diversified global
How to Ride the Wave of Brazil
A guide to investing and business in Brazil
May 2011
Provided By: Diversified Global, Your Strategic Partner in Brazil. Contact [email protected]
for information on our turn key market entry and business development services in Brazil and the US.
Brazil is poised to overtake some of the world’s largest economies. France and Britain will be the first
passed as this oil fueled giant gets smarter, faster and bolder. Brazil is escaping the curse of dependency
suffered by nations which rely solely on natural resources by investing to build its own technology, clean
energy and aerospace industries. It has also convinced many of the world’s top investors to do the
same. This paper will provide data on the potential and challenges for investors and businesses hoping
to capitalize on Brazil’s success.
Contents:
I.
II.
III.
IV.
V.
Brazil and its culture
Investing in Brazil
Business Sectors in Brazil
Opening an office in Brazil
Resources
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I.
Brazil
Brazil is the fifth largest country in the world and the sixth most populous. Modern Brazil is a mix of
cultures from the Caribbean, Portugal, Western Europe, Africa and Asia. The result is one of the world’s
most diverse populations. Brazil’s reputation for great beaches, surfing, caiparinas and a laid back
attitude is well deserved. Business is brisk, but some are still adjusting to the pace of international
trade. Contract law and the protection of business interests are becoming a priority for Brazil’s
government, but do not yet match those afforded businesses in the US and Great Britain. Despite these
challenges, the opportunity presented by the best coming of age story of the century is alluring.
Brazil is a Federal Republic with executive, legislative and judiciary branches. Brazil is divided into 26
states and the Federal District of Brasilia.
Brazil’s road to democracy has been a roller coaster ride. A former Portuguese territory, Brazil became
an independent state in 1822 and a republic in 1899. Though not a military leader, Getulio Vargas took
charge of Brazil in 1930 after a military coup. A brief period of democracy followed from 1945-1964
when another coup shifted power to the military. Brazil’s military maintained control until 1985 when
the government began to shift slowly back into a democracy. In 1989 Brazil elected Fernando Collor de
Mello as President. Corruption led to his resignation in 1992, when his Vice President Itamar Franco
took over the Presidency until 1995. In 1995 a new President entered office with a promise to control
inflation and establish economic stability. Fernando Henrique Cardoso would serve two terms as
President and oversee much of the economic changes which led to a stable currency and banking sector.
Brazil’s last President, Luiz Inácio Lula da Silva (Lula), was elected in 2002 and just completed his second
term. A former union boss, Lula is a hero among Brazil’s Worker’s Party (Partido dos Trabalhadores PT).
Life after Lula
Brazil recently elected Dilma Rousseff as its new President. Brazil’s general election took place on
October 3rd, 2010 and featured two very different candidates. Jose Serra, ran on the Brazilian Social
Democracy Party ticket, and is a former Planning and Health Minister and Governor of Sao Paulo. Mr.
Serra brought political experience and a fiscally conservative policy to his campaign. Dilma Rousseff ran
as the Worker’s Party candidate. Ms. Rousseff, a former Mines and Energy Minister and later Lula’s
Chief of Staff, had never held elected office. Ms. Rousseff sees the state as a steward to usher industry
forward in Brazil and it is expected that she will not make the cuts to federal spending called for by her
opponent. Mr. Serra focused on Brazil’s low rates of public investment, high interest rates and high tax
rate to convince voters that Brazil can escape many of its past problems by addressing these issues and
cutting federal spending. In the general election, Ms. Rousseff won 46.9% of the votes, just shy of the
majority needed to become president. Jose Serra gained 32.6% of the vote and Marina Silva, from
Brazil’s Green Party, won 19.3% of the vote. Ms. Silva was expected to get about 10% of the vote, her
strength late in the race negated Ms. Rousseff’s outright win. Ms. Rousseff became President after a
runoff with Mr. Serra on October 31, 2010.
