With a sophisticated technology sector, one of the largest workforces in the Americas, and one of the fastest growing economies in the world, it’s clear why Brazil is a popular choice for international expansion. But the labyrinthine Brazilian system can be confusing, and if your operations there are not set up optimally, you may face significant unexpected taxes or fines. Join us for this informative webinar to learn how to navigate it successfully.

1. Doing Business in Brazil:
Common Pitfalls & How to Avoid Them

2. The Opportunity – Why Brazil?
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 Overview
• Average GDP growth rate of over 5%
• World’s 7th largest economy
• Population of 193 million
• Sophisticated technology infrastructure
• Currently the 11th largest export market for U.S. goods
• 197 of the Fortune 500 companies are direct investors in Brazil
But, Brazil is still a very peculiar emerging market…
High Street Partners Proprietary and Confidential 2011

3. Agenda
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 The Challenges
 The Realities
• General Taxes Overview
• Tax Schemes
 Scenario #1: Tax Scheme for Brazilian Business
 General Incorporation Guidelines
 Scenario #2: S/A vs. Limitada
 Getting Started
 Real Life Situations
 Questions?

4. About HSP
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 Overview
• US offices: Annapolis (HQ), Boston, Atlanta, Miami, San Francisco, San
Jose, San Diego
• International offices : London, Hong Kong, Shanghai, Tokyo, Pune
(India)
• Employees: 125
• Customers: 350+ in over 80 countries
 How we are different
• We get it – Founder opened 30+ overseas offices and is “our
customer”
• We do international business services, every day, everywhere

5. Introduction
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Guilherme Cruz, HSP’s In-Country Expert on Brazil
 Has been helping companies expand into Brazil for over 10 years
 Started his career with consulting firms focused on advisory, accounting,
controlling, tax planning and mergers & acquisitions
 Currently an investor and holds a seat in Investments Committee of IVP
(Innova Venture Partners), an investment vehicle in partnership with
Technology Center of Campinas State University
 Extensive experience and background in the banking industry, specifically
in treasury desk structuring investments for Multinational Corporations

6. The Challenges
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Brazil has some of the most stringent laws in the world surrounding
basic sales transactions and a highly complex tax system…
 Brazil is a protected country
• For that reason there are huge opportunities for those who decide facing the
challenges of investing
 No EVA
 Tax is collected in many different stages of business
 Numerous tax Schemes and forms
 Many “codes”
• Constitution (more than 300 articles)
• Tax Code
• Civil Code
• Commercial Law
 Federal, State and Municipality tax authorities are not connected; different
databases
 Slow court system – 3 jurisdictions for tax matters

7. The Realities: General Taxes Overview
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Corporate Taxation – Federal Corporate Income Taxes
 Corporate Income Tax (IRPJ)
• Net taxable income, applied at 15% over collection basis
 Social Contribution Tax on Profits (CSLL)
• Introduced to fund social and welfare programs, it is paid in
addition to IRPJ at a rate of 9% over same collection basis of
IRJP

8. The Realities: General Taxes Overview
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Gross Revenue Taxes
 Social Integration Program (PIS)
• Cumulative: must choose real profit Scheme (1.65%)
• Non-Cumulative: presumed profit tax Scheme (0.65%)
 Social Security Contribution (COFINS)
• Cumulative: must choose real profit Scheme (7.60%)
• Non-Cumulative: presumed profit tax Scheme (3.00%)

9. The Realities: General Taxes Overview
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Indirect Taxes
 Federal
• Industrialized Tax Products (IPI)
• Import Tax (II)
 State
• Tax on Distribution of Goods and Services (ICMS)
 Municipal
• Service Tax (ISS)
 Withholding Income Tax
• Applies for certain domestic transactions such as payment
services, salaries and financial income of banking investments

10. The Realities: General Taxes Overview
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 Double Tax Agreements (DTA)
• There is no DTA in place between Brazil and the US, only a
“Reciprocity Treatment”
 Reciprocity Treatment
• Income taxes withheld by customers in Brazil are available as
foreign tax credits in the US by the US supplier
• Only meaningful to the extent that they will actually lower
federal US tax payments for the supplier

11. The Realities: Tax Scheme
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 Actual (or Real) Profit System: Net taxable income is equal to net book profit
applying Brazilian GAAP and appropriate inclusions and deductions according to
regulation.
 Presumed Profit System: Taxable income based on net profit. Restrictions: (a)
up to 48 million revenues preceding year (b) are not financial institutions (c) do
not earn foreign profits, income or gains and (d) do not qualify for an exemption.
 Arbitrated System: under inadequate circumstances of accounting records, tax
authorities may arbitrate profits. Taxable income based on net profit.
Key Considerations:
• Tax Schemes can be changed annually in the beginning of the fiscal year as of
January 1st to December 31st.
• Most companies present a pre-operational period of accumulating expenses and
consequently, losses.

12. Scenario #1: Tax Scheme for Brazilian Business
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The Situation:
The VP of Finance learns that Brazil presents two tax schemes for fiscal
purposes and needs to decide whether the company should choose
Presumed Profit or Actual Profit.
Key Consideration:
Understanding the maturity and operational margin for its
business abroad will support the decision of tax scheme.

