Remote Selling into BrazilA Practical Guide for Direct Mail and Web Merchants                                             ...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  Remote Selling into Brazil  A Practical Guide for Dir...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  Inflated prices would be a positive thing, if it  wer...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  by cheque; your payment processor will not be        ...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  Part I: Accepting Payments From                      ...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  you go to a store to buy a pair of shoes, the price  ...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  or by the bank, or delivered digitally by email      ...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  Compared to the other payment methods in             ...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  If you have worked through a PSP, paid your          ...
Remote Selling into BrazilA Practical Guide for Direct Mail and Web  valued at USD $50 or less, and ship them from        ...
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Pac net services remote selling into brazil

  1. 1. Remote Selling into BrazilA Practical Guide for Direct Mail and Web Merchants Photo by David Berkowitz
  2. 2. Remote Selling into BrazilA Practical Guide for Direct Mail and Web Remote Selling into Brazil A Practical Guide for Direct Mail and Web Merchants Twenty years ago Brazil was famous for string methodology in each. However, it didn’t really bikinis, Copacabana, rampant inflation and provide much meat about the practicalities of unimaginable levels of crime. Brazil’s economic selling there. In its discussion of Brazil it stated conditions have now changed beyond any that taking money out of Brazil may attract a expectation, however, the payments culture of 25% export tax. This statement is incorrect; the Brazil remains mysterious and complex and author has unfortunately confused the retention poses a significant barrier to foreign entry to the tax on corporate profits with the conversion costs market. of exporting currency. The BRIC economies are often touted as the This paper will concentrate on the real barriers to ‘next big thing’, and heralded as the growth entry into Brazil and suggest some solutions for economies - the engines of the civilized world. overcoming them. There are three fundamental This may be true for major multinationals, but is aspects to payments work in Brazil, all with severe it true for SMEs? Are these countries really the challenges: collecting funds from customers, next big thing for direct response marketers? The getting those funds out of Brazil and, where answer is, respectfully, no. The hype generated necessary, making payments within Brazil. We around sales opportunities in these economies will deal with each in turn, but first let’s prepare ignores one fateful fact: they are all monetarily the backdrop for a basic understanding of how ring-fenced countries with high regulatory and payments are conducted in Brazil. tax burdens, and it is exceedingly difficult for a remote seller to break into the market with any Working for the Government degree of success. Turn the clock back to 1990. If you were on the ground in Brazil and wanted to shop for imported products, you would have been hard pressed to find anything to buy. A massive import tax regime, known today as a “protectionist” policy, put huge tariffs and small quotas on imported products and effectively barred entry to all but the most essential supplies. Over the last two decades the rates have been lowered, but they are still significant. For example, import duties on cosmetics average 47% (of a government valuation, not the actual wholesale price), and Photo by looking4poetry internal sales taxes add another significant element (they are hidden in the retail price). If A recently published document on you head to a shopping mall in a Brazilian city payment processing in these countries you will pay on average three times the typical recited impressive economic data European retail price for a perfume, skin cream and outlined the basics of payment or soap imported from Europe or the States. 2 North America: +1 604 689 0399 | Europe: +353 (0)61 714360 |