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Sporting a new future
Two events over the next six years will boost Brazil’s confidence and economy like a surfer on a Rio
storm swell, the 2014 FIFA World Cup and the 2016 Olympics, both in Rio de Janeiro. Investment in
infrastructure, technology and public safety will present ample opportunity for foreign and domestic
businesses and will transform this crime ridden city into the glamorous destination it once was. With
Rio on the rise and Sao Paulo firmly established as a financial hub, Brazil will have two world class
business centers. The competition between these cities will help clean up Sao Paulo and draw more
foreign investment to Rio.
When a problem at the Itaipu dam caused a massive power outage on November 10, 2009, millions in
Sao Paulo, Rio, and Brazil’s capital, Brasilia lost power (so did all of Paraguay). This was a relatively
painless reminder of what Brazil is now, a country on the verge. Problems exist, but things are
improving more rapidly than in more celebrated developing countries like China and India. Realizing
profit from Brazil’s growth requires the patience and understanding to see beyond its challenges.
Fernando Henrique Cardoso, predecessor to Brazil’s last President, Luiz Inacio Lula da Silva (Lula), was
Brazil’s Finance Minister in 1994 when the Real Plan was introduced. This currency plan, overseen by a
central bank focused on controlling Brazil’s legendary inflation, has created a stable currency in the Real.
Brazil’s government can finally provide the social equality, financing and confidence its population needs
to compete globally.
Economic indicators point to recovery and growth
With inflation hovering around 5% since 2005 and interest rates just now dipping below 10%, Brazil’s
economic policies of the 90’s are beginning to pay off. Brazil’s Ministry of Finance is predicting a 6%
GDP growth rate for 2010, a clear sign that GDP growth declines of -2% in 2009 are history. Retail sales
grew from 2008 to 2009 in Brazil by almost 6% as the US saw retail sales decline during the same period
by almost 6%. As much of the developed world adds to huge deficits in an attempt to recover from the
economic disaster of the past few years, Brazil has maintained a -1.5% deficit as percentage of GDP and
last year managed to bring reserve levels above those of external debt.
In a June 28, 2010 letter entitled “A Nation’s Destiny”, President Lula describes the value behind the
Brazil’s recent shift from debtor to lender, “Brazil has also been able to substantially reduce its
vulnerability to external shocks. We are no longer debtors, but have become international creditors.
There is no little irony in the fact that the union leader who once shouted “IMF out!” in the streets has
become the president who paid off Brazil’s debts to the same institution – and ended up lending it $14
billion.”
There is still room for improvement in Brazilian public and fiscal policy. Despite gains from fiscally
conservative policies, Brazil still faces problems which have long kept its people from finding prosperity,
education and proper infrastructure. Though Brazil’s middle class now makes up over half the
population, the gap between rich and poor is still among the highest in Latin America. Pedro Juca, a
visiting scholar at Stanford University from Brazil’s Ministry of Finance, pointed to some of the roots of
the problem at a recent panel on emerging economies. He noted that Brazil is challenged with: lower
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life expectancy compared to other Latin American countries, lower average years of education and poor
testing results, insufficient access to clean water and sewage systems and high rates of violence and
income inequality. Add to this the fact that Brazil spends over 30% of its GDP on social security (over
twice what it spends on education) and it’s easy to see the challenges facing Mr. Juca and his colleagues.
Addressing Brazil’s overly generous social security system and high tax rate are paramount. Next,
political and legal reform will help fight corruption and speed a slow judiciary. Fiscal reform through
lower taxes and a long term approach to shifting funds from social systems to infrastructure
improvements will improve quality of life and wean the population from its dependence on social
programs. Finally, an investment in technical education (already making its mark in a burgeoning tech
sector) and early childhood education will help pull Brazil’s population of 190 Million into the modern
era of education and make it more competitive with other developing countries.
Brazil is addressing these issues. Brazil’s US$5 Billion Bolsa Familia program is considered by the World
Bank to be the largest income transfer program in the world and the UN feels it is an effective antipoverty initiative. Brazil has also managed to create 10.5 million new jobs in the last five years, helping
to fight poverty to build its young middle class.
II.
