unlocking brazil: keys to success in latin america's largest economy

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Introduction to Brazil

Economy in Latin America

Largest country by land mass + population

Largest economy by nominal GDP

Member Member

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GDP Equivalent Nations by State

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More on Brazil

Home to 12% of the planet’s surface water

Largest exporter of beef and chicken

Agricultural powerhouse

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Rise of the Brazilian Middle Class

40 million new consumers since 2003

3rd largest market for beauty and healthcare products

4th largest market for mobile phones, automobiles and TVs

5th largest market for medical equipment

MACRO ENVIRONMENT,

LEGISLATIVE UPDATE, AND

MERGERS + ACQUISITIONS

P R E S E N T E D B Y R AFAE L V I L L AC V I C E N T E D E C AR VAL H O

M&A ACTIVITY

IN BRAZIL

TOTAL TRANSACTIONS PER YEAR

Source: PwC

Average of

361

transactions

per year

JulyJan-Dec

Average of

454

transactions

per year

Average of

210

transactions

per year

Average of

362

transactions

per year

M&A TRANSACTIONS AMOUNT

M&A transactions achieved R$ 58.6 bi in the first semester of 2014.

Source: ANBIMA

Highest number of transactions in the range of R$100M-R$499M.

MOST ACTIVE SECTORS

Sector 2006 2007 2009 2010 2011 2012 20131st semester

of 2014

Information Technology (IT) 49 56 73 58 85 90 104 99

Services 43 66 54 39 42 44 46 63

Food, Beverages and Tobacco 17 35 18 18 30 41 65 58

Energy Generation 61 25 24 19 36 42 30 35

Advertising 19 35 26 22 26 29 24 35

Financial Institutions 21 19 23 22 28 35 24 28

Shopping Centers/Real Estate 5 51 17 23 61 20 36 19

Telecommunication and media 28 27 19 23 28 59 27 18

Chemical and pharmaceutical products 15 12 9 12 18 21 25 12

Electronic products 14 18 8 15 11 19 17 12

Chemical and petrochemical products 21 39 17 9 19 16 18 12

Metallurgy and steel 38 31 20 9 14 15 4 5

Source: KPMG

PRIVATE EQUITY / VENTURE CAPITAL

PE funds participation in M&A transactions

YearNumber of M&A

transactions

Participation of

PE funds

2014 (1st semester) 192 43%

2013 796 53%

2012 816 45%

2011 817 42%

2010 808 42%

2009 644 31%

2008 644 20%

Source: ABVCAP, Ernst & Young, KPMG

PRIVATE EQUITY / VENTURE CAPITAL

Perspective of growth of internal market

Fairly adequate asset prices

Tax benefits available for investment funds - FIPS

OUTLOOK FOR THE SECTOR

Capital market very dependent on world economy

Incipient secondary market

High interest rates

Low dispersion

TYPICAL M&A TIMELINE

Valuation Due Diligence Definitive

Agreements

NDA

Preliminary

Agreements

(LOI, MOU, etc)Structuring

Closing

Antitrust (?)

PRELIMINARY DOCUMENTS

Non-Disclosure Agreement (NDA)

Definite time period

LOIs, MOUs, etc

Antitrust (?): substance test applies

Labor Decree No. 5452/43 (“CLT”);

Substance Test;

Corporate veil: a real protection?

Arbitration?

Economic Group liability

DUE DILIGENCE

Tax

Law No. 5.172/66 (Brazilian Tax Code);

Detailed tax and accounting Due Diligence in order to raise actual and

potential liabilities;

Transfer of Goodwill = Successor Liability (substance test applies).

Anticorruption / Compliance

FCPA

UK Bribery Act

Anti-Corruption Law

ANTI - CORRUPTION LAW – NO. 12,846/2013

The new Brazilian Anti-Corruption Law entered into force on February 5, 2014;

Strict liability of legal entities for:

I. offering any due and advantage to a public official, directly or indirectly,

including third parties that are related to such public official;

II. commiting acts or fraud or manipulation in public bids or contracts with

public entities; or

III. financing, funding, or sponsoring any acts that are prohibited under Anti-

Corruption Law.

DEAL STRUCTURE

TaxStructure

Brazilian vehicle - amortize premium

Foreign Company –implications to be verified abroad

Tax treaty?

