Pac net services remote selling into brazil

Remote Selling into Brazil
A Practical Guide for Direct Mail and Web Merchants

Photo by David Berkowitz

A Practical Guide for Direct Mail and Web

A Practical Guide for Direct Mail and Web Merchants
Twenty years ago Brazil was famous for string methodology in each. However, it didn’t really
bikinis, Copacabana, rampant inflation and provide much meat about the practicalities of
unimaginable levels of crime. Brazil’s economic selling there. In its discussion of Brazil it stated
conditions have now changed beyond any that taking money out of Brazil may attract a
expectation, however, the payments culture of 25% export tax. This statement is incorrect; the
Brazil remains mysterious and complex and author has unfortunately confused the retention
poses a significant barrier to foreign entry to the tax on corporate profits with the conversion costs
market. of exporting currency.

The BRIC economies are often touted as the This paper will concentrate on the real barriers to
‘next big thing’, and heralded as the growth entry into Brazil and suggest some solutions for
economies - the engines of the civilized world. overcoming them. There are three fundamental
This may be true for major multinationals, but is aspects to payments work in Brazil, all with severe
it true for SMEs? Are these countries really the challenges: collecting funds from customers,
next big thing for direct response marketers? The getting those funds out of Brazil and, where
answer is, respectfully, no. The hype generated necessary, making payments within Brazil. We
around sales opportunities in these economies will deal with each in turn, but first let’s prepare
ignores one fateful fact: they are all monetarily the backdrop for a basic understanding of how
ring-fenced countries with high regulatory and payments are conducted in Brazil.
tax burdens, and it is exceedingly difficult for a
remote seller to break into the market with any Working for the Government
degree of success.
Turn the clock back to 1990. If you were on the
ground in Brazil and wanted to shop for imported
products, you would have been hard pressed
to find anything to buy. A massive import tax
regime, known today as a “protectionist” policy,
put huge tariffs and small quotas on imported
products and effectively barred entry to all but
the most essential supplies. Over the last two
decades the rates have been lowered, but they
are still significant. For example, import duties
on cosmetics average 47% (of a government
valuation, not the actual wholesale price), and
Photo by looking4poetry internal sales taxes add another significant
element (they are hidden in the retail price). If
A recently published document on you head to a shopping mall in a Brazilian city
payment processing in these countries you will pay on average three times the typical
recited impressive economic data European retail price for a perfume, skin cream
and outlined the basics of payment or soap imported from Europe or the States.

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Inflated prices would be a positive thing, if it
weren’t for the bureaucracy and practical barriers Apart from filing tax returns, how is the CPF
to sales in the Brazilian market. Being able to used?
accept payments in the ways Brazilians like to
pay - which are unique - is the key to success. It is the engine of identification for a million
Unfortunately, accepting local payments means small things in Brazilian life; we have mentioned
paying local taxes. bank accounts but it is also used at retail sales
points; there is a system of minor tax credits
Tax is Everywhere based on providing one’s CPF every time one
buys goods at a supermarket or other store; in
Although Brazilian commerce restrictions have reality, this also allows the government to check
loosened slightly in the last decade, the country’s spending by residents and ensure that it is in
social and political landscape still bears many line with declared taxable income. The CPF also
of the marks of totalitarianism. One of the most enables black listing of people who are financially
prevalent of these is the national ID system. Every irresponsible; as will be discussed in more detail
person and every company has a tax number, below, one’s history of making payments reliably,
which is publicly available information. For whether by cheque or boleto, can be checked by
individuals the code is known as a CPF, and for future intended creditors of vendors using the
companies it is a CPNJ. It is virtually impossible CPF number. Get a black mark against your CPF,
to do anything financially in Brazil without one. and life will become extremely difficult, as you
will not be able to obtain a bank account, rent a
Without a tax number, neither an individual nor a car, register your children in private school, buy
company can open a bank account. Money cannot or rent a property - the list is endless.
be received into a bank account unless the sender
has the tax number of the payee. An individual No Local Presence?
cannot open a company or serve as a director
of one without a tax number, and a company If, and these are big ifs, you are only going to sell
can’t import goods or services without one. The product valued at $50 USD or less, accept only
tax number is not secret and enjoys no privacy cheques for payment (for Rs. 100 or less, never
protection whatsoever; for example, if you key in more) and ship it to consumers from outside
an individual’s bank account number to make a the country, you don’t need a local presence.
transfer at an ATM, the CPF number will often be For any other payment types, and if you intend
displayed on the confirmation screen. to import your product in bulk and distribute it
in country, then you need a local presence for
With some difficulty and a suitable degree of various reasons. Each of these conditions can be
explanation and justification, it is possible for a prohibitive, for reasons that will become plain.
foreigner to obtain a Brazilian tax number. This
quest is not for the faint of heart; nevertheless, Can my payment processor sidestep
trying to establish a meaningful local these rules?
presence in Brazil without one is a
fool’s errand. Not really. The restriction on negotiability of
cheques will prevent you taking larger payments