Investing
Brazil plays a unique role in the Americas. Investors should understand that Brazil has and will continue
to call its own shots from a political perspective. This means that the Brazilian government and Brazilian
industry may engage and even cooperate with regimes and companies investors find unsavory.
Some see the November 2009 visit by Iran’s President Ahmadinejad and a June 2010 visit by Lula to Iran
as a sign that Brazil does not understand the ramifications of warmly greeting a leader so despised by
much of the developed world. Investors may worry that this could chill US-Brazilian relations and even
lead to difficulties in trade and travel. Will this make it more difficult for Brazilians to enter the US? Yes,
however, this is probably temporary as the US and its partners are used to a Brazil which regularly
greets leaders from Venezuela, Ecuador and Nicaragua- countries which share closer ties with Iran and
Russia than the US. Brazil could even help the US as a partner with the ability to negotiate with
countries we find threatening. It is clear though that these visits will do nothing to inspire the US
Congress to lift tariffs on Brazil’s sugar based ethanol used to protect the US corn ethanol industry.
Though Brazil exports more to China (11.9% of total exports) than any other country i, the US comes in a
close second. 10.9% of Brazilian exports go to the United States. This should help temper US response
to a Brazil aspiring to be a player in world politics.
Political jockeying has not slowed economic recovery or Brazil’s stock exchange, Bovespa. On June 25,
2009 Bovespa hosted the world’s largest IPO to date that year, a $4.3 billion offering by Brazil credit card
processor VisaNet. Milestones like this are fueling the rush to invest in Brazil’s industry leaders. The
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health and growth of Bovespa will play a large role in Brazil’s overall economy and attractiveness as an
investment opportunity.
When Tyco International needed to add a South American manufacturing presence and local service
capabilities it cut a deal which exemplifies corporate confidence in Brazil. Tyco’s Flow Control business
acquired Hiter Industria e Comercio de Controle Termo-Hidraulico Ltda (Hiter), a private Brazilian valve
manufacturer, and took ownership of an existing joint venture with Valvulas Crosby Industria e
Comercio Ltda.
Foreign and domestic private equity and venture capital have grown steadily over the past few years in
Brazil. In 2008 investors committed US$28 billion ($16 billion invested in 500 companies) in venture and
private equity capital to Brazil- compared to US$6 billion in 2004. That’s a 50% compound annual
growth rate over four years.
Boston-based private equity firm Advent International has been in Brazil for over a decade and has
investments in over a dozen Brazilian companies.
Erwin Roex, Partner, Coller Capital said in an April 2009 Survey, “Brazil is the big winner in terms of
changed appetite. Some 17% of LPs plan to increase their private equity exposure to the country over
the next couple of years, and a further 11% expect to begin investing there. However, confidence in
Russia as an investment destination has declined markedly.” The survey found Brazil rising from fourth
to second place in rank in 2009 for most attractive destinations for private equity investments over the
next 12 years, behind China and ahead of India.ii
Luiz Figueiredo, president of the Brazilian Association for Private Equity and Venture Capital understands
why Brazil is such a hotbed for investment. Figueiredo points to several factors. Among them: a large
and stable economy, a solid and modern financial system that escaped the financial crisis, an improving
legal system, a strong local investor base, and robust capital markets, including the country’s Bovespa
stock exchange.
More than 50% of the growth in capital came from the nation’s pension funds. In Brazil, pension funds
are allowed to invest up to 20% of their funds in alternative investments such as private equity and
venture capital. “The industry is getting new money and we are ready for it,” says Figueiredo. “We are
really well positioned to attract foreign capital.”
Mutual Funds invested in Brazil performed well in 2009. While International equity funds returned as
the best performer among all fund categories with a 42% return for the year, Latin American and
emerging markets funds were the year's biggest winners, returning 113% and 76% respectively. iShares
MSCI Brazil Index Fund ( EWZ - news - people ) was a top performer in 2009 with a return of 124% for
the full year.iii
Brazil also performs well in the IIF Ranking on Investor Relation and Data Transparency. Well ahead of
fellow BRICs Russia and China, Brazil also beat out South Korea, the Philippines and Mexico.