34% if a Brazilian legal entity;

15% if an individual (Brazilian or abroad – not on a tax haven);

15% if a foreign company – not on a tax haven;

25% if a foreign company – on a tax haven;

CapitalGain

ARBITRATION TIMELINE

DEFINITIVE AGREEMENTS

Brazilian Supreme Court

Decision (2001)

Arbitration

Law (1996)

New York

Convention (2002)

Ratification by

STJ (2005)

SHARE PURCHASE AGREEMENT


Approval by CADE (Administrative Council for Economic Defense) as condition precedent to

effectiveness of the transaction;

Confidentiality clause has to be for a definite period of time;

Capital gain over escrow amount?

Choice of law – case law is unclear about the enforceability in Brazil of foreign law and venue

in certain cases.

EMPLOYMENT AGREEMENTS


Non-compete clause

Elements: term, territory, subject matter and revocable remuneration;

Non-solicitation clause

Employees and/or clients;

Right to work.

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Presented by Luis M. Alcalde

Unlocking Brazil

September 10, 2014

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Franchising Sector in Brazil

As of 2013, there were 2,703 franchise brands operating in Brazil.

In 2013, the Brazilian franchising sector grew 11.4% as compared with 2012.

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Franchising Sector in Brazil

Almost 93% of the franchises in Brazil are local franchises, of which 4.8% (121 brands) operate abroad.

According to the World Franchise Council, Brazil is the world’s third largest country by number of franchise brands, behind China and South Korea.

In 2013, 38 foreign brands entered the Brazilian market.

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Why so much franchising in Brazil?

Growth of malls In 2013, 38 new shopping malls were launched in Brazil.

Increase in female purchasing power49.3% of the workforce in Brazil is composed of women

Growth of middle class40 million new consumers since 2003

Demand for language courses and professional courses Brazilian household investments in education has more than doubled in the past 10 years

New brands

National economic stability

Low unemployment rate 4.9% as of April 2014

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Brazilian Franchise Law 8,955/94

Brazilian Law Applies to All Franchises in

Brazil

Brazilian Brand

Spanish Brand

U.S. Brand

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Overview of Brazilian Franchise Law

Franchise definition

Content + timing of Franchise Offering Circular

Penalties for violation of statute

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Franchise defined:

Franchise business is the system by which franchisor grants franchisee the right to: use trademarks or patents, associated with the right of exclusive or semi-exclusive distribution of products or services, and possibly also the right to use technology or business systems, or operational systems developed by or held by the franchisor through direct or indirect compensation, without the characteristics of an employment relationship.

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Franchise Offering Circular

Potential franchisee’s must be provided a written Offering Circular (Circular de Oferta de Franquia)

Written

Clear language

Accessible language

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Franchise Offering Circular

Must be delivered to franchisee at least ten days prior to:

Signing any franchise agreement or pre-agreement, or

Payment of any fee by franchisee or associated person or company.

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Historical summary of franchisor

Name & corporate form of franchisor

List of all companies associated with franchisor

Past two years of franchisor financials

All pending litigation against franchisor

Detailed description of franchise & ideal franchisee characteristics (education, experience, etc.)

Minimum Required Disclosures

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General description of business

Activities to be performed by franchisee and requirement for direct involvement operations/management

Total required franchisee investment

Value of initial fees, premises, equipment, inventory, payment terms

All periodic fees, charges & how calculated

Complete list of all franchisees, sub-franchises and drop offs last 12 months

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Rights of franchisee outside of territory

Obligations of franchisee to purchase goods or services from franchisor or others picked by franchisor

Detail of what is offered by franchisor regarding supervision, guidance, training, manuals, location, design/architecture, know-how, intellectual property

Copy of model contract, pre-contract, annexes

Status of franchisor intellectual property before the National Institute of Industrial Property

Post termination issues re intellectual property and competition


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Term, territory, payments, fees,

intellectual property

Rights + responsibilities

Confidentiality, termination,

dispute resolution

General Content of Franchising Agreement

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Franchise Agreement Registration

Registration (averbação) with Institutito Nacional de Propriedade Insdustrial (INPI):

Makes the franchise agreement effective against third parties,

Legalizes money remittances abroad of payments for the technology provided to franchisee, and

Legalizes applicable tax deductions for royalties and other fees paid by franchisee.