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by cheque; your payment processor will not be postal channel is a possibility.
involved in importation, and the reliability of the And finally, just to confuse the picture further:
mail system for items shipped from outside the many types of goods shipped into Brazil require
country is much lower than internal shipment. So import permits in addition to payment of taxes.
not only will you have a price restriction but you It can, and usually does, require many months
will need to figure in a percentage for lost goods after application by a local agent (with CNPJ, of
which have to be replaced. A successful sales course) to obtain the import permit along with
programme in Brazil is going to require local a classification and valuation of the product. An
handling, that’s just the way it is. Digital delivery obvious example is cosmetic products - highly
of products is more exciting in this context, in desirable in Brazil and commanding strong retail
that there are no postal losses. prices, but fraught with bureaucracy, rules and
taxes.
Importing Goods - Wholesale and
Retail Owning a Brazilian Company
As noted above, goods valued under $50, Assuming you are not on the ground in Brazil,
shipped individually, pass duty-free into Brazil. but want to own and operate a local entity, you
For anything with a higher value, the recipient, can establish one, though be warned that it will
whether a company or an individual is going be costly.
to get a hefty tax bill. Like all large countries
Brazil has a long list of goods types with various You will need:
tariffs (typically four different taxes are levied
on imports), but a fair rule of thumb is that the • an address (you can rent one professionally)
importer (which may be the retail recipient if the • two Brazilian shareholders (with CPFs)
goods are shipped individually) is going to get a who are prepared to be on record as owner/
big tax bill - an average of 50% of the retail value managers
of the goods. Brazilian customs, too, are savvy • a “contabilidad” – which is an accountant
about values, so don’t plan on under-declaring who prepares your monthly tax returns for
goods. It’s also worth noting here that customs submission along with paying multiple tax
have the power to decide for themselves what the assessments on your behalf
value is, regardless of what is actually paid. We • an effective way of communicating with all of
have seen examples of customs valuations at 3x these people
the actual wholesale price, meaning that the 50%
tax levied translates into a real rate of 150%. Establishment costs are not high; if you have your
people lined up then it can cost less than £1500.
If you wish to ship your goods in bulk to Brazil However, you need to consider your ongoing
and have them distributed locally, whether by an costs, before accounting, for taxes on any sales or
agent or your own employee, the agent will be profits of £200 to £300 per month. If you make
required to import the goods and pay the taxes. it more complicated, costs will spiral upwards
The agent will need a Brazilian entity dramatically.
and a CNPJ to clear them. If the goods
are sent by courier, such as FedEx, then
customs clearance will be provided; if
sent by post then self-clearing via the
4



Part I: Accepting Payments From named on the front (including the CNPJ).
Consumers
2. Credit/Debit Cards
How do Brazilians pay for things?
Most Brazilians who have a bank account,
In asking this question, we open Pandora’s Box also have a credit or debit card. Cards are
and find a raft of unfamiliar payment types, issued largely under the Visa and MasterCard
each with their own idiosyncrasies and profound brand logos, though there are other bank debit
differences as compared to the features of similar cards that are not card scheme-branded. This
products as used in other countries. All payment sounds good for international sales until you
types in Brazil function in rather a unique way, contemplate several limiting factors. First, most
and each has to be considered individually. Brazilian cards are enabled for intra-national use
only; they only work if processed by a Brazilian
1. Cheques company through its acquirer. Second, the banks
in Brazil do not provide acquiring services for
Most Brazilians to whom you could sell something their merchants; instead, independent acquirers
by mail (meaning literate Brazilians with some (of which the largest and best-known is Cielo)
money) have a bank account and a cheque book. provide merchant services and only settle the net
Cheques are typically printed on demand at the funds to bank accounts. If, therefore, you accept
ATM and customers are normally restricted to credit cards through an international acquirer, or
having 8 or 12 at a time. Bank computer systems try to run them through the machine/software
keep long term records of blank cheques issued. provided by your bank outside Brazil, most of the
Cheques are, despite the restrictions, widely used transactions will be declined.
in Brazil and it is not unusual to see residents
using cheques to pay for retail purchases at the
supermarket or pharmacy. There is a high degree
of trust in cheques, as a person who bounces two
or more is likely to be noted on the national black
list (referenced via CPF) and experience both
commercial and personal difficulties until the
matter is cleared up.