  3. 3. Remote Selling into BrazilA Practical Guide for Direct Mail and Web Inflated prices would be a positive thing, if it weren’t for the bureaucracy and practical barriers Apart from filing tax returns, how is the CPF to sales in the Brazilian market. Being able to used? accept payments in the ways Brazilians like to pay - which are unique - is the key to success. It is the engine of identification for a million Unfortunately, accepting local payments means small things in Brazilian life; we have mentioned paying local taxes. bank accounts but it is also used at retail sales points; there is a system of minor tax credits Tax is Everywhere based on providing one’s CPF every time one buys goods at a supermarket or other store; in Although Brazilian commerce restrictions have reality, this also allows the government to check loosened slightly in the last decade, the country’s spending by residents and ensure that it is in social and political landscape still bears many line with declared taxable income. The CPF also of the marks of totalitarianism. One of the most enables black listing of people who are financially prevalent of these is the national ID system. Every irresponsible; as will be discussed in more detail person and every company has a tax number, below, one’s history of making payments reliably, which is publicly available information. For whether by cheque or boleto, can be checked by individuals the code is known as a CPF, and for future intended creditors of vendors using the companies it is a CPNJ. It is virtually impossible CPF number. Get a black mark against your CPF, to do anything financially in Brazil without one. and life will become extremely difficult, as you will not be able to obtain a bank account, rent a Without a tax number, neither an individual nor a car, register your children in private school, buy company can open a bank account. Money cannot or rent a property - the list is endless. be received into a bank account unless the sender has the tax number of the payee. An individual No Local Presence? cannot open a company or serve as a director of one without a tax number, and a company If, and these are big ifs, you are only going to sell can’t import goods or services without one. The product valued at $50 USD or less, accept only tax number is not secret and enjoys no privacy cheques for payment (for Rs. 100 or less, never protection whatsoever; for example, if you key in more) and ship it to consumers from outside an individual’s bank account number to make a the country, you don’t need a local presence. transfer at an ATM, the CPF number will often be For any other payment types, and if you intend displayed on the confirmation screen. to import your product in bulk and distribute it in country, then you need a local presence for With some difficulty and a suitable degree of various reasons. Each of these conditions can be explanation and justification, it is possible for a prohibitive, for reasons that will become plain. foreigner to obtain a Brazilian tax number. This quest is not for the faint of heart; nevertheless, Can my payment processor sidestep trying to establish a meaningful local these rules? presence in Brazil without one is a fool’s errand. Not really. The restriction on negotiability of cheques will prevent you taking larger payments 3 North America: +1 604 689 0399 | Europe : +353 (0)61 714360 |
  4. 4. Remote Selling into BrazilA Practical Guide for Direct Mail and Web by cheque; your payment processor will not be postal channel is a possibility. involved in importation, and the reliability of the And finally, just to confuse the picture further: mail system for items shipped from outside the many types of goods shipped into Brazil require country is much lower than internal shipment. So import permits in addition to payment of taxes. not only will you have a price restriction but you It can, and usually does, require many months will need to figure in a percentage for lost goods after application by a local agent (with CNPJ, of which have to be replaced. A successful sales course) to obtain the import permit along with programme in Brazil is going to require local a classification and valuation of the product. An handling, that’s just the way it is. Digital delivery obvious example is cosmetic products - highly of products is more exciting in this context, in desirable in Brazil and commanding strong retail that there are no postal losses. prices, but fraught with bureaucracy, rules and taxes. Importing Goods - Wholesale and Retail Owning a Brazilian Company As noted above, goods valued under $50, Assuming you are not on the ground in Brazil, shipped individually, pass duty-free into Brazil. but want to own and operate a local entity, you For anything with a higher value, the recipient, can establish one, though be warned that it will whether a company or an individual is going be costly. to get a hefty tax bill. Like all large countries Brazil has a long list of goods types with various You will need: tariffs (typically four different taxes are levied on imports), but a fair rule of thumb is that the • an address (you can rent one professionally) importer (which may be the retail recipient if the • two Brazilian shareholders (with CPFs) goods are shipped individually) is going to get a who are prepared to be on record as owner/ big tax bill - an average of 50% of the retail value managers of the goods. Brazilian customs, too, are savvy • a “contabilidad” – which is an accountant about values, so don’t plan on under-declaring who prepares your monthly tax returns for goods. It’s also worth noting here that customs submission along with paying multiple tax have the power to decide for themselves what the assessments on your behalf value is, regardless of what is actually paid. We • an effective