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The Brazilian Central Bank reports that between 2003 and 2008 foreign direct investments in Brazil rose
from US$ 12.9 Billion to over US$45 Billion. Sectors benefitting from this growth in investment are
healthy and represent some of Brazil’s largest industries. According to Brazilian law, foreign capital is
defined as “any goods, machinery, equipment, cash and financial resources that enter Brazil for the
production of goods or services, or for investment in economic activities, provided that in either case
they belong to individuals or legal entities resident, domiciled or headquartered abroad.” Foreign
capital is ensured the same treatment as that afforded to domestic capital, any discrimination not
expressly prescribed by law is prohibited. Non-resident investments may be made in Brazil through the
incorporation of a company; the opening of a branch; or other form of investment on the capital or
financial markets, among others. iv
III.
Business Sectors in Brazil
Brazilian business encompasses many industries. This section looks at some of the larger industries in
Brazil, where they stand on the global stage and spotlights a few of the key players in Brazilian business.
As Brazil’s major industries moved from the public to private sector, Brazil’s Federal government
established agencies to regulate and monitor activities in these industries. Major industry agencies in
Brazil include:
ANTAQ- National Water Transportation Agency
ANP- National Oil Agency
ANEEL- National Electric Power Agency
ANATEL- National Telecommunications Agency
ANTT-National Land Transportation Agency
Banking
In late 2008-2009, the Brazilian banking sector was briefly affected by an international banking
community which had filled its holdings with toxic assets. Despite this, Brazilian banks like Itau
Unibanco have recovered well from the financial crisis still haunting US banks. Itau Unibanco and its
peers were largely free of the toxic assets which hurt US financial stocks. Thanks to the conservative
regulatory policies enacted in the 1990s and a Central Bank which has kept interest rates from dropping
dramatically, these Brazilian banks are on an aggressive path to expand into markets outside Brazil.
Another name to watch, Bradespar, is traded on Bovespa and is part of the Ibovespa index. Bradespar
has benefitted from strategic investments in mining company Vale and the Brazilian utility CPFL.
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Oil & Gas
Petrobras is now a household name in the developed world. They are the largest company
headquartered in the Southern Hemisphere and the largest company in South America by revenues and
market capitalization. With interests in oil production, refineries and tankers, Petrobras is also a world
leader in deep water and ultra deep water oil production, knowledge critical in the post “gulf spill”
world. Petrobras will help to grow Brazil into one of the top 5 oil producing countries in the world. The
offshore Santos, Campos and Espirito Santo basins of Brazil are known as “pre-salt” and hold one of the
world’s largest deposits of light oil and gas. These regions, along with other oil fields on and offshore
have helped Brazil become a global leader in deep water exploration of oil and natural gas reserves.
Braskem, Latin America’s largest petrochemical company, was formed in 2002 by mergers of companies
owned by the Odebrecht and Mariani groups. Braskem officially opened US operations in February 2010
when they bought Sunoco’s petrochemical business, Sunoco Chemicals, for US$350 million.
Energy
The Angra 3 Nuclear power plant is being planned at a cost of R$8.5 Billion. Add to this a dozen hydro
electric plants, offshore oil platforms and exploration and it becomes clear that Brazil is planning for the
future. As Brazil’s middle class emerges and demands on energy both for Brazil and its neighbors
increase, Brazil will need to produce significantly more power than it does today.
Celesc, which owns twelve hydroelectric plants in Brazil, transmission lines and a 90,000 KM distribution
network expects need to grow dramatically in the near term. Headquartered in Florianopolis, it now
serves about 2 million customers in Santa Catarina and is part of Brazil’s Ibovepa stock index.
46% of Brazil’s power comes from renewable resources. Most of this is hydric, and much of Brazil’s
hydroelectric potential is still untapped. Brazil has the perfect climate and location for the production of
one of the best sources of biofuel, sugarcane. This has helped propel Brazil to become the world’s
largest exporter of ethanol and the second largest producer. Brazil is also the third largest producer and
user of biodiesel and a pioneer in flex fuel technologyv, which is credited in doubling Brazil’s ethanol
output in the last eight years. This prompted Shell to set up a $12 billion joint venture with Cosan, the
top sugar and ethanol producer in Brazil, in August 2010.