In short, accepting cheques in payment for goods
is a worthwhile practice, particularly if orders are
to be made by mail. However, if you intend or need
to accept cheques for more than 100 BRL, then
you need your own company. Cheques for 100 Rs
or less can be consigned to a payment processor “Parcelled” pricing. Note that the product is actually 2 cents
with a Brazilian unit (like PacNet do Brasil) and cheaper on installment than if paid for immediately.
deposited on your behalf. Cheques for
It gets worse. While most of the world is used to
100 BRL or more, however, need to
taking single payments on credit cards, the entire
be either deposited in your own bank
Brazilian retail economy runs on a practice of
account (thus you need a company with
“parcelization” of transactions. That is to say, if
a CNPJ) or endorsed by the company
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you go to a store to buy a pair of shoes, the price 3. Cash in the Mail
will be displayed as something like “Rs.100 /
10 x 10.” Meaning, you can buy the goods with In short, a non-starter. Brazil is a high fraud risk
10 payments of 10 Rs. The credit card regime country, and postal losses are frequent. Asking
accommodates this, and at the time of sale the for cash to be put into the mail, especially if sent
machine/software asks the sales person how overseas, will garner no response.
many parcels the payment is to be split into. This
is something people outside Brazil are not used
to, and it requires a fundmental shift in marketing
thinking to realize it is something Brazilians think
of as normal, and expect.

Settlement times are slow. It is not uncommon
for new merchants to wait 30 days for their funds
from the card processor. And MDRs (Merchant
Discount Rates, or the commission charged by
the card schemes) are high - quotes of 8 to 10
percent are not unusual.

Basically, if you want to accept Brazilian credit
cards, you will need a bank account to receive your
proceeds, a company (with CNPJ) to contract
with the acquiring company, and the cash flow to
fund your sales for a protracted period while the
acquirer settles.

And don’t forget the tax. You will be required to
include the appropriate rate of sales tax (typically
about 18%) in your price, and remit it to the Photo By Eli K Hayasaka
government on a monthly basis.
4. Boleto Bancario (a.k.a. Cobranca)
If you use a domestic payment processor for
your credit cards, some of these hurdles can According to marketing statistics, 70% of all
be overcome. The taxes and costs will remain, remote Brazilian payments are made by Boleto
however, and of course be slightly marked up to Bancario. This is a unique Brazilian payment form
give a margin to the payment processor - if you (though there are variants in e.g. Chile, Cupones
sell something for BRL 100, you are likely to see de Pago), and is best understood thoroughly if
only 70 BRL of that money in your own hands you plan to sell to Brazilian consumers.
at the end of the process. Your international
processor can connect you to the Imagine if you will a national settlements system.
domestic acquiring system, but cannot Any customer of any bank can sign up to issue,
avoid the taxes or timelines that are through the bank, electronic invoices, which
intrinsic to Brazilian acquiring. contain a bar code and a numerical reference.
The boleto can be sent by mail by the vendor,

