Valter Matta [email protected] Legal Aspects of Foreign Investment in Brazil.
55
-
Upload
lynne-eaton -
Category
Documents
-
view
216 -
download
2
Transcript of Valter Matta [email protected] Legal Aspects of Foreign Investment in Brazil.
Brazil
Federative Republic of Brazil
Dimensions: Half of South America’s territory. 9 times size of France
Population: 189 million (5th in the world) people
Official Language: Portuguese
Federative Republic of Brazil
Federative Republic of Brazil
EXECUTIVE BRANCH
PRESIDENCY OF THEREPUBLIC
(MR. LUIZ INÁCIO LULA DA SILVA)
MINISTRIES
LEGISLATIVE BRANCH
NATIONAL
CONGRESS
FEDERALSENATE
(81 members)
CHAMBER OFFEDERAL DEPUTIES
(513 members)
Federative Republic of Brazil
JUDICIARY BRANCH
FEDERAL SUPREMECOURT
FEDERAL APPEALS COURT
STATE COURT OFAPPEALS
(2nd Instance)
STATE COURTS(1st Instance)
FEDERAL COURTS(1st Instance)
FEDERAL COURT OFAPPEALS
(2nd Instance)
Economic Indicators
GDP
US$ 1,150,000 million (2006)
GDP per capita
US$ 6,085 (2006)
GDP Growth
3.7% (2006)4.7% (2007 – estimate)
Inflation Consumers Priced Index
(12 months)
2006: 3.14% 2007: 4%*
(*) official estimate – Central Bank
Economic Activities
Largest producer and exporter of coffee, orange juice, sugar
and ethanol
Largest producer and exporter of iron ore
Largest exporter of soybean, beef and chicken
4th aircraft producer (largest producer of regional aviation jets)
9th car exporter
4th steel exporter
8th software producer
A leader in oil exploitation in deep waters
Exports
Exports in 2006US$ 137,471 billion *
(*) Ministry of Development, Industry and Commerce
Imports
Imports in 2006 *
US$ 91,394 billion
Major imports *
Machinery and electrical equipment, chemical products, and oil
(*) Ministry of Development, Industry and Commerce
2005 Total: US$ 21,638,000,000
2006 Total: US$ 22,225,000,000
Foreign Direct Investment
4,507
0,26
0,779
1,4581,661
1,3881,435
4,644
3,208
1,078 1,22
6,384
1,514
1,974
3,495
4,433
1,285
0,848 0,782 0,7450,648
0,117
Uni
ted
Sta
tes
of A
mer
ica
Net
herl
ands
Cay
man
Isla
nds
Spa
in
Can
ada
Ger
man
y
Mex
ico
Fran
ce
Japa
n
Aus
tral
ia
Oth
er
Foreign Direct InvestmentUS$ (million)
Foreign Direct Investment
2005
US$ 21,638,000,000
2006
US$ 22,225,000,000
2007 (July)
US$ 24,700,000,000
Foreign Direct Investment
Restrictions for foreign investment:
Nuclear energy
Healthcare services
Mail and telegraph (Federal Law 6538/1978)
Domestic aviation, aerospace and airport infrastructure
Rural property ownership limited to size
Mining: companies (even under foreign control) may apply for a license to operate in the mining sector
Newspapers and broadcasting companies: foreigners cannot hold more than 30% of Brazilian press and broadcasting companies
Business Opportunities
PAC
The Federal Government has launched a program in 2007 named PAC (Growth Acceleration Program). In general terms, PAC’s target is the economic growth of Brazil, through the incentive to credit and financing, and infra-structure projects.