In 2009 Brazil produced 24.9 billion litres (6.57 billion U.S. liquid gallons) of ethanol and is on track to
match this output in 2010. This represents 37.7% of the world's total consumption of ethanol used as
fuel.vi
Agriculture and Food Products
Agribusiness accounts for about a quarter of Brazil’s GDP. Agribusiness also accounts for about 37% of
Brazilian jobs (about 18MM workers) so it is likely to remain a top priority for Brazil’s government and
investment community. Soy, corn and sugarcane remain top crops for the industry and major
contributor to Brazil’s exports. In fact, 30% of Brazilian exports are agricultural and most of the soy used
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in China comes from Brazil. Sugar cane based bioplastics could also be big business for Brazil as this crop
will eventually take on a new form intended to supplant petroleum based plastics.
Brazil holds the world’s largest commercial cattle herd, some 200 million head. JBS S.A. is now the
world’s largest beef company and the largest Brazilian multinational in the food industry. JBS made a
name for itself in 2007 when it grew holdings in the pork market through the acquisition of Swift & Co.
in the US, which is now JBS USA. In September 2009 JBS entered the US chicken market when it
acquired majority ownership of Pilgrim’s Pride for $2.8 Billion.
Aerospace
Embraer is a leading producer of military equipment, corporate and commercial jets and satellites.
Embraer is the third largest commercial aircraft manufacturer in terms of commercial aircraft delivered,
behind aircraft giants Boeing and Airbus. Embraer is also among Brazil’s top three exporters and
generated $6.2 Billion in revenue in 2009.
Avibras, a Sao Paulo group focused on missile and rocket systems, made a name for itself years ago in
the global weapons industry with its Astros II MLRS rocket launcher which played a significant role in
Iraq’s defenses during the Iran-Iraq war.
Technology
Brazilian groups like Softex, BrazilIT and Brasscom have formed to support a growing tech sector in
Brazil. Parana and Belo Horizonte have become mini silicon valleys thanks to a young VC industry and
revenues from a strong IT outsourcing community. These industry groups have also helped to stimulate
the IT industry through simplified lines of credit and support for multi-national interests in the field.
Already among the top growth industries in Brazil, mobile technology will become even more important
as Brazilian infrastructure investment increases the need for communications in a country with limited
legacy telecom infrastructure. 60% of Brazilians now own a mobile phone. But to the intense frustration
of Brazilian government officials, nearly 60% of the mobile phone market will soon be in the hands of
non-Brazilians. No surprise, then, that the creation of a new national player in the telecoms sector is
now under serious consideration.
The controversial topic has arisen following the recent acquisition by Vivo Participações, the country's
leading mobile phone operator, of controlling stakes in Telemig Celular SA and Tele Norte Celular
Participações SA for US$640m. Vivo, which is a joint-venture between Portugal Telecom and Telefónica
Móviles, the Latin American arm of Spain's Telefónica, will see its share of the mobile market jump from
28% of the market to nearly 33%.
Brazil’s Communications Minister Helio Costa would prefer to see Brazilian telecom operators invest
more in the sector after the sales of two operators to the foreign-owned Vivo.
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3G technology needs to be a priority for Brazil’s carriers if they plan to offer services typical of a modern
mobile network. In fact, Brazil is now requiring all carriers to offer 3G service to all Brazilian
municipalities by 2013.
Vivo is Brazil’s largest 3G carrier. Vivo growth strategies should provide 51% of Brazilian cities with 3G
service by 2011. Current 3G coverage will expand from the 604 cities now covered to 1461 by the end of
2010 and 2832 in 2011, representing 85% of the population.