Franchise Agreement registration is:

Optional for internal agreements, and

Mandatory, if foreign franchisor.

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What is Filed With INPI?

The Franchise Agreement

One original and two certified copies

Portuguese translation

Power of Attorney from party to local attorney

Some of the officials forms to be filed by franchisee

Statement of delivery of Franchise Offering Circular with acknowledgment of receipt by franchisee

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Technicalities to Execution

Executed by the parties and two witnesses

Initials of parties and witnesses must be on each page

Signature of foreign party must be notarized and legalize by Brazilian Consulate

Agreement must specify complete name and title of representative of the parties and place of execution

If representative is an attorney, the Power of Attorney must be notarized and legalized by the Brazilian Consulate

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Taxation of Franchising Royalties Sent Abroad

Withholding Tax 15% rate (or 25% of payments made to low-tax jurisdictions)

Contribution of Intervention on the Economic Order (Constribuição de Intervenção sobre o Domínio Econômico, or CIDE)

10% rate

Service Tax (Imposto sobre Serviços, or ISS)Varies from 2% to 5%

PIS/COFINS Importation (Contributions for social integration program and for financing the social security system)

1.65% for PIS-Import and 7.6% for COFINS-Import

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Non-Compliance with Franchise Offering Circular Requirements

Agreement is voidable by franchisee

Franchisee may demand return of all monies paid in connection with the franchise and recover

damages incurred

Franchisee must prove damages and harm suffered

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False Information in Franchise Offering Circular

Agreement is voidable by franchisee

Franchisee may demand return of all monies paid in connection with the franchise and recover damages

incurred

Franchisee must prove damages and harm suffered

Criminal penalties

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Implications of Franchise Definition?Brazilian courts may reclassify license relationships as franchise relationships.

Substance over form - regardless of how an agreement is titled the court will look at the:

nature and characteristics of the relationship,

parties’ intention and reason for entering into the agreement,

injury sustained by the claimant, and

performance of the agreement and awareness of the agreement defects (tacit confirmation of an annullable act).

What are the consequences?

Agreement might be annulled, with the return of the membership fee and royalties (art. 4 of Law 8,955/1994).

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Franchise vs. License

FRANCHISE LICENSE Governing law Law 8,955/94 Civil Code and Law 9,279/96

Permission to use brand name or patent

Yes Yes

Product distribution Yes No

Know-how transfer Yes No

Control of how the business operates

Yes No

Fees Reflect the brand use, technology transfer, training, and technical assistance.

Reflect the commercial use ofthe licensed good.

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Non-Compete Clauses in Franchise Agreements

Brazilian law upholds reasonable non-compete agreements in franchise context

Up to five years generally considered reasonable -two year periods common

Geographic and material limitations generally required

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Presented by Marcella Gurgel

Unlocking Brazil

September 10, 2014

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Real Estate Market Overview

Construction on 1,579 projects and 3,001 towers began in 2013

11% (181) commercial buildings and 4% (56) hotels and flats.

São Paulo and Rio de Janeiro have the most expensive office markets in Latin America

Prime rental rates of approximately $90 and $100 USD/Sq.m/month, respectively.

Excess supply and declining occupancy rates are projected Brazilian commercial real estate market.

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Real Estate Market Overview

2014 World Cup and 2016 Olympic Games

Airport privatization

Shopping centers

Source: FIPE ZAP, <http://www.zap.com.br/imoveis/fipe-zap/>.

http://www.zap.com.br/imoveis/fipe-zap/

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Why did Global Logistics Properties invest R$3.2 billion in Brazilian Real Estate?

In March 2014, Singapore based GLP bought 34 Brazilian properties from its competitor BR Properties for R$3.2 billion.

GLP owns and leases modern logistics facilities across the globe, and stores products for companies including Carrefour, Ponto Frio and Riachuelo.

Reasons for the investment:

Low real estate price,

Increase in Brazilian consumption,

Increase of online Brazilian retail sales,

Absence of high-quality Brazilian logistics infrastructure, and

Long term growth opportunities in Brazil.

