Slide sem ttulo

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Legal Aspects of Foreign Investment in Brazil
Valter Mattavmatta_at_tozzinifreire.com.br
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Brazil
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Federative Republic of Brazil

• Dimensions Half of South Americas territory. 9
  times size of France
• Population 189 million (5th in the world) people
• Official Language Portuguese

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Federative Republic of Brazil
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Federative Republic of Brazil
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Federative Republic of Brazil
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Economic Indicators

• GDP
• US 1,150,000 million (2006)

GDP per capita US 6,085 (2006)
GDP Growth 3.7 (2006) 4.7 (2007 estimate)
Inflation Consumers Priced Index (12
months) 2006 3.14 2007 4 ()
official estimate Central Bank
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Economic Activities

• Largest producer and exporter of coffee, orange
  juice, sugar and ethanol
• Largest producer and exporter of iron ore
• Largest exporter of soybean, beef and chicken
• 4th aircraft producer (largest producer of
  regional aviation jets)
• 9th car exporter
• 4th steel exporter
• 8th software producer
• A leader in oil exploitation in deep waters

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Exports
Exports in 2006 US 137,471 billion ()
Ministry of Development, Industry and Commerce
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Imports

• Imports in 2006
• US 91,394 billion
• Major imports
• Machinery and electrical equipment, chemical
  products, and oil
• () Ministry of Development, Industry and
  Commerce

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Foreign Direct Investment
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Foreign Direct Investment
2005 US 21,638,000,000
2006 US 22,225,000,000
2007 (July) US 24,700,000,000
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Foreign Direct Investment

• Restrictions for foreign investment
• Nuclear energy
• Healthcare services
• Mail and telegraph (Federal Law 6538/1978)
• Domestic aviation, aerospace and airport
  infrastructure
• Rural property ownership limited to size
• Mining companies (even under foreign control)
  may apply for a license to operate in the mining
  sector
• Newspapers and broadcasting companies foreigners
  cannot hold more than 30 of Brazilian press and
  broadcasting companies

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Business Opportunities

• PAC
• The Federal Government has launched a program in
  2007 named PAC (Growth Acceleration Program). In
  general terms, PACs target is the economic
  growth of Brazil, through the incentive to credit
  and financing, and infra-structure projects.
• Amount of investments expected (up to 2010) US
  251 billion
• Main sectors
• Energy US 137 billion
• Transportation US 29 billion
• Water Sector US 20 billion

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Business Opportunities

• TRANSPORTATION
• Forecast of investment in transportation
  2007-2010
• Highway US 16.7 billion
• Railway US 4 billion
• Port US 1.35 billion
• Airport US 1.5 billion
• Merchant Navy US 5.3 billion

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Business Opportunities

• Sectors
• Forestry, Wood Sourcing, Paper and Pulp
• Ethanol Production
• Mining
• Oil and Gas
• Consumer Products
• Infrastructure

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Investment Structures
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Investment Structures

• Indirect Investment
• Distribution and sales representation agreements
  often precede the establishment of a direct local
  presence
• Direct Investment
• Incorporation of a subsidiary where market
  conditions support a local presence and
  associated investment costs
• Joint Venture
• Acquisition of a local company

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Indirect Investment - Distribution

• Applicable regulation distribution agreements
  are not subject to specific regulations. The
  general contractual provisions of the Civil Code
  applies
• Territory sale by distributor is subject to
  defined territory
• Termination the termination is subject to
  distributor recovering investments

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Indirect Investment - Sales Representation

• Sales Representation Agreements
• Are subject to specific regulations (Law 4886/65,
  amended by Law 5420/90 and Civil Code, articles
  710 to 721)
• Sales Representatives
• Do not acquire products in their own name, but
  merely act as intermediaries in the sale of
  products
• Entitled to commissions based on sales (direct or
  indirect)
• Termination
• Fixed term agreement average monthly commission
  multiplied by ½ of remaining months
• Indeterminate term 1/12 of commissions paid
  during the life of the agreement

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Direct Investment - Joint Venture

• Memorandum of Understanding preliminary, binding
  or non-binding document
• Joint Venture Agreement broad rules of the
  parties relationship
• By-laws the company is governed by its articles
  of association or by-laws
• Shareholders Agreement governs the relationship
  between shareholders, especially in connection
  with the transfer of shares and voting rights

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Direct Investment - Acquisition

• Memorandum of Understanding preliminary,
  binding or non-binding document
• Due diligence Sensitive areas tax, labor and
  environmental matters
• Share Purchase Agreement

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Types of Brazilian entities

• Limited Liability Company (Sociedade Limitada)
• Governed by the Civil Code
• At least two partners (quotaholders)
• Articles of Association
• Transfers of quotas and capital increases require
  amendment to Articles of Association
• Managers must be domiciled in Brazil
• No Board of Directors

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Types of Brazilian entities

• Corporation (Sociedade Anônima - S.A.)
• Governed by the Corporations Law
• Must have at least two shareholders (except for
  wholly-owned subsidiaries)
• By-laws
• Transfer of capital does not need to be reflected
  in an amendment to the by-laws
• Shares may be traded at stock exchange
• Shares may be voting or non-voting (non-voting up
  to 50 of the capital)
• May issue other securities debentures and
  warrants
• Shareholders meetings Annual and Extraordinary

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Types of Brazilian entities

• Management of the Corporation
• Administrative Council
• similar to U.S. Board of Directors
• certain corporate resolutions and election of
  Board of Officers
• board members must be shareholders
• Board of Officers
• representation of the company
• members domiciled in Brazil
• Financial Statements must be published yearly