13. Scenario #1: Tax Scheme for Brazilian Business
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The Solution:
Step 1: Determine the gross margin and pre-operational period
In the Business Plan process, viability analysis will present financial projections
to be used for local tax planning.
Margin comparison
• Presumed Profit will determine margin for taxable income
• Generally, in case of services 32% and goods, 8%
• Comparing business margins with presumed margins is key for the proper
choice
Business Maturity period
• Depending on company activity and permits required, it is possible to take
a few months to get the business off the ground and running
• Accumulated expenses in Real Profit scenario is a great advantage

14. Scenario #1: Tax Scheme for Brazilian Business
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Step 2: Building scenarios for Real and Presumed profit
On a monthly basis, it is possible to create projections over financials. In our case
the example refers to a goods business.
Real Profit Presumed Profit
Importation 1.500.000,00 Importation 1.500.000,00
ICMS 12,00% 180.000,00 ICMS 12,00% 180.000,00
IPI 0,00% IPI 0,00%
II 14,00% 210.000,00 II 14,00% 210.000,00
Tax Credit (PIS) 1,65% 24.750,00 PIS 1,65% 24.750,00
Tax Credit (COFINS) 7,60% 114.000,00 COFINS 7,60% 114.000,00
Revenues 3.315.000,00 Revenues 3.315.000,00
ICMS 12,00% -397.800,00 ICMS 12,00% -397.800,00
IPI 0,00% 0,00 IPI 0,00% 0,00
PIS 1,65% -54.697,50 PIS 0,65% -21.547,50
COFINS 7,60% -251.940,00 COFINS 3,00% -99.450,00
Net Revenues 2.610.562,50 Net Revenues 2.796.202,50
COGS -1.181.250,00 COGS -1.320.000,00
Deductable Expenses -1.064.076,97 Deductable Expenses -1.064.076,97
Other costs -100.034,99 Other costs -100.034,99
Profit Before Taxes 265.200,54 Profit Before Taxes 312.090,54
Income Tax Presumption 8,00% 265.200,00
Social Contribution Presumption 16,00% 530.400,00
Income Tax 15,00% -39.780,08 Income Tax 15,00% -39.780,00
Aditional Income Tax 10,00% -2.520,05 Aditional Income Tax 10,00% -2.520,00
Social Contribution 9,00% -23.868,05 Social Contribution 9,00% -47.736,00
Total Corporate Tax -66.168,18 Total Corporate Tax -90.036,00
Net Profit -66.168,18 Net Profit 222.054,54
Total Tax Burden 451.855,68 Total Tax Burden 428.833,50
Operational Margin 8,00% Operational Margin 9,41%

15. General Incorporation Guidelines
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Doing business in Brazil can be structured in different
formats for international investors…
Alternatives for Structuring Business
Less
Exportation
Commercial Representation
Country Ccommercial Distribution
Engagement Franchise
Establihsment of Brazilian Subsidiary
More

16. Scenario #2: S/A vs. Limitada
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The Situation:
The VP of Finance learns that Brazil presents two different types of
company structures (S/A and Limitada) and needs to decide which type
best aligns with their corporate strategy.
Key Consideration:
Choosing which type of company is a trade-off between
flexibility for more complex operations and limited liability
and cost.

17. Scenario #2: S/A vs. Limitada
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The Solution:
Limitada S/A
Similar to a Limited Liability Company Similar to a Corporation
• No stipulated minimum corporate capital • General rule, no minimum capital is required
• Capital divided in quotas however 10% of capital paid prior to filing
• Amendments of Articles of Association • Capital divided in shares
demands ¾ of corporate capital • Bylaws amendment demands 50% + 1 of
• Possibility of claim for exclusion of minority voting capital
shareholder for a fair cause • Exclusion of minority shareholder is rare and
• Less protection for minority shareholder very controversial
• Easier path for the shareholder that intends • Possibility of subscription for raising capital
to leave the company via new shares issuance
• Fewer formalities • Possibility of using goodwill, debts, and other
structured instruments
• Publishing corporate bylaws and audit of
financial statements is required

18. Getting Started
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 Step 1: Type of Company
• Choose between a Limitada or a S/A
• For both minimum of 2 shareholders – can be entities and/or individuals
 Step 2: Mandatory Representatives
• Appointment of an attorney-in-fact for representing the offshore
shareholders
• Individual that holds POA must be Brazilian resident or foreigner with
permanent VISA
 Step 3: Documentation
• By-laws/articles or associations must be notarized and approved by the
Brazilian Consulate/Embassy
• Registration with the central bank and obtaining tax payer/social security
number

19. Getting Started
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 Step 4: Legal Representative/Statutory Director
• Brazilian citizen or a foreigner with permanent VISA must be nominated as
legal representative
• Two Statutory Directors in the case of a S/A
 Step 5: Subsidiary Set-Up
• Company’s corporate purpose, corporate name and registered address
• Definition of stated capital and shareholders shares division
• Definition of company’s bylaws or articles of association and proof of filing
on Commercial Boards
• Filing municipality, state and federal licenses/registration
• Opening bank account

20. Real Life Situations
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 Offer Letter & Payroll Registration
 Local Incorporation: Corporate Address & Bylaw’s Activity
 Legal Representative: Administration Issues

21. Questions
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Questions?
+1.888.881.6576
info@hsp.com
@HSP_Inc