Legal Aspects of Doing Business in Brazil

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• Legal Aspects of Doing Business in Brazil

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Reasons To Do Business In Brazil Brazil is the
largest economy in South AmericaBrazil is
amongst the fifteen largest economies in the
worldBrazil is abundant in natural and human
resourcesBrazil is open for foreign
competitionBrazil has a stable democratic
governmentBrazil has an important consumer
market and it is a gateway to Mercosur

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Reasons Not To Do Business In Brazil
  Macroeconomic risks still exist in
BrazilThe continuous growth of Brazilian
economy is not definiteThe costs of
establishing a position in the market are very
highBrazilian bureaucracyLanguage and culture
barriers

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Political organization Federative Republic
consisting of States (27), Municipalities and
the Federal District, with their own government
and political structure, including legislative
bodiesThree independent branches Executive
Branch, Legislative Branch and Judiciary
BranchEach branch has certain authority over
the other, according to checks and balances system

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Legal System Roman-Germanic legal system based
on written laws and not on court cases and
general practice Court decisions based on the
strict application of laws in force In case no
specific legal provision applies, decisions shall
be grounded on customs, analogy and general legal
principlesFederal Constitution (enacted in
1988) is the supreme law in Brazil. No other law
may conflict or supersede its provisions
Because the Federal Constitution goes far
beyond fundamental rights, it has already been
amended 47 times

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Judiciary Organization

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Foreign Investment in Brazil Basic legal
framework on foreign investments is set out in
specific statutes (Law No. 4,131, of September
3, 1962, Law No. 4,390, of August 29, 1965, and
Decree No. 55,762, of February 17, 1965) Main
governmental agencies regulating foreign
investmentsNational Monetary Council (CMN)
formulates monetary and credit policies Central
Bank of Brazil (BACEN) implements control of
foreign exchange. BACEN keeps track of (i) direct
investments and loans (ii) return of capital and
dividends, loans, royalties and technical
assistance fees, or any other payment

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Direct Foreign InvestmentDirect ownership of
shares/quotas of Brazilian companies Direct
investment can be made by purchasing shareholder
participation or subscribing capital in companies
already established in Brazil or by setting up a
new companyMost common corporate structures
adopted in Brazil are Sociedades Anônimas,
similar to Corporations, and Sociedades
Limitadas, similar to limited partnerships

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Direct Foreign Investment / MA Incorporating a
local company, no matter the legal type (Limitada
or Sociedade Anônima), may take about 90 days
until all registrations are complete (commercial
registry, federal tax registration, municipal tax
registration, operations licenses)

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Direct Foreign Investment / MA Direct or using
a holding company to receive the foreign
investment Holding advantage amortization of
premium paid over a number of years depending on
the justification of the premiumProcedure is
similar to elsewhere purchase agreements may
provide for an investigation phase (due
diligence), customary representations and
warranties, as well as guarantees in various
forms (price retention, escrow accounts, in rem
guarantees, etc.)Most critical areas of
liability tax, labor, operational licenses and
environmentalAntitrust clearance may be
required

All companies are subject to PIS (0,65) and to
the COFINS (3), levied on the companys gross
income on a cumulative basis
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Direct Foreign Investment / MANew law on
corporate recovery and bankruptcy (Law 11,101, of
February 9, 2005) provides for the possibility of
purchasing assets from a distressed company in a
court approved process without the risk of
succession

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Direct Foreign Investment / LaborLabor
relationships in Brazil are governed by a Labor
Code (CLT) and by collective bargaining
agreements between labor unions and trade unions
Collective bargaining agreements often increase
employees legal rights Brazil is a country
known for having a very high labor cost which
results from a series of charges on payroll

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Charges assessed on employers (CLT) in
percentage ()Social security, FGTS and related
charges1. INSS Social security 20.002.
SESI/SESC Industrial/commercial welfare
1.503. SENAI/SENAC Industrial/commercial
training 1.004. INCRA Agrarian
reform 0.205. FGTS Mandatory Fund for
Unemployment Benefit 8.506. SAT Workers
compensation
2.007. Education Support 2.508.
SEBRAE Small businesses support
0.60TOTAL 36.30 Workers rights1. Weekly
rest period (weekends) 21.002. Annual
vacation 14.283. Public holidays 3.574.
Illness 0.595. 13th salary (Christmas
Bonus) 11.906. Public transportation
Assitance
1.50TOTAL 52.84 Dismissal benefits and
mandatory benefits1. Unfair dismissal fine
50 on the FGTS 6.182. Notice of
dismissal 2.48TOTAL 8.66 Multiplier
effect 1. Impact of Charges on Workers rights
18.382. Impact of
F.G.T.S. on Prior Notice
0.21TOTAL 18.59 GENERAL
116.39

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Direct Foreign Investment / Taxation / Corporate
Income Tax15 on the book taxable income of
each tax period Surtax of 10 on any portion
of the annual taxable income exceeding R
240,000.00 (or R 20.000,00 per month) Only 30
of net profits may be reduced by carry-forward
losses Dividends are not taxable

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Direct Foreign Investment / Taxation / Social
Contributions (CSLL, PIS, Cofins)Social
Contribution on Net Profits (CSL) assessed at 9
of the net income adjusted by the additions,
exclusions and offsetting events prescribed by
tax laws Non-cumulative PIS and COFINS system
rates increased to 1,65 and 7.6, respectively.
Under this system tax payers are allowed to use
credits resulting from the acquisition of
products and services and reduce the social
contributions basis Certain companies are
subject to PIS (0,65) and to the COFINS (3),
levied on the companys gross income on a
cumulative basis

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Direct Foreign Investment / Taxation /Sales
TaxesTypes of sales taxes (i) Tax on
Manufactured Products (IPI) (ii) Tax on the
Distribution of Goods and Services (ICMS)IPI
federal tax levied on manufacture and import of
products. Payable by manufacturers and/or the
importers of foreign productsIPI rates depends
on the product Assessed on a added value
basisICMS state tax levied on the sale
(import) of products and certain
services.Payable at all stages of the chain of
sales, from the manufacturer to the end
consumerICMS rates may vary from one Brazilian
state to another Assessed also on an added value
basis