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Foreign Entities Branches

• Yes, it is possible to open a branch of a foreign
  entity in Brazil, although
• Time consuming
• Several requirements, including governmental
  authorization
• Some governmental agencies are not familiar with
  Foreign Entities Branches
• Any changes in the by-laws of the foreign company
  must be approved by the Brazilian Government to
  be effective in Brazil

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Central Bank
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Foreign Capital Registration

• Must be registered with the Central Bank
• Direct investments of Brazilian companies, either
  made in cash or in assets
• Cross border loans and financings
• Registration entitles access to foreign exchange
  market to repatriate investment, receive
  dividend, principal and interest payments
• Foreign exchange transactions require execution
  of a foreign exchange contract with commercial
  bank

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Taxation
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Tax Treaties for avoidance of double taxation
Argentina Austria Belgium Canada Chile Chi
na Czech Republic Slovak Republic Denmark Ecuado
r Finland France Hungary India Italy Japan
Korea Luxembourg Netherlands Norway Philippin
es Portugal Spain Sweden Germany (currently
not in force)
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Taxation
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Import and Export
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RADAR MAIN TYPES

• Simplified RADAR
• Import / export operations up to US 150,000.00
  in a period of six months (cap does not apply to
  fixed assets)
• Less control / less documentation to be provided
• 1 to 3 months to be obtained
• Ordinary RADAR
• Higher limits to import / export operations
  (granted by IRS)
• Strict control / lots of documentation to be
  provided (tax assessment, including financial
  capacity)
• 3 to 6 months to be obtained

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RADAR FINANCIAL CAPACITY

• Subjectivity IRS sole discretion
• Objectives Financial capacity to pay for import
  operations for 6 (six) months term. Prevention of
  fraud/money laundering
• Assessments Investments, assets, cash flow,
  previous operations

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Importation using a third Company

• Importation on behalf of a third party
• (importação por conta e ordem de terceiros)
• The trading company is a service provider to the
  final owner
• Services Agreement submitted to IRS
• Importation under order
• (importação por encomenda)
• The importation is made by the importer with the
  final owners own financial resource (no payments
  in advance are allowed)
• The trading company sells the imported goods to
  the final owner
• Sales Agreement submitted to IRS

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Anti-Trust
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Merger Notification

• Required whenever
• The companies (buyer and target) have a combined
  market share of 20
• Either party has gross revenues in Brazil higher
  than US 200 million
• Filing within 15 business days of the first
  binding document

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Environmental Licenses
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Environmental License

• Environmental Licensing Procedure
• Previous license relates to feasibility of the
  project
• Installation license authorizes construction of
  the project
• Operating license authorizes implementation of
  the project
• Environmental Impacts Studies (EIS) required
  depending on environmental impact of the project
• Licensing usually at state level (low impact
  activities may be licensed by the Municipalities
  whenever an agreement exists between the States
  and Municipalities) but cross border projects may
  require federal licensing

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Labor Relations
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Labor Relations

• Working hours eight hours per day and forty-four
  hours per week
• Salary legal minimum salary (approximately US
  200)
• Vacation 30 days per year and a vacation bonus
  equivalent to one-third of monthly salary
• Christmas bonus thirteenth salary

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Labor Relations - Cost
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Labor Relations Cost Simulation (Employee)
LABOR CHARGE CALCULATION
Base Salary
US 1,000.00
Monthly Christimas Bonus Reserve
US 83.00
Monthly Vacation Reserve 1/3
US 111.00
Severance Pay Fund "FGTS" (8)
US 95.00
Social Security "INSS" (28)
US 334.00
Subtotal
US 1,623.00
Meal
US 269.00
Transportation (up to 6)
US 72.00
Health Insurance
US 150.00
Total
US 1.996.43
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Labor Relations Unions and Job Stability

• Unions Employees are legally allowed to be
  submitted to a Union
• Job Stability
• Expectant mothers 5 months after delivery
• Union directors 1 year after their term in
  office
• Members of the Accident Prevention Committees
  (CIPA) 1 year after their term in office
• Employees injured due to accident at work site or
  professional disease 1 year after returning to
  work
• Other rights set forth in collective bargaining
  agreements

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Labor Relations Types of Work Visa

• Business 90 days per year may be extended for
  more equal term
• Temporary applicable to employee (up to 2 years)
  and technical assistant (up to 1 year)
• Permanent for officers/managers appointed in
  the by-laws
• Investment of US 200,000 or US 50,000 10 new
  job positions in the company in the next 2 years
• Same term of the appointment, limited to 5 years.
  May be extended

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Intellectual Property
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Intellectual Property

• The Brazilian Patent and Trademark Office
  (INPI) granting and control of industrial
  property rights
• Applications for trademark registration
• Issuance of letters of patent
• Certification of licensing agreements
  (registration of technology transfer, trademark
  licenses and patent licenses agreements)
• Both foreign and Brazilian industrial property
  rights must be registered in Brazil
• The remittance of royalties must be registered
  with BACEN

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Dos and Don'ts for doing business in Brazil
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Dos and Donts
Be patient red tape, government, licensing,
regulatory instability
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Dos and Donts
Remember that Brazil is a civil law country
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Dos and Donts
Dont even try to understand the Brazilian tax
system
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Dos and Donts
Register your investment with the Central Bank
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Dos and Donts
Be patient!! Cultural differences, delays
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Dos and Donts
Do not focus only on numbers
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