Total number of 3G cell phones in Brazil – Data by Anatel, the local FCC
thousands
Dec/09
Jan/10
Feb/10
Mar/10
Apr/10
WCDMA
4.091
7.465
8.100
8.707
9.217
EVDO
180*
150*
120*
-
-
3G Data
terminals >
256kbit/s
2.720*
2.867*
3.013*
3.194*
3.340*
Total 3G
6.990*
10.483*
11.233*
11.900*
12.556*
3G Carriers in Brazil
Carriers
Core
Access equipment
Vivo
Ericsson
Ericsson e Huawei
Tim
Ericsson
Ericsson, Nokia-Siemens e Huawei
Claro
Ericsson e Nokia-Siemens
Ericsson, Nokia-Siemens e Huawei
Oi
Nokia-Siemens
Nokia-Siemens e Huawei
BrT
Ericsson*
Ericsson e ZTE*
CTBC
Huawei
Huawei
Sercomtel
Huawei
Huawei
Brazil has the world’s seventh largest number of internet users.
Internet Growth and Population Statistics:vii
YEAR
Population
Internet Users % Pen.
GNI p.c.
Usage Source
2000
169,544,443
5,000,000
2.9 %
$ 3,570
ITU
2005
184,284,898
25,900,000
14.1 %
$ 3,460
C. I. Almanac
2006
186,771,161
32,130,000
17.2 %
$ 3,460
I. T. U.
2007
186,771,161
42,600,000
22.8 %
$ 4,730
I. T. U.
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2008
196,342,587
67,510,400
34.4 %
$ 5,910
I. T. U.
2009
198,739,269
72,027,700
36.2 %
$ 5,910
I. T. U.
Note: GNI is Gross National Income per capita, and corresponds to World Bank data in US dollars.
Brazil is among the world’s most active social networking communities. Though US mainstays like
Facebook and LinkedIn are just beginning to take a lead, others like Orkut and Plaxo are well
established. Brazil is leading the pack in the world of social networking in terms of percentage of
internet users visiting a social network as reported by Nielson in April 2010. Orkut was introduced in
Brazil in 2004 and by mid 2005 half of Brazil’s internet users were using the network.
Internet Usage by Country April 2010
Reach and Usage by Country / Apr 2010 (Home & Work)
Social Networking / Blog Sites
% Reach of
Active Users
Time per Person
(hh:mm:ss)
Brazil
86%
5:03:37
Italy
78%
6:28:41
Spain
77%
5:11:44
Japan
75%
2:50:50
United States
74%
6:35:02
United Kingdom
74%
5:52:38
France
73%
4:10:27
Australia
72%
7:19:13
Germany
63%
4:13:05
Switzerland
59%
3:43:58
Country
Source: The Nielsen Company
Infrastructure and Industry
The World Cup and Olympics will drive short term infrastructure spending, but spending won’t stop
there, according to the Exame Infrastructure Yearbook . Over the next decade two projects stand out,
the Rio-Sao Paulo bullet train which is expected to cost R$34 Billion and the Belo Monte hydro electric
power plant coming in at R$19 Billion. Though the Belo Monte project will most likely go off without a
hitch, it has drawn criticism from local and international environmental concerns. Highways, railways,
power plants, oil projects and a Sao Paulo subway systems will account for over R$100 Billion in
additional infrastructure spending across Brazil.
AutoBAn is a Brazilian transportation company which manages some of Brazil’s largest highways and
could play a major role as Brazil builds out highway infrastructure and improves existing highways.
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IV.
Opening a Brazil office- Challenges and Opportunity
Brazil can pose many challenges to companies not familiar with its complex taxation and employment
laws. Many global institutions familiar to US companies already have a presence in Brazil. It’s not a bad
idea for companies looking into Brazil to check with current providers to see if they offer financial, legal
and other business services in Brazil.
Opening branch offices and corporations
Foreign companies can open a branch in Brazil by submitting an application to the Brazilian Government
and appointing a local representative. The representative need not be a Brazilian national, but must
reside in Brazil. The Brazilian branch would then fall under Brazilian law and must have capital for
transactions to be performed in Brazil as it is not a separate entity of the foreign company.