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Real Estate Investment

Direct Investment Acquisition and sale of real property

Build-to-suit transactions

Indirect Investment Asset-backed securities and issuance of CRI (Certificados de Recebíveis Imobiliários)

Private equity funds (Fundos de Investimentos em Participações) (FIPs)

REIFs (Real Estate Investment Funds) – Law no 8,668/93

Legal concept of trust is not recognized in Brazil.

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Commercial Lease Agreement Law 8,245/1991

Lease termination

Indefinite term

Definite term

Sale of property to third party

Assignment and sublease

Judicial rent review

Tenant’s right of first refusal

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Deliver the property in good condition, fit for the intended use

Guarantee, during the lease term, the peaceful use of the property

Pay the taxes and fees, and certain insurance premiums, unless otherwise provided in the agreement

Landlord Obligations

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Pay the rent

Use the property in accordance with the purpose disclosed in the lease agreement and maintain it in a good condition

Return the property in the same condition received at the beginning of the lease

Pay the ordinary condominium, swage, trash, water, electric and gas bills

Tenant Obligations

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Necessary and useful improvements

The landlord may request the following:

Security deposit

Surety

Surety insurance

Commercial tenant’s right to renew the lease agreement

Statutory civil and/or criminal penalties

Commercial Lease Agreement Law 8,245/1991

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Eviction + Rent Adjustment ProceedingsRent Adjustment Action (Ação Revisional de Aluguel)

Judicial review of rent amount to adjust for market conditions.

Eviction (Ação de Despejo)An eviction claim is a request to recover leased property for a variety of reasons ranging from breach of the lease agreement to the nonpayment of the condominium fees.

Eviction Order (generally provides tenant 30 days to vacate the property)

How to avoid the termination of the lease agreement, if the basis of the eviction claim is non-payment?

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Purchase Agreement

Generally, brokers facilitate transactions by approaching prospective buyers and sellers.

Letters of intent and term sheets

Purchase and Sale Commitment (Promessa de Compra e Venda)

Due diligence

Inheriting liability

Ownership of real estate is only transferred upon the registration of the adequate transfer instrument.

Brazilian insurance companies do not offer title insurance.

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Real Estate Finance

Bank Loans Brazilian Housing Finance System (Sistema Financeiro de Habitação)

My House My life Programme (Programa Minha Casa Minha Vida)

Capital Markets Brazilian Commercial Real Estate Funds

Public Share Offerings

Real Estate Securitization

Common forms of security granted over real estateMortgages

Fiduciary sales

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Restrictions on Foreign Ownership

Ownership of urban real estate in Brazil by foreigners is generally permitted

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Ownership of rural property in Brazil by foreigners is heavily restricted.

Ownership by foreign individuals: must be a resident of Brazil

Ownership by foreign legal entities: must have authority to do business in Brazil

Restrictions on quantity and percentage of land owned by foreigners

Restrictions on ownership of land near national borders

Restrictions on land use

Acquisitions violating the limitations set forth in Law 5,709/71 and Decree 74,965/74 are considered null and void.

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Are Brazilian legal entities controlled by foreign capital subject to the same restrictions?

Paragraph 1 of article 1 of Law 5,709/71

Constitutional Amendment number 6/1995

Brazilian Attorney General’s Office (Advocacia Geral da União) opinions

2012: São Paulo Court of Appeals (Tribunal de Justiça de São Paulo) granted a Writ of Mandamus ruling that the restrictions did not apply to Brazilian entities controlled by foreigners.

December 2012: opinion 461/2012-E of the Brazilian National Justice Council (Conselho Nacional de Justiça)

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Taxes + Fees

ITBI (Real Estate Transfer Tax)Rate of 2% of the declared value of the transaction

Deed of Sale (Escritura Pública de Compra e Venda)1% to 1.5% of the declared value of the transaction to be paid to the registry

Real Estate Registration (Registro do Imóvel)2% of the declared value of the transaction to be paid to Real Estate Registry

LaudêmioApplied to some beachfront properties - 2% to 5% of the declared value of the transaction paid to the Registry of Federal Heritage (Secretaria do Patrimônio da União)

Capital Gain Tax 15% rate for individuals and 34% rate for legal entities

Municipal Property Tax (Imposto Predial e Territorial Urbano - IPTU)Rate varies by municipality (generally, 0.6% of the value of the property)

