São Paulo - Rio de Janeiro - Belo Horizonte | DOING BUSINESS IN BRAZIL Rayes & Fagundes João...

São Paulo - Rio de Janeiro - Belo Horizonte | www.rayesfagundes.com.br

DOING BUSINESS IN BRAZILRayes & Fagundes

João Paulo F. A. Fagundes and Lia Esposito Roston


General Picture

• 5th largest country in the world

• Population: 192 million

• 7th economy in the world

• No ethnical or religious conflict

• Divided into 5 geographic regions, 26 states plus 1 Federal district and 5,565 cities

DOING BUSINESS IN BRAZIL


Credit Ratings:Moody’s: Baa2 POSS&P: BBB+ STAFitch: BBB- POS

General PictureGDP 2010: almost USD 2.2 trillion



Events


http://upload.wikimedia.org/wikipedia/en/e/e8/WC-2014-Brasil.svg


BY DESIGN OR DEFAULT, BRAZIL EMERGES AS LEADER“Bye, bye, Mexico. As of this weekend, Brazil will become – whether by design or default – the de facto spokesman for Latin America in the United States, and the most important player in U.S.- Latin American relations.” (The Miami Herald. 2009.03.12)

DON’T BUY US STOCKS – BRAZIL IS A MUCH BETTER BET“Mind you, Brazil's economy is growing at rates we Brits can only dream about. Which means that long-term, the country still looks a good investment bet.” (MoneyWeek. 2010.06.11)

INVESTING IN BRAZIL: WHAT YOU NEED TO KNOW“Brazil has one of the most liberal investment climates for outside investors. Non-resident investors, both individuals and legal entities, can invest in most of the financial and capital market instruments available to resident investors, without any restrictions.” (Forbes. 2010.04.30)

What people are saying about Brazil



BRAZIL TAKES OFF – NOW THE RISK FOR LATIN AMERICA’S BIG SUCCESS STORY IS HUBRIS“Forecasts vary, but sometime in the decade after 2014 — rather sooner than Goldman Sachs envisaged — Brazil is likely to become the world’s fifth-largest economy, overtaking Britain and France. By 2025 São Paulo will be its fifth-wealthiest city, according to PwC, a consultancy. And, in some ways, Brazil outclasses the other BRICs. Unlike China, it is a democracy. Unlike India, it has no insurgents, no ethnic and religious conflicts nor hostile neighbors. Unlike Russia, it exports more than oil and arms, and treats foreign investors with respect.” (The Economist. 12."11.2009)



• Consolidated democracy, ruled by a Federal Constitution

• Executive, Judiciary and Legislative are organized independently

• Civil law system (based on written statutes), but influenced by case law

Basics on Brazilian Legal System



• Court decisions are based on the laws enacted by the legislative authorities

• Laws are enacted by the federal government, states and cities

• In situations where there are no specific legal provision, a case is decided based on customs and general legal principles




• In addition to the legislative authorities ► Regulatory Agencies

• Regulatory Agencies issue their own rules, in full compliance with superior laws and statutes




• ANATEL – Telecommunication Agency• ANEEL – Electric Power Agency• ANP – Oil Agency• ANTT –Transportation Agency• ANS – Health Agency• ANVISA – Sanitary Agency• CADE – Antitrust Agency• CVM – Brazilian SEC

Regulatory Agencies



• Federal and State Courts

• Court System divided into three levels

• First level ► single judge

• Second level ► Court of Appeals (3 judges deciding the case)

• Third Level ► Supreme Court of Justice (STJ) and Brazilian Supreme Court (STF)

Litigation



• Federal Courts specialized in labor matters

• Judicial Courts take a long time to rule a case, but arbitration is an frequent alternative

Litigation



• Foreign and domestic investments in Brazil receive the same treatment, except for some specific statutory restrictions

• No minimum capital required

• Payment in cash or in goods

Treatment of Foreign Investment



• Brazilian Central Bank – Brazilian authority in charge of controlling the entrance, remittances and exits of capital in and out of Brazil

• Foreign investments should be registered with the Brazilian Central Bank

• The registration with the Central Bank entitles the investor to remit profits abroad and repatriate the invested capital




• If the Brazilian subsidiary makes profit and the initial investments are registered with the Brazilian Central Bank, dividends can be remitted abroad with no limitation.

