider factors such as; the number of jobs created, the type of industry, the geographic location, and the type of production or technology contribution that the investment will provide (which is even more vague).