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Compulsory Purchase

The Brazilian Federal Constitution guarantees the right to own property, and requires:

Payment of just compensation

Deprived party is given notice and has an opportunity to be heard

Expropriation as a penaltyFailure to use the land according to its social function (Municipal and Federal authorities)

Cultivation of psychotropic plants considered illegal under Brazilian Law

Eminent Domain (Desapropriação)Public need

Public utility

Social interest

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Presented by David M. Wilson

Unlocking Brazil

September 10, 2014

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Employee

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Labor rights are outlined in the Brazilian Constitution, as well as laws, decrees, provisional measures, ordinances and regulations, international conventions and treaties (ratified by the Brazilian government), company policies, Supreme Court decisions, Superior Labor Court decisions and customs

Labor: it’s more than just the 13th salary

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Ok, but they aren’t employees; they are…

In Brazil, it does not matter what the parties call the relationship, regardless of whether there is a written contract.

Courts will weigh factors, including:

The regular payment of salary

Required personal rendering of service

Subordination (direct control by employer, hours worked, benchmarks)

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The worker is considered the weaker party in the relationship.

In labor-related conflicts, whenever there is a doubt regarding evidence, the Court’s decision will generally favor the worker.

The law most favorable to the worker will be applied.

The conditions most favorable to the worker will be presumed.

Actual facts prevail over written documents.

Protected salary (generally cannot lower an employee’s salary)

Nondiscriminatory practices

Brazilian Law Favors Employee

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Brazilian Law Favors Employee

The Brazilian constitution provides the right to sue as an individual guarantee.

Settlement methods exist (e.g., arbitration and union conciliation commissions), but settlement does NOT extinguish the right of the individual’s claim!

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13th Salary

Mandatory “Christmas bonus” equal to 1/12 the salary for each month of that year

Vacation

Every 12 months employees are entitled to 30 calendar days paid vacation, in addition to the 13th salary

Overtime

Daily and weekly calculation

Base rate + 50%

100% for work on Sunday or a public holiday

Min wage currently

R$724 per month

Reading email on cell

phone may trigger

overtime compensation

rights!

Employee Rights

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Termination (For Cause)

A dishonest act

Improper conduct

Regularly doing business on behalf of himself or for a third party

Criminal conviction

Inadequate discharge of duty

Habitual drunkenness

Considered a social problem by some courts and not a just cause

Violation of trade secrets

Act of disobedience or insubordination

Abandonment of employment

Injurious act to the honor of any person during working hours (except in self defense)

Persistent gambling

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Rights Upon Termination

Employment is NOT “at will” (must have cause for termination)

Advanced notice required (generally, 30 day min)

Payment of salary owed

Vacation

13th Salary

FGTSEvery month the employer must deposit amount equal to 8% of employee’s salary into an individual social security fund (FGTS).

Upon termination, the employee may withdraw the amount.

If termination is not “for cause”, employer must pay a penalty equal to 40% of the amount and an additional 10% penalty to the government.

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Agents + DistributorsAgent Distributor

Activities subject to some control by supplier Activities subject to only minimal control by supplier

Does NOT take title to goods Takes title to goods, buys and sells for own account

May handle products of other suppliers; but, is less likely to do so than distributor

May handle products of other suppliers

Generally compensated on a commission basis Earnings based on resale profit margin

Usually does not warehouse goods Usually warehouses and physically delivers goods

Usually does not use own capital Uses own capital

Bears no risk of failure of payment Bears economic risk of failure of payment by customer

May have power to contract on behalf of the supplier

Has no power to bind the supplier contractually

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Agents + Distributors

Agent Distributor

Creation Statutory requirements Contract law

Compensation Commission Sells on own account

Termination Enumerated “just cause” reasons Contract law

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Governing Law for Agents

Under Brazilian law 4.886/65, amended by Law 8.420/92, a commercial representative is:

one that acts as an intermediary promoting a product or service, looking for customers, negotiating proposals and orders and forwarding them to the seller with whom it has a contractual relationship.

The Civil Code (Law 10406 of 10/01/2002)refers to Commercial Representation as "Agency".