• Payment of dividends/profits to shareholders is tax exempt

• Taxes are imposed only at the corporate level




• Few restrictions to foreign investments

• Restrictions are basically imposed on certain activities considered to be somehow of “public interest”


Statutory Restrictions for Foreign Investments


• Nuclear Energy Activities

• Postal and Telegraph Services

• Public Aviation Services

• Assistance to health

• Real state property in the Brazilian country side

• Property and management of newspaper, magazine, radio and TV Activities in the border zone, specially broadcasting services, mining activities, and real state properties


Statutory Restrictions for Foreign Investments


• In Brazil, the major tax guidelines are determined by the Federal Constitution

• The Federal Constitution sets down general all tax principles and the limits for the taxing authorities

Brazilian Tax System



• The Federal Constitution allocates taxing power between the Union, the states and the municipalities, determining which types of taxes can be imposed by each of them

• The Union, states and cities create and impose taxes in full compliance with the Federal Constitution




• The major corporate taxes in Brazil are: corporate income tax (34%), tax on sales (18% VAT) and tax on services (2%)

• Brazilians and foreigners residing in Brazil must pay individual income tax – exempt, 7,5%, 15% or 27,5%




DOING BUSINESS IN BRAZILRayes & Fagundes

Lia Esposito Roston


Exportation of products or services Sales Agents Commercial Distribution Franchise Commercial Partnerships Consortium Acquisition of corporate partnership Incorporation of Brazilian Subsidiary

RisksCommitment of capital

Approach with the clients

LESS

MORE

1. Possible Business Structures



• Following all the formalities, the subsidiary incorporated will form a legal entity different from its partners

• Clear separation between the rights and obligations of the subsidiary and the rights and obligations of its partners

• Assets of the subsidiary may be used only for pursuing its corporate purposes

2. Incorporating or Acquiring a Brazilian subsidiary



• Limitation of liability of the partners

• Piercing the corporate veil – labor, consumer and environmental issues

• In case of acquisition, due diligence is essential

3. Incorporating or Acquiring a Brazilian subsidiary



• 2 most usual types of legal entities:

Limited liability company (sociedade limitada): more flexible structure, less formalities, advisable for foreign partners with common controlling entity.

Corporation (sociedade anônima): may issue debentures and other securities, higher protection in case there are different groups of shareholders, shares can be negotiated in the stock market. Listed companies must adopt this form and are subject to the ruling of CVM (Brazilian SEC).

3.1. Types of business companies



• Registration is mandatory for becoming a legal entity

• Partners must draft the Articles of Association or the Bylaws, as well as the applicable Shareholders/Quotaholders Agreement

• Need of a Brazilian legal representative for the foreign partners

• Need of a local manager for the Brazilian company

• Definition of the corporate purpose, address, resolution quorums, capital, management bodies, etc.

3.2. Registration at the Board of Trade



• Brazilian Civil Code rules private transactions and parties are free to determine its rights and obligations in the contract

• Government selects the best contractor through a public bid and according to Law 8666

• Authorization, concession and permission for public services, such as telecommunication services, railway and waterway transport, ports, airports


4. Contracts between private parties and with government



5. Intellectual Property

• Copyrights

• Software

• Domain Names

• Trademarks

• PatentsRegistration at INPI


• Employee or Service Provider?

• Service against payment on a personal, subordinate and regular basis = employee

• Employment relationship is ruled by Federal Constitution, Labor Laws Consolidation and Collective Bargaining Agreements with the Union


6. Labor Relations


• General rule: 44 weekly hours or up to 8 daily hours

• Overtime is compensated with 50% increase, except for trustworthy positions

• Minimum wage of R$545,00 (US$1,00=R$1,7)


6.1. Labor Rights


• Christmas Bonus

• After 12 months, annual vacation of 30 days increased by 1/3 of the monthly salary

• Prior notice of 30 days and penalty in case of dismissal without cause – 50% over the balance of the pension fund


6.1. Labor Rights


• Additional Costs:

(i) Social Security Contribution – 20% over the gross salary(ii) Pension Fund (FGTS) – 8% per month(iii) SESC – 1,5%(iv) Education Salary – 2,5%(v) SEBRAE - 0,6%(vi) SAT – 1 to 3%

• Total cost of an employee: ~ 2,1 times the salary


6.1. Labor Rights


• Service provider must have technical independence and be free of subordination

• Risk if the service is inserted in the corporate purpose of the company or there is subordination between the service provider and the contracting party

• Joint liability of the contracting party for the labor obligations of the contractor if outsourcing is disregarded


6.2. Outsourcing


CONTACT INFORMATIONCONTACT INFORMATION

RAYES & FAGUNDES ASSOCIATE LAWYERS

Telephone: 55 11 2165 2002

E-mails: [email protected] and [email protected]


mailto:[email protected]

mailto:[email protected]

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