Kelly brazil

Doing Business in Brazil

Patrick J. Kelly
Fredrikson & Byron
200 South Sixth Street, Suite 4000
Minneapolis, MN 55402
Telephone: (612) 492-7040
Fax: (612) 492-7077
E-mail: pkelly@fredlaw.com
www.fredlaw.com

© 2010 Fredrikson & Byron, P.A.

Fredrikson & Byron, P.A.
• International law firm
– Over 240 lawyers
– Offices in Minneapolis, Des Moines, Bismarck, Fargo,
Shanghai, and Mexico.
– 4 lawyers in Latin American Practice Group, all of
whom are native speakers or fluent in Spanish and can
read and converse in Portuguese
– Experience in transactions ranging from thousands to
billions of dollars throughout Latin America
– Network of correspondent law firms throughout the
world


Fredrikson & Byron, P.A.
• Minneapolis office
– International tax and corporate
– Finance and M&A
– Intellectual property – US and international
– Litigation
– Others


WHY BRAZIL?


BRAZIL FACTS
• Largest economy in Latin America.
• 5th largest country in the world by area.
• 5th largest population in the world with a market of 201 million
people.
• With Mercosur, access to market of 240 million people.
• Politically stable.
• Economically stable – experiencing growth in the midst of a
global economic crisis.
• More foreign direct investment than any other developing
country except China.
• Trading partners: US 13.7%, Argentina 8.7%, China 8.1%,
Netherlands 5.2%, Germany 4.4% (2008).


TRADE AGREEMENTS
• WTO.
• Mercosur (Southern Common Market): Argentina, Bolivia, Uruguay
and Paraguay (Venezuela has applied for membership and has been
ratified by all parties except Paraguay).
• Future potential to integrate all of South America based upon the
Andean Community of Nations.
• Future Free Trade Agreement with Mexico currently being negotiated
–would allow link from U.S. to Mexico to Brazil. Current tariffs in
Brazil average 12%. Current tariffs in Mexico average 5%.
• Future agreement with CAFTA countries? (Costa Rica, Honduras,
Guatemala, El Salvador and Dominican Republic).


Importing
Foreign Investment:
• Brazil currently levies a tax of 2% on foreign investment,
which it justifies as a measure to control the value of the
Brazilian Reais.
• Tariffs on many goods exceed 20%. Brazil has a stated policy
of wanting to discriminate against imports in favor of
manufacturing and sourcing in the country.
• The only way for U.S. exporters to avoid the higher tariffs is
to establish manufacturing in Brazil.


Importing
• All importers must register with the Foreign Trade Secretariat
(SECEX) of the Ministry of Industry, Commerce and Tourism
(MICT). The inscription number on the Natural Person
Register (CPF) or in the General Taxpayer Register of the
Revenue Ministry (CGC), of the consignee must appear on
the commercial invoices or other documentation for
clearance.
• Products must be registered. The process can take up to one
year. Typically the registrations are valid for 2 year periods
and can be continuously renewed.
• Should complete a certificate of origin listing the origin of
each component.


Importing
• Brazil and its MERCOSUL partners implemented the
MERCOSUL common external tariff (CET) on January 1,
1995. The CET levels range between zero and 20 percent,
with the exception of tariffs on telecommunications
equipment, some capital goods, and products included on
Brazil's national list of exceptions to the CET, such as shoes,
automobiles and consumer electronics.
• The maximum Brazilian tariff for CET products is now 22.5
percent. The most common tariff is seventeen percent.
Duties are assessed ad valorem on the cost, insurance, and
freight (C.I.F.) of the import.
• Shipments by air valued between $51.00 USD and $3,000
USD are subject to a flat 60% duty and tax on the FOB value
of the shipment regardless of the commodity.


Importing
• Brazil also assesses the following taxes and fees on imports
over and above duty and tax:
• Brokerage Fee --1% of C.I.F. value.
• Warehouse Tax --1% of the import duty
• Fee for Handling Charges--varies according to value
of product (from 20 USD to 100 USD)
• Administration Commission--currently fixed at 50
USD
• Additional Port Tax--two fees totaling 3 % of C.I.F.
value.
• A Merchant Marine Renewal Tax (MMR) is assessed
at 25 percent of ocean freight charges on imports by
sea, payable by the importer. There is current
legislation that proposes a reduction of the MMR tax
to 10 percent.


Manaus Free Trade Zone
• Geographic Area in Amazonia of 10,000 Square Kilometers.
• Federal and State Incentives.

• Federal.
– Income Tax: Reduction of 75% of the income tax;
– Import Tax:
• an 88% reduction in import duty tax for raw, intermediary and
secondary materials, and for the packaging of foreign products that
are used during the manufacture of industrialized products in the
free trade zone intended for consumption elsewhere in Brazil
(provided that the superintendency gives its approval);
• an exemption from import duty tax for products that are destined
for internal consumption (including capital goods), and for those
products that are listed in Interministerial Instruction 300/1996
destined for the Amazon region;
• Reduction proportional to Brazilian raw material and workforce
participation (for IT goods).