The most common forms of corporate entities in Brazil are limited liability companies (sociedade
limitada) and joint-stock companies (sociedade pro acoes). The liability of partners in these types of
companies is limited to the amount which they paid for their quotas or shares. Companies must have
two partners, either individuals or legal entities, who need to be domiciled in Brazil. Any partner not
domiciled in Brazil must have an attorney-in-fact in Brazil with the power to represent it as a partner in
the Brazilian company. Individual or corporate foreign partners must be enrolled in the Federal Reserve
Office in Brazil, which reports to the Ministry of Finance and is responsible for tax related issues. In
principal, there are no corporate capital requirements. Partners may distribute corporate capital as they
see fit.viii
Limited liability corporations can be managed by partners or by non-partner third parties. Senior
managers must be domiciled in Brazil and partners can assume the role of senior manager.
Brazilian joint-stock companies take the form of an entrepreneurial company and shareholders are liable
only in the event that subscribed capital stock remains unpaid. These companies may be either closelyheld or publicly-held. Publicly-held companies must register with CVM, the Brazilian Securities
Commission.
Corporate income tax in Brazil (IRPJ) is 15% of actual or estimated profits. Income tax is assessed on the
income and capital gains of people who reside in Brazil at 15% or 27.5% depending on the individual’s
ability to pay. Compensation from Brazilian sources to foreign individuals or companies is subject to
withholding income tax (IRF) of 15% or 25% if remittances refer to services or employment. IRF is levied
at a zero rate for corporate profits and dividends generated by Brazilian companies and special rates
apply under double taxation treaties.
Incentives
Brazil has a drawback incentive program focused on alleviating the tax burden on the import of goods
employed in the processing of exported products. Additionally, Brazil’s Export Processing Zones (ZPE)
provide haven from certain taxes for companies set up in these zones which produce products for
export.
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Small businesses incorporated in Brazil may be able to enjoy favored tax and legal treatment as well as
simplified tax procedures. SIMPLES, an integrated tax system for small business, is available to small
businesses with gross income of R$ 120,000 or less and companies with gross income levels between R$
120,000 and R$ 1.2 million.
Employee Rights
Brazil protects employees with a number of employee rights which provide guaranteed benefits for all
Brazilian employees, regardless of their employee contract. Companies new to Brazil are encouraged to
look closely at these rights. Employee rights cover compensation, vacation, social security, an
unemployment compensation fund (FGTS) and even bonuses to be paid during vacations and on
December 13 (13th Salary).
Intellectual Property
Recent legislation on intellectual property in Brazil conforms to the minimum standards set by a treaty
entered into by the members of the World Trade Organization. The WTO’s Trade Related Aspects of
Intellectual Property Rights (TRIPS) has been incorporated into Brazilian regulations.
What will it take?
Beyond the obvious need for Portuguese language capability, companies need to consider the
investments in time, people and money needed to enter Brazil. Companies which plan to hire Brazilian
employees can expect to pay the equivalent of 100% of that employee’s salary in additional taxes and
employer fees. Opening an office in Sao Paulo, Brazil’s financial hub, means carefully weighing factors
like location and security. Sao Paulo traffic and street level violence have created an unexpected
consequence, the highest concentration of helicopter traffic in the world.
Though it is easy to find market development help for countries like China and India, these services are
harder to find for Brazil. We list several resources for help in Brazil in the resources section of this
paper. Diversified Global can help companies which are new to Brazil and companies interested in
expanding operations in Brazil. We provide comprehensive market intelligence and strategy, channel
and partner development, sales, legal services, incorporation, office space and staffing. We can also
help identify and take advantage of Brazil’s numerous tax and tariff incentive programs related to
warehousing, assembly and R&D.
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A Local Guide is a good thing, just ask Colonel Fawcett
Adventurer Colonel Percy Fawcett was last heard from on May 29, 1925 when he telegraphed his wife
that he was entering unexplored territory in the Amazon with his son and another sick and hurt
colleague in an attempt to find the lost city of Z. Apparently, they lost gifts in a river accident which
were intended to appease local tribes. Perhaps local guides would have made better travelling
companions for Colonel Fawcett.