way of communicating with all of have seen examples of customs valuations at 3x these people the actual wholesale price, meaning that the 50% tax levied translates into a real rate of 150%. Establishment costs are not high; if you have your people lined up then it can cost less than £1500. If you wish to ship your goods in bulk to Brazil However, you need to consider your ongoing and have them distributed locally, whether by an costs, before accounting, for taxes on any sales or agent or your own employee, the agent will be profits of £200 to £300 per month. If you make required to import the goods and pay the taxes. it more complicated, costs will spiral upwards The agent will need a Brazilian entity dramatically. and a CNPJ to clear them. If the goods are sent by courier, such as FedEx, then customs clearance will be provided; if sent by post then self-clearing via the 4 North America: +1 604 689 0399 | Europe : +353 (0)61 714360 |
  5. 5. Remote Selling into BrazilA Practical Guide for Direct Mail and Web Part I: Accepting Payments From named on the front (including the CNPJ). Consumers 2. Credit/Debit Cards How do Brazilians pay for things? Most Brazilians who have a bank account, In asking this question, we open Pandora’s Box also have a credit or debit card. Cards are and find a raft of unfamiliar payment types, issued largely under the Visa and MasterCard each with their own idiosyncrasies and profound brand logos, though there are other bank debit differences as compared to the features of similar cards that are not card scheme-branded. This products as used in other countries. All payment sounds good for international sales until you types in Brazil function in rather a unique way, contemplate several limiting factors. First, most and each has to be considered individually. Brazilian cards are enabled for intra-national use only; they only work if processed by a Brazilian 1. Cheques company through its acquirer. Second, the banks in Brazil do not provide acquiring services for Most Brazilians to whom you could sell something their merchants; instead, independent acquirers by mail (meaning literate Brazilians with some (of which the largest and best-known is Cielo) money) have a bank account and a cheque book. provide merchant services and only settle the net Cheques are typically printed on demand at the funds to bank accounts. If, therefore, you accept ATM and customers are normally restricted to credit cards through an international acquirer, or having 8 or 12 at a time. Bank computer systems try to run them through the machine/software keep long term records of blank cheques issued. provided by your bank outside Brazil, most of the Cheques are, despite the restrictions, widely used transactions will be declined. in Brazil and it is not unusual to see residents using cheques to pay for retail purchases at the supermarket or pharmacy. There is a high degree of trust in cheques, as a person who bounces two or more is likely to be noted on the national black list (referenced via CPF) and experience both commercial and personal difficulties until the matter is cleared up. In short, accepting cheques in payment for goods is a worthwhile practice, particularly if orders are to be made by mail. However, if you intend or need to accept cheques for more than 100 BRL, then you need your own company. Cheques for 100 Rs or less can be consigned to a payment processor “Parcelled” pricing. Note that the product is actually 2 cents with a Brazilian unit (like PacNet do Brasil) and cheaper on installment than if paid for immediately. deposited on your behalf. Cheques for It gets worse. While most of the world is used to 100 BRL or more, however, need to taking single payments on credit cards, the entire be either deposited in your own bank Brazilian retail economy runs on a practice of account (thus you need a company with “parcelization” of transactions. That is to say, if a CNPJ) or endorsed by the company 5 North America: +1 604 689 0399 | Europe : +353 (0)61 714360 |
  6. 6. Remote Selling into BrazilA Practical Guide for Direct Mail and Web you go to a store to buy a pair of shoes, the price 3. Cash in the Mail will be displayed as something like “Rs.100 / 10 x 10.” Meaning, you can buy the goods with In short, a non-starter. Brazil is a high fraud risk 10 payments of 10 Rs. The credit card regime country, and postal losses are frequent. Asking accommodates this, and at the time of sale the for cash to be put into the mail, especially if sent machine/software asks the sales person how overseas, will garner no response. many parcels the payment is to be split into. This is something people outside Brazil are not used to, and it requires a fundmental shift in marketing thinking to realize it is something Brazilians think of as normal, and expect. Settlement times are slow. It is not uncommon for new merchants to wait 30 days for their funds from the card processor. And MDRs (Merchant Discount Rates, or the commission charged by the card schemes) are high - quotes of 8 to 10 percent are not unusual. Basically, if you want to accept Brazilian credit cards, you will need a bank account to receive your proceeds, a company (with CNPJ) to contract with the acquiring company, and the cash flow to fund your sales for a protracted period while the acquirer settles. And don’t forget the tax. You will be required to include the appropriate rate of sales tax (typically about 18%) in your price, and remit it to the Photo By Eli K Hayasaka government on a monthly basis. 