• Federal Cont.
– Tax on Manufactured Products:
• Exemption of products manufactured in the ZFM;
• Exemption of goods imported for consumption in the
ZFM;
• Exemption of certain goods imported through
Western Amazon;
• Exemption of goods transferred from certain regions
of Brazil to the ZFM and Western Amazon.


• PIS / COFINS - Social Contributions.
– Exempted on the acquisition of inputs and raw materials
deriving from other countries (import) or regions of
Brazil, for local manufacturing purposes.
– Exempted on the import of fixed assets listed in the
regulations, for companies established in the ZFM.

• State Tax (ICMS):
– ICMS exemption on the import of inputs and raw
materials; and possibility of partial or total refund of
ICMS (or ICMS presumed credits) in sales to other States,
among other benefits.


Types of Legal Entities
• Most Common Entities:

– Corporation.
• Sociedade Anônima

– Limited Liability Company
• Limitada.


Characteristics of a Sociedade Anônima
• Limited Liability.
• Minimum of two shareholders. Need not be Brazilian citizens or residents.
• May be private or public.
• Register with the Commercial Registry and published in the Official
Gazette and in another widely circulated newspaper in the city where the
entity is incorporated.
• At least 10% of the initial paid in capital must be deposited with a
commercial bank and paid in at the company’s formation. In the case of
foreign investment, the shareholders must obtain a key from the Central
Bank and register the capital before capitalizing the company.
• Managed by officers, but may also have a board of directors.
• Officers must reside in Brazil. Board members are not required to do so,
but must grant a power of attorney to someone in Brazil to receive service
of process.
• Company’s financial statements and minutes of shareholder’s meetings
must be published.
• Must set aside 5% of annual profits as a legal reserve.
• Time and cost: 2 to 3 months. $5,000.


Characteristics of a Limitada
• Limited Liability.
• Minimum of two members. Need not be Brazilian citizens or
residents.
• Private.
• Register with the Commercial Registry and published in the Official
Gazette and in another widely circulated newspaper in the city
where the entity is formed.
• Paid in capital can be paid in over a period of one year. Note that
for obtaining a permanent visa for expatriate managers, however, a
minimum amount of $200,000 US must be fully paid in.
• Managers must be residents of Brazil.
• Managed by one or more members. The Articles of Association
must state the name of the managing member.
• The Limitada need not publish its accounts, amendments to its
Articles of Association, or other corporate documents.
• Time and cost: 2 to 3 months. $5,000.


Taxes
TAXES ARE VERY COMPLICATED IN BRAZIL. YOU MUST RETAIN
A COMPETENT LOCAL ACCOUNTANT.

• Corporate:
– taxpayers are subject to corporate income tax (IRPJ) and social contribution on
net profits (CSLL).
– In addition to IRPJ and CSLL, the federal government levies taxes on foreign
trade (import and export taxes), a value added tax on industrial production (tax on
manufactured products, IPI), and a tax on financial transactions (IOF).
– The federal government also imposes social contributions on the gross income
derived by resident legal entities (PIS and COFINS contributions).
– There is also a federal contribution imposed on cross-border payments of
royalties and certain technical, administrative and scientific assistance services
(CIDE contribution).
– Taxes that may be imposed by states include a value added tax on sales (ICMS),
as well as a gift and inheritance tax (ITCMD).
– Taxes that may be imposed by municipalities include a tax on services (ISS), and
a tax on real estate and transfer of property (ITBI).


Taxes
• Brazil's corporate tax rate: 34% for 2010. The tax consists of a
basic tax of 15%. There is also a surtax of 10% for annual income of
over BRL 240,000, about $ 110,000. An additional 9% are added for
social contribution on net profits.
• Corporations are taxed on worldwide income.
• Dividends or profits paid to a non-resident are not subject to
withholding income tax.
• Service fees are subject to either a 25% withholding tax or a 15%
withholding tax.
• Non-resident capital gains are subject to a 15% withholding income
tax.
• Value Added Tax varies from state to state. The average VAT tax is
20%.


Brazilian Central Bank
Foreign Capital Registration
• Foreign capital must be in hard currency.
• Must be registered with the Brazilian Central Bank
(CBB).
• Only capital contributions in foreign hard currency are
eligible for registration with the Central Bank of Brazil
("CBB"), through the online access to CBB Information
Data System – SISBACEN
• Registration with the CBB of the foreign capital is
required in order for the Brazilian Subsidiary to remit
dividends to the foreign members and repatriate the
registered capital


QUESTIONS


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