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or by the bank, or delivered digitally by email leaving boletos unpaid. Access to this database
or internet. And once received, it can be paid at is via a paid subscription to a private third party
any one of literally millions of outlets: grocery service, and is surprisingly cheap - a matter of a
stores, in banks, at ATMs, at the post office, at few dollars a month. This serves as a powerful
lottery booths, and hundreds of other types of incentive for consumers to pay boletos.
processors. Almost magically, funds paid in at If the boleto is registered, the bank takes an
the payment point, sent by electronic banking, active role in encouraging its payment. If it is
or transferred at the ATM, are credited within 5 unregistered, then the bank’s role is confined to
days to the bank account of the issuer. All of this passive acceptance of payment and advising the
is made possible because the tax number system merchant when the funds arrive. A boleto can be
is tied into bank accounts; no matter where funds cancelled after issue.
are paid in, if a valid boleto number is either
typed or scanned in, the funds will arrive in the Another refinement is that a boleto can contain a
issuer’s bank account. discount for early payment, or a premium for late
payment. These terms are at the discretion of the
That’s the broad brush description. It will be merchant and can be quite generous or severe.
immediately obvious that to issue boletos you
need a bank account; and that to have a bank Where boletos issued via a bank by the account
account you need a CFP or CNPJ; and therefore holder (which may be the merchant or the
you need a Brazilian identity or company (or PSP) fall down, is that most banks do not have
both). Inevitably, the tax authorities have their particularly sophisticated software for their
hands on the whole system and there is no way to creation, especially for providing quick boleto
avoid liability for reporting or taxes if you collect production via the web. A number of third
boletos in Brazil, no matter if your payment party providers have sprung up to master this
processor issues the boletos for you. process and provide back office support for the
related accounting. The best known is probably
In order to issue a boleto you must have the CPF the giant Braspag organization, but there are
or CPNJ of the customer. Therefore, obtaining smaller (and more nimble) operators providing
this is a fundamental and regular part of the similar niche products. What happens when
order taking process. they are employed is that a multi-party contract
is created allowing the local specialist to link
There are several refinements to this general to the bank account and the bank’s software; it
description. At the legal level, when issuing then works with the merchant’s site to create a
a boleto you can choose whether to have it “pay by boleto” pop-up, captures the boleto data,
registered or unregistered. If it is registered, then receives reporting of paid boletos from the bank
the bank will maintain a record of it, and issue and provides reconciliation data to the merchant.
reminders to the payer automatically if it is not A payment processor can be inserted into this
paid. More significantly, if it is unpaid the bank process between the merchant and the bank, in
will report the consumer to the Central Bank, which case the merchant’s bank account is the
and a register exists (not surprisingly, one employed. Utilization of such a specialist
accessed via CPF number) of unpaid is a must for online sales organizations and a
boletos; you can therefore assess significant plus for anyone with a high volume of
the creditworthiness of a potential boleto payments to administer.
customer by checking their record for

7



Compared to the other payment methods in 6. Direct Debit
Brazil, boleto is significantly more successful and
less expensive than most. Expect to pay less than Brazil has a well developed direct debit system, and
3 Rs (£1 or $2) for issued and paid boletos, a few it is on the English model - the main constituency
cents per transaction to a web creation service, of users is regular issuers of irregular amounts
and perhaps 2 or 3% to the PSP. All in, for goods (utilities being the obvious candidate). Direct
sold at 60 Rs or more, your costs should come in debit is however largely unsuitable for remote
below 5% - but don’t forget the taxes. selling as there is a paper burden surrounding the
set-up and origination of direct debits. Naturally
5. Direct Bank Transfer in order to commence doing business in this
manner you need a Brazilian entity, CNPJ and
Brazilian consumers are used to paying for things bank account.
by direct bank transfer, either from internet
banking or from street merchants, particularly Part II: Taking Money Out of Brazil
for higher ticket, urgent goods like medicines
and specialty clothing. If you have a bank account Once you have had success selling in Brazil, the
(meaning you must have a CNPJ and Brazilian most complex part of the entire process is how
company) you can provide the details and your and when to take money out of Brazil. Currency is
consumers can deposit directly to you. Delivery of controlled in Brazil and simply transferring your
funds is fast, typically same day (same bank) and proceeds out, as you could in most developed
next day (different bank). Costs are low for same countries, is prohibited.
bank (often free) but expensive for other bank -
typically 8 Rs or more. There is also a division of The first rule is, never take out money (by any
values; most banks make the difference at 3,000 method) that you may subsequently need to
Reales, allowing transfer by DOC (less expensive) use in Brazil. Make all of your local payments:
up to this value but TED (more expensive) above refunds, rebates, prizes - with the same Reais that
it. you accept from your consumers, whether they
are in your hands or those of your PSP. Getting
What makes bank transfers cumbersome them back into Brazil is almost as difficult - and
for larger transfers, however, is the security exponentially more expensive - than using them
surrounding the transaction. Consumers can there in the first place.
typically log into their internet banking and make
small transfers immediately; for larger amounts, If you have set up a Brazilian company, made an
however, the bank usually requires production inward investment (through the Central Bank),
of a paper authority to register the payee, which conducted your business in a compliant manner
must be physically taken to the bank and signed and made a genuine profit (these are massive if’s),
in front of an officer. then you can apply to remit your profits out of
the country. A 25% withholding tax on the profits
Bank Transfers are not a way to avoid taxes; details will apply, this will substitute for the corporate
of every transaction will be logged income tax you might have paid as a Brazilian
to your bank account and available company, and will be adjusted when you file your
to the government for inspection on tax returns.
demand.