Amount of investments expected (up to 2010): US$ 251 billion
Main sectors:
– Energy: US$ 137 billion
– Transportation: US$ 29 billion
– Water Sector: US$ 20 billion
Business Opportunities
TRANSPORTATION
Forecast of investment in transportation 2007-2010
– Highway: US$ 16.7 billion
– Railway: US$ 4 billion
– Port: US$ 1.35 billion
– Airport: US$ 1.5 billion
– Merchant Navy: US$ 5.3 billion
Business Opportunities
Sectors:
Forestry, Wood Sourcing, Paper and Pulp
Ethanol Production
Mining
Oil and Gas
Consumer Products
Infrastructure
Investment Structures
Investment Structures
Indirect Investment:
Distribution and sales representation agreements: often
precede the establishment of a direct local presence
Direct Investment:
Incorporation of a subsidiary: where market conditions
support a local presence and associated investment costs
Joint Venture
Acquisition of a local company
Indirect Investment - Distribution
Applicable regulation: distribution agreements are not subject
to specific regulations. The general contractual provisions of the
Civil Code applies
Territory: sale by distributor is subject to defined territory
Termination: the termination is subject to distributor recovering
investments
Indirect Investment - Sales Representation
Sales Representation Agreements:
Are subject to specific regulations (Law 4886/65, amended
by Law 5420/90 and Civil Code, articles 710 to 721)
Sales Representatives:
Do not acquire products in their own name, but merely act
as intermediaries in the sale of products
Entitled to commissions based on sales (direct or indirect)
Termination:
– Fixed term agreement: average monthly commission
multiplied by ½ of remaining months
– Indeterminate term: 1/12 of commissions paid during the
life of the agreement
Direct Investment - Joint Venture
Memorandum of Understanding: preliminary, binding or non-binding document
Joint Venture Agreement: broad rules of the parties’ relationship
By-laws: the company is governed by its articles of association or by-laws
Shareholders Agreement: governs the relationship between shareholders, especially in connection with the transfer of shares and voting rights
Direct Investment - Acquisition
Memorandum of Understanding: preliminary, binding or non-binding document
Due diligence – Sensitive areas: tax, labor and environmental matters
Share Purchase Agreement
Types of Brazilian entities
Limited Liability Company (Sociedade Limitada):
Governed by the Civil Code
At least two partners (quotaholders)
Articles of Association
Transfers of quotas and capital increases require amendment to Articles of Association
Managers must be domiciled in Brazil
No Board of Directors
Types of Brazilian entities
Corporation (Sociedade Anônima - S.A.):
Governed by the Corporations Law
Must have at least two shareholders (except for wholly-owned subsidiaries)
By-laws
Transfer of capital does not need to be reflected in an amendment to the by-laws
Shares may be traded at stock exchange
Shares may be voting or non-voting (non-voting up to 50% of the capital)
May issue other securities: debentures and warrants
Shareholders meetings: Annual and Extraordinary
Types of Brazilian entities
Management of the Corporation
Administrative Council
– similar to U.S. Board of Directors
– certain corporate resolutions and election of Board of Officers
– board members must be shareholders
Board of Officers
– representation of the company
– members domiciled in Brazil
Financial Statements must be published yearly
Foreign Entities’ Branches
Yes, it is possible to open a branch of a foreign entity in Brazil, although …
Time consuming
Several requirements, including governmental authorization
Some governmental agencies are not familiar with Foreign Entities’ Branches
Any changes in the by-laws of the foreign company must be approved by the Brazilian Government to be effective in Brazil
Central Bank
Foreign Capital Registration
Must be registered with the Central Bank:
– Direct investments of Brazilian companies, either made in cash or in assets
– Cross border loans and financings
Registration entitles access to foreign exchange market to repatriate investment, receive dividend, principal and interest payments
Foreign exchange transactions require execution of a foreign exchange contract with commercial bank
Taxation
Tax Treaties for avoidance of double taxation
Argentina Austria Belgium
Canada Chile China
Czech Republic Slovak Republic Denmark
Ecuador Finland France
Hungary India Italy
Japan Korea Luxembourg
Netherlands Norway Philippines
Portugal Spain Sweden
Germany (currently not in force)
Taxation
TAX RATE
Federal Corporate Income Tax (“IRPJ”)15% + 10% on any amount in excess of
US$ 120,000/year
Federal Social Contribution on Net Profits (“CSLL”)
9%
Withholding Income Tax on Remittances Abroad15% (basic rate)
25% (tax haven jurisdiction)
Federal Individual Income Tax (“IRPF”) Progressive rate (15% to 27.5%)
Distribution of Dividends 0
Federal Tax on Manufactured Products (“IPI”) Variable as per product classification
State Tax On Distribution of Goods (“ICMS”) 7% to 25%
Municipal Tax on Services (“ISS”) 2% to 5%
Federal Contribution on Financial Transfer of Credits (“CPMF”)
0.38%
Import and Export
RADAR – MAIN TYPES
Simplified RADAR:
Import / export operations up to US$ 150,000.00 in a period of six months (cap does not apply to fixed assets)
Less control / less documentation to be provided
1 to 3 months to be obtained
Ordinary RADAR:
Higher limits to import / export operations (granted by IRS)
Strict control / lots of documentation to be provided (tax assessment, including financial capacity)
3 to 6 months to be obtained
RADAR – FINANCIAL CAPACITY
Subjectivity: IRS sole discretion
Objectives: Financial capacity to pay for import operations for 6
(six) months term. Prevention of fraud/money laundering
Assessments: Investments, assets, cash flow, previous
operations
Importation using a third Company
Importation on behalf of a third party (importação por conta e ordem de terceiros):
The trading company is a service provider to the final owner
Services Agreement submitted to IRS
Importation under order (importação por encomenda)
The importation is made by the importer with the final owners’ own financial resource (no payments in advance are allowed)
The trading company sells the imported goods to the final owner
Sales Agreement submitted to IRS
Anti-Trust
Merger Notification
Required whenever:
The companies (buyer and target) have a combined market share of 20%
Either party has gross revenues in Brazil higher than US$ 200 million
Filing within 15 business days of the first binding document
Environmental Licenses
Environmental License
Environmental Licensing Procedure
Previous license – relates to feasibility of the project
Installation license – authorizes construction of the project
Operating license – authorizes implementation of the project
– Environmental Impacts Studies (EIS) required depending on environmental impact of the project
– Licensing usually at state level (low impact activities may be licensed by the Municipalities whenever an agreement exists between the States and Municipalities) but cross border projects may require federal licensing
Labor Relations
Labor Relations
Working hours: eight hours per day and forty-four hours per week
Salary: legal minimum salary (approximately US$ 200)
Vacation: 30 days per year and a vacation bonus equivalent to one-third of monthly salary
Christmas bonus: “thirteenth salary”
Labor Relations - Cost
EMPLOYEEINDEPENDENT
CONTRACTOR PERSON
INDEPENDENT CONTRACTOR LEGAL ENTITY
OUTSOURCING (CLEANING, GUARD,
ETC)
TEMPORARY WORKER
TRAINEE
SOCIAL SECURITY CHARGES
28% 20% - - - -
COMENTS/ RISKS
Other benefits in the
collective bargainig
agreement
Services under subordination and on habitual basis:
risk of labor claim for recognition of an
employment relationship
Risk of labor claim and secondary
liability
The company has secondary liability
for labor obligations. The outsourcing is
allowed to non core business activities.
Maximum term of 90 days
extendable for equal term.
Workers should be employees of the employment
agency.
Activities relating to
the graduation
course.
_Open for
negotiation
Approximately 32% of monthly salary:
13o.salary, vacation and
FGTS
LABOR CHARGES Open for negotiation _ _
Labor Relations – Cost Simulation (Employee)
Base Salary US$ 1,000.00Monthly Christimas Bonus Reserve US$ 83.00Monthly Vacation Reserve + 1/3 US$ 111.00Severance Pay Fund "FGTS" (8%) US$ 95.00Social Security "INSS" (28%) US$ 334.00
Subtotal US$ 1,623.00
Meal US$ 269.00Transportation (up to 6%) US$ 72.00Health Insurance US$ 150.00
Total US$ 1.996.43
LABOR CHARGE CALCULATION
Labor Relations – Unions and Job Stability
Unions: Employees are legally allowed to be submitted to a Union
Job Stability
– Expectant mothers: 5 months after delivery
– Union directors: 1 year after their term in office
– Members of the Accident Prevention Committees (CIPA) –1 year after their term in office
– Employees injured due to accident at work site or professional disease: 1 year after returning to work
Other rights: set forth in collective bargaining agreements
Labor Relations – Types of Work Visa
Business: 90 days per year; may be extended for more equal term
Temporary: applicable to employee (up to 2 years) and technical assistant (up to 1 year)
Permanent: for officers/managers appointed in the by-laws
– Investment of US$ 200,000 or US$ 50,000 + 10 new job positions in the company in the next 2 years
– Same term of the appointment, limited to 5 years. May be extended
Intellectual Property
Intellectual Property
The Brazilian Patent and Trademark Office (“INPI”): granting and control of industrial property rights
Applications for trademark registration
Issuance of letters of patent
Certification of licensing agreements (registration of technology transfer, trademark licenses and patent licenses agreements)
Both foreign and Brazilian industrial property rights must be registered in Brazil
The remittance of royalties must be registered with BACEN
Dos and Don'ts for doing business in Brazil
Dos and Don´ts
Be patient…
red tape, government, licensing, regulatory instability
Dos and Don´ts
Remember that Brazil is a civil law country
Dos and Don´ts
Don’t even try to understand the Brazilian tax system
Dos and Don´ts
Register your investment with the Central Bank
Dos and Don´ts
Be patient!!
Cultural differences, delays
Dos and Don´ts
Do not focus only on numbers