4. Boleto Bancario (a.k.a. Cobranca) If you use a domestic payment processor for your credit cards, some of these hurdles can According to marketing statistics, 70% of all be overcome. The taxes and costs will remain, remote Brazilian payments are made by Boleto however, and of course be slightly marked up to Bancario. This is a unique Brazilian payment form give a margin to the payment processor - if you (though there are variants in e.g. Chile, Cupones sell something for BRL 100, you are likely to see de Pago), and is best understood thoroughly if only 70 BRL of that money in your own hands you plan to sell to Brazilian consumers. at the end of the process. Your international processor can connect you to the Imagine if you will a national settlements system. domestic acquiring system, but cannot Any customer of any bank can sign up to issue, avoid the taxes or timelines that are through the bank, electronic invoices, which intrinsic to Brazilian acquiring. contain a bar code and a numerical reference. The boleto can be sent by mail by the vendor, 6 North America: +1 604 689 0399 | Europe : +353 (0)61 714360 |
  7. 7. Remote Selling into BrazilA Practical Guide for Direct Mail and Web or by the bank, or delivered digitally by email leaving boletos unpaid. Access to this database or internet. And once received, it can be paid at is via a paid subscription to a private third party any one of literally millions of outlets: grocery service, and is surprisingly cheap - a matter of a stores, in banks, at ATMs, at the post office, at few dollars a month. This serves as a powerful lottery booths, and hundreds of other types of incentive for consumers to pay boletos. processors. Almost magically, funds paid in at If the boleto is registered, the bank takes an the payment point, sent by electronic banking, active role in encouraging its payment. If it is or transferred at the ATM, are credited within 5 unregistered, then the bank’s role is confined to days to the bank account of the issuer. All of this passive acceptance of payment and advising the is made possible because the tax number system merchant when the funds arrive. A boleto can be is tied into bank accounts; no matter where funds cancelled after issue. are paid in, if a valid boleto number is either typed or scanned in, the funds will arrive in the Another refinement is that a boleto can contain a issuer’s bank account. discount for early payment, or a premium for late payment. These terms are at the discretion of the That’s the broad brush description. It will be merchant and can be quite generous or severe. immediately obvious that to issue boletos you need a bank account; and that to have a bank Where boletos issued via a bank by the account account you need a CFP or CNPJ; and therefore holder (which may be the merchant or the you need a Brazilian identity or company (or PSP) fall down, is that most banks do not have both). Inevitably, the tax authorities have their particularly sophisticated software for their hands on the whole system and there is no way to creation, especially for providing quick boleto avoid liability for reporting or taxes if you collect production via the web. A number of third boletos in Brazil, no matter if your payment party providers have sprung up to master this processor issues the boletos for you. process and provide back office support for the related accounting. The best known is probably In order to issue a boleto you must have the CPF the giant Braspag organization, but there are or CPNJ of the customer. Therefore, obtaining smaller (and more nimble) operators providing this is a fundamental and regular part of the similar niche products. What happens when order taking process. they are employed is that a multi-party contract is created allowing the local specialist to link There are several refinements to this general to the bank account and the bank’s software; it description. At the legal level, when issuing then works with the merchant’s site to create a a boleto you can choose whether to have it “pay by boleto” pop-up, captures the boleto data, registered or unregistered. If it is registered, then receives reporting of paid boletos from the bank the bank will maintain a record of it, and issue and provides reconciliation data to the merchant. reminders to the payer automatically if it is not A payment processor can be inserted into this paid. More significantly, if it is unpaid the bank process between the merchant and the bank, in will report the consumer to the Central Bank, which case the merchant’s bank account is the and a register exists (not surprisingly, one employed. Utilization of such a specialist accessed via CPF number) of unpaid is a must for online sales organizations and a boletos; you can therefore assess significant plus for anyone with a high volume of the creditworthiness of a potential boleto payments to administer. customer by checking their record for 7 North America: +1 604 689 0399 | Europe : +353 (0)61 714360 |