8



If you have worked through a PSP, paid your payment before funds are released. However,
taxes, but have no Brazilian entity of your own, local payments go through seamlessly.
then you have a problem and you will need help
from one of several specialized participants. Your The options for payments to Brazilian consumers
PSP will advise you on these and the associated and companies mirror the payment methods
risks. In short, however, and vendors who have listed above for incoming funds; through your
worked with India or China will be familiar bank or your PSP you will be able to issue
with similar routines, you need to be married cheques, send direct bank transfers, or issue
up in a relationship with a business which has refunds to credit cards. The notion of the OFT
funds going in the opposite direction, such as (Original Funds Transfer) to Brazilian credit
a remittance agency or introductions bureau. cards is still nascent, and prepaid cards have not
What happens then is that domestic transactions really hit the market with any force (though an
are conducted in parallel, with the party outside internationally enabled foreign gift card would
Brazil receiving foreign currency proceeds of one be an interesting variant). Direct bank transfers,
deal, and compensating the partner by making a exactly as described for DOC and TED above, are
required payment in Brazil. It works and there viable options if you have the CPF or CNPJ and
is a massive industry around it. You can expect, bank details for the consumer.
however, to pay between 6 and 8 percent for the
service, so there is a further burden on the already
thin profits to be made in Brazil after payment of
all the taxes.

Part III: Making Payments to Brazilians
If you go down the route of setting up your own
company, or set up locally through agents and
need to make an initial payment into Brazil, there
is a legal way to do this and it’s really necessary
to go through the steps so that one day, if there’s Photo By Jony Cunha
any left, you can repatriate your funds. There is
no significant cost, just a lot of bureaucracy. Your Summary: How Can PacNet Help?
Brazilian lawyers and accountants will guide you
through the steps. The fundamental divide remains between
products priced at USD $50 or below shipped
For day-to-day payments: prizes, refunds, rebates, from outside, and higher value products shipped
allowances, commissions etc., the fundamental from within. We can forget about shipping high
rule is, as noted above, to use the money you value products individually from outside, no one
already have in Brazil. Sending wires, transfers wants to put their customers through the hassles
or foreign currency to Brazilian residents simply of self-importing products that attract high rates
puts them to massive inconvenience. A of duty.
wire transfer from outside the country
will stop at the Bank of Brazil and the Money In
payee will be required to produce an
invoice showing the reason for the If you want to sell from outside, products
9



valued at USD $50 or less, and ship them from achieve the effect of currency export, without
outside, you can take payment by cheque, boleto, breaking any laws and without risk. It is expensive
international credit card (this will be a small - expect to pay fees of between 6 and 8 percent
percentage of cardholders), and direct bank for export of proceeds of sales from Brazil.
transfer. PacNet can accept and negotiate your
cheques up to Rs 100 (any payee), issue and Taxes
report your boletos, process the international
credit cards and accept direct bank transfers. PacNet will not perform operations in any country
PacNet will have to collect your taxes on national which are in breach of tax regulations. Therefore,
payments, and all operations will be conducted an essential precondition to working with PacNet
through its own bank accounts. is that we comply with local tax regulations, and
collect and remit taxes where required. Often we
If you have an appetite for larger business and serve as the merchant of record for our clients,
wish to establish your own company in Brazil, and as such we are liable to taxes should the
PacNet can provide step-by-step information, collector come calling.
and introductions to service providers, to ensure
you do it the right way. Once you have your Is There Anything PacNet Can’t Do?
Brazilian company with CNPJ, PacNet can then
negotiate your cheques up to any value, assist Regrettably, PacNet is unable to offer mailbox
you with credit card processing in the local ring- services, mail collection and handling, order entry
fenced system, and set up high volume boleto or telephone order services to its clients. It can
issuing, receipt and reporting. It can also accept offer introductions to local vendors, but without
local bank transfers, and even, in appropriate recommending or endorsing them. Logistics
circumstances, originate direct debits. However, is for our clients; we are very able and entirely
it’s not a turnkey solution, and it will take the happy to assist in every aspect of the payments
better part of a year to set up. conundrum but that has to be the extent of our
involvement.
Money Out (Local)
Further Information
PacNet has established, up and running solutions
which make payment of funds to Brazilian If you are motivated to work in the Brazilian
consumers and suppliers a piece of cake. Within 24 market and would like PacNet’s assistance with
hours PacNet can enable local cheque payments, the monetary aspects, please contact any of our
direct bank transfers by DOC and TED, and even worldwide offices, info@pacnetservices.com,
cash deposits to resident bank accounts across or write directly to PacNet’s country specialist,
the country. Refund and similar cheques can be paul@pacnetservices.com. Information is
prepared outside the country, shipped in bulk by entirely free.
FedEx, and distributed locally within Brazil.
Brazil is not for the faint of heart but there are
rewards for getting it right and doing it properly.
Money Out (International)

PacNet has engineered a number of
innovative solutions which legally
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