Though Brazil can be a great place to grow your business, it is not a place to go it alone. Language,
culture and market access are most easily dealt with when you have a trusted guide. Diversified Global
has the contacts, market intelligence, strategic know how and execution capabilities necessary to be
successful in Brazil. Diversified Global’s turnkey market entry solutions provide the in-country office
space, staff and local contact information necessary to compete in Brazil. The US Department of
Commerce also offers several programs to help US firms enter Brazil. Their Gold Key Program and list of
certified trade events in Brazil can be a good way to take first steps into Brazil and limit risk. Though this
is a good way to get an initial read on Brazil, most US and Brazilian government sponsored program will
only go so far. To establish a long term presence it is important to find a local partner or sponsor. In
fact, to get a business visa for travel to Brazil, a traveler must have a local sponsor and prove financial
support while in country.
Though contract litigation has become easier, you should chose your partners carefully and look for
those who have references with US firms. BrazilTradeNet is a service set up by the Brazilian government
which provides access to exporters and businesses in Brazil which are looking for partners.
Diversified Global can provide your company with a turnkey market entry package, recruiting, site
leasing, business development, outsourcing and legal and financial services in Brazil. Please contact
us at: [email protected] or call Fritz Schrichte, Managing Partner, at 415 685 3863.
http://diversifiedglobal.net | [email protected]
V.
Resources
Local representation and business development
Diversified Global
http://diversifiedglobal.net
With offices in the US and Brazil, Diversified Global and our strategic partner, Outsource Brazil, provides
market intelligence, strategy, corporate development, representation and business development in
Brazil.
US Department of Commerce
http://www.focusbrazil.org.br/
The US Commercial Service in Brazil promotes the export of goods and services of American companies
and develops and protects US business interests in Brazil and Paraguay.
Brazilian trading partners
BrazilTradeNet
A site created by the Trade and Investment Promotion Department of Brazil’s Ministry of External Affairs
offers access to Brazilian companies looking for trading partners outside Brazil.
http://www.braziltradenet.gov.br/
APEX Brazil
http://www.apexbrasil.com.br/
APEX Brazil is a Brazilian trade and investment agency with a mission focused on exporting Brazilian
goods and services and attracting foreign investment in Brazilian industry.
Investing
VC-Brazil
http://vc-brazil.com/blog/
Ted Rogers is a veteran VC with strong ties to the investment community in Brazil and manages a fund
focused on the Brazilian IT sector. Ted’s blog provides timely news and commentary on the investing
and business in Brazil.
APEX Brazil
http://diversifiedglobal.net | [email protected]
http://www.apexbrasil.com.br/
APEX Brazil is a Brazilian trade and investment agency with a mission focused on exporting Brazilian
goods and services and attracting foreign investment in Brazilian industry.
FINEP
http://www.finep.gov.br/
FINEP is linked to Brazil’s Ministry of Science and Technology and promotes economic and social
development of Brazil through the public support for science, technology and innovation in companies,
universities, technological institutes and other public or private institutions.
Technology
Startupi
http://startupi.com.br/
Startupi is a blog focused on the Brazilian market for technology startups , especially web, and the whole
market around it, such as venture capital , incubators, and web applications.
Outsource Brazil
http://outsourcebrazil.com.br/
Outsource Brazil, strategic partners of Diversified Global, provides international business consulting and
support to Brazilian technology and outsourcing firms. Outsource Brazil is also an excellent resource for
any company interested in near-shore outsourcing.
i
Source: SECEX/MDIC
ii
Collercapital.com, Investors plan increased exposure to Emerging Markets Private Equity (EM PE) in face of Global
economic downturn, 06 April 2009
iii
Forbes.com, Fund Spotlight: Latin America And Leveraged Bulls Lead Fund Pack, Andrea D. Murphy, 01.05.10
iv
Source: Guide to Doing Business in Brazil, Sao Paulo Chamber of Commerce
v
Federative Republic of Brazil Secretariat for Social Communication
vi
Renewable Fuels Association
vii
Internet World Stats
viii
Source: Guide to Doing Business in Brazil, Sao Paulo Chamber of Commerce
http://diversifiedglobal.net | [email protected]