  8. 8. Remote Selling into BrazilA Practical Guide for Direct Mail and Web Compared to the other payment methods in 6. Direct Debit Brazil, boleto is significantly more successful and less expensive than most. Expect to pay less than Brazil has a well developed direct debit system, and 3 Rs (£1 or $2) for issued and paid boletos, a few it is on the English model - the main constituency cents per transaction to a web creation service, of users is regular issuers of irregular amounts and perhaps 2 or 3% to the PSP. All in, for goods (utilities being the obvious candidate). Direct sold at 60 Rs or more, your costs should come in debit is however largely unsuitable for remote below 5% - but don’t forget the taxes. selling as there is a paper burden surrounding the set-up and origination of direct debits. Naturally 5. Direct Bank Transfer in order to commence doing business in this manner you need a Brazilian entity, CNPJ and Brazilian consumers are used to paying for things bank account. by direct bank transfer, either from internet banking or from street merchants, particularly Part II: Taking Money Out of Brazil for higher ticket, urgent goods like medicines and specialty clothing. If you have a bank account Once you have had success selling in Brazil, the (meaning you must have a CNPJ and Brazilian most complex part of the entire process is how company) you can provide the details and your and when to take money out of Brazil. Currency is consumers can deposit directly to you. Delivery of controlled in Brazil and simply transferring your funds is fast, typically same day (same bank) and proceeds out, as you could in most developed next day (different bank). Costs are low for same countries, is prohibited. bank (often free) but expensive for other bank - typically 8 Rs or more. There is also a division of The first rule is, never take out money (by any values; most banks make the difference at 3,000 method) that you may subsequently need to Reales, allowing transfer by DOC (less expensive) use in Brazil. Make all of your local payments: up to this value but TED (more expensive) above refunds, rebates, prizes - with the same Reais that it. you accept from your consumers, whether they are in your hands or those of your PSP. Getting What makes bank transfers cumbersome them back into Brazil is almost as difficult - and for larger transfers, however, is the security exponentially more expensive - than using them surrounding the transaction. Consumers can there in the first place. typically log into their internet banking and make small transfers immediately; for larger amounts, If you have set up a Brazilian company, made an however, the bank usually requires production inward investment (through the Central Bank), of a paper authority to register the payee, which conducted your business in a compliant manner must be physically taken to the bank and signed and made a genuine profit (these are massive if’s), in front of an officer. then you can apply to remit your profits out of the country. A 25% withholding tax on the profits Bank Transfers are not a way to avoid taxes; details will apply, this will substitute for the corporate of every transaction will be logged income tax you might have paid as a Brazilian to your bank account and available company, and will be adjusted when you file your to the government for inspection on tax returns. demand. 8 North America: +1 604 689 0399 | Europe : +353 (0)61 714360 |
  9. 9. Remote Selling into BrazilA Practical Guide for Direct Mail and Web If you have worked through a PSP, paid your payment before funds are released. However, taxes, but have no Brazilian entity of your own, local payments go through seamlessly. then you have a problem and you will need help from one of several specialized participants. Your The options for payments to Brazilian consumers PSP will advise you on these and the associated and companies mirror the payment methods risks. In short, however, and vendors who have listed above for incoming funds; through your worked with India or China will be familiar bank or your PSP you will be able to issue with similar routines, you need to be married cheques, send direct bank transfers, or issue up in a relationship with a business which has refunds to credit cards. The notion of the OFT funds going in the opposite direction, such as (Original Funds Transfer) to Brazilian credit a remittance agency or introductions bureau. cards is still nascent, and prepaid cards have not What happens then is that domestic transactions really hit the market with any force (though an are conducted in parallel, with the party outside internationally enabled foreign gift card would Brazil receiving foreign currency proceeds of one be an interesting variant). Direct bank transfers, deal, and compensating the partner by making a exactly as described for DOC and TED above, are required payment in Brazil. It works and there viable options if you have the CPF or CNPJ and is a massive industry around it. You can expect, bank details for the consumer. however, to pay between 6 and 8 percent for the service, so there is a further burden on the already thin profits to be made in Brazil after payment of all the taxes. Part III: Making Payments to Brazilians If you go down the route of setting up your own company, or set up locally through agents and need to make an initial payment into Brazil, there is a legal way to do this and it’s really necessary to go through the steps so that one day, if there’s Photo By Jony Cunha any left, you can repatriate your funds. There is no significant cost, just a lot of bureaucracy. Your Summary: How Can PacNet Help? Brazilian lawyers and accountants will guide you through the steps. The fundamental divide remains between products priced at USD $50 or below shipped For day-to-day payments: prizes, refunds, rebates, from outside, and higher value products shipped allowances, commissions etc., the fundamental from within. We can forget about shipping high rule is, as noted above, to use the money you value products individually from outside, no one already have in Brazil. Sending wires, transfers wants to put their customers through the hassles or foreign currency to Brazilian residents simply of self-importing products that attract high rates puts them to massive inconvenience. A of duty. wire transfer from outside the country will stop at the Bank of Brazil and the Money In payee will be required to produce an invoice showing the reason for the If you want to sell from outside, products 9 North America: +1 604 689 0399 | Europe : +353 (0)61 714360 |
  10. 10. Remote Selling into BrazilA Practical Guide for Direct Mail and Web valued at USD $50 or less, and ship them from achieve the effect of currency export, without outside, you can take payment by cheque, boleto, breaking any laws and without risk. It is expensive international credit card (this will be a small - expect to pay fees of between 6 and 8 percent percentage of cardholders), and direct bank for export of proceeds of sales from Brazil. transfer. PacNet can accept and negotiate your cheques up to Rs 100 (any payee), issue and Taxes report your boletos, process the international credit cards and accept direct bank transfers. PacNet will not perform operations in any country PacNet will have to collect your taxes on national which are in breach of tax regulations. Therefore, payments, and all operations will be conducted an essential precondition to working with PacNet through its own bank accounts. is that we comply with local tax regulations, and collect and remit taxes where required. Often we If you have an appetite for larger business and serve as the merchant of record for our clients, wish to establish your own company in Brazil, and as such we are liable to taxes should the PacNet can provide step-by-step information, collector come calling. and introductions to service providers, to ensure you do it the right way. Once you have your Is There Anything PacNet Can’t Do? Brazilian company with CNPJ, PacNet can then negotiate your cheques up to any value, assist Regrettably, PacNet is unable to offer mailbox you with credit card processing in the local ring- services, mail collection and handling, order entry fenced system, and set up high volume boleto or telephone order services to its clients. It can issuing, receipt and reporting. It can also accept offer introductions to local vendors, but without local bank transfers, and even, in appropriate recommending or endorsing them. Logistics circumstances, originate direct debits. However, is for our clients; we are very able and entirely it’s not a turnkey solution, and it will take the happy to assist in every aspect of the payments better part of a year to set up. conundrum but that has to be the extent of our involvement. Money Out (Local) Further Information PacNet has established, up and running solutions which make payment of funds to Brazilian If you are motivated to work in the Brazilian consumers and suppliers a piece of cake. Within 24 market and would like PacNet’s assistance with hours PacNet can enable local cheque payments, the monetary aspects, please contact any of our direct bank transfers by DOC and TED, and even worldwide offices,, cash deposits to resident bank accounts across or write directly to PacNet’s country specialist, the country. Refund and similar cheques can be Information is prepared outside the country, shipped in bulk by entirely free. FedEx, and distributed locally within Brazil. Brazil is not for the faint of heart but there are rewards for getting it right and doing it properly. Money Out (International) PacNet has engineered a number of innovative solutions which legally 10 North America: +1 604 689 0399 | Europe : +353 (0)61 714360 |