Agents

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Agent AgreementsMandatory Provisions

Term of the agency

Obligations of the parties

Description of the products or goods that are the object of the agency

Description of the territory

Exclusivity

Payment structure (commission and time of payment)

Termination

Commercial Representative must register with the Regional Council of Commercial Representatives

Agents

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Agent Agreements

The agreement with the representative need not be registered with the government.*

This allows for confidentiality of compensation and other commercially important information.

This is an important distinction when compared to license and royalty agreements, which may require registration with the Brazilian Central Bank.

Agents

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Agent Termination

Brazilian law requires that all disputes between a foreign company and its commercial representative be venued in Brazil and judged in accordance with Brazilian law.

Article 35 of the Brazilian Civil Code provides a list of “just cause” reasons for the termination of a commercial representative agreement.

If the relationship is terminated for cause, no indemnification is owed to the commercial representative. However, if the relationship is terminated for reasons other than those listed in Article 35, Brazilian law may require an indemnification payment to the commercial representative.

Agents

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Agent Termination (For Cause)

Art. 35 provides a list of just reasons for termination of an agency agreement, these include:

neglect of the agent in the accomplishment of his obligation(s) under the contract,

engaging in acts which result in loss of commercial credit of the represented,

conviction for a crime considered injurious to the represented.

The represented company may retain the commissions due to the agent if there is just cause for the termination of the agreement, so long as retaining the funds is made with the purpose of recovering damages caused by the agent.

Agents

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Agent Termination (Without Cause)

Generally, an agent is entitled to no less than 1/12th of the total amount received during the time of agency.

If the agency is for a specific term, the agent is generally entitled to an amount equal to the monthly average compensation received multiplied by the remaining months left in the agency contract term.

Plus, investments made to open the market.

Agents

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Distributor Relationships

Primarily regulated by Brazilian contract law

Unlike commercial representative relationships, there are few statutory provisions governing distributorships

Distributors

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Governing Law for Distributors

Brazilian contract law is primarily derived from the Civil Code

As long as the parties comply with the provisions of the Civil Code related to commercial contracts, they are generally free to define their business relationship as they see fit

Distributors

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Distributor Termination

Distributor relationships allow greater flexibility in defining "just cause" for termination.

Disputes over distributorship terminations can be made subject to arbitration procedures, which Brazilian courts may be more likely to enforce than clauses calling for the application of foreign law or a foreign venue.

Distributors

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Agent + Distributors

Agent Distributor

Creation Statutory requirements Contract law

Compensation Commission Sells on own account

Termination Enumerated “just cause” reasons Contract law

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Best Practices

Care must be exercised to not blur the distinctions between an employee, a commercial representative, and a distributor.

Long term exclusive contracts should generally be avoided.

In Brazil, short term contracts may be considered contracts for "indefinite terms" after the first renewal, by some courts.

Foreign companies should fully understand the facts and Brazilian law before creating or terminating a commercial representative or distributorship relationship.

Minimum sales requirements should generally be established in the agreement.

Standards for product service and maintenance should generally be set out in the agreement.

Generally, regular and adequate reporting should be required.

Other key points to address often include termination and causes for termination, distribution points and control over distribution in case of termination.

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Best Practices

To avoid the inadvertent creation of an employment relationship, foreign companies must be mindful of how they interact with their commercial representatives and distributors.

Regardless of how the relationship is described by the parties, Brazilian courts will look to the actual behavior of the parties.

Brazilian courts consistently hold that subordination is a key factor in the existence of an employment relationship.

If the court determines that the parties' relationship is an employment relationship, the foreign company will be subject to Brazilian labor laws including liability for social and welfare contributions and possibly other taxes.

Although it is permissible to contract with an individual to act as a commercial representative, it is generally advisable to contract with an entity.

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17 Days

-Document preparation (8 days)

-Customs clearance and technical control (4 days)

-Ports and terminal handling (3 days)

-Inland transportation and handling (2 days)

24 Days





20 Days





Source: World Bank, Doing Business 2013

Importing a container of goods to Brazil requires 8 documents, takes 17 days and costs $2,275

Importing a container of goods to China requires 5

documents, takes 24 days and costs $615

Importing a container of goods to India requires 11 documents, takes 20 days and costs $1,200

Baseline:-medium size business-ship to economy’s largest business city-private, LLC-non hazardous goods-dry cargo, 20-foot full container

* All US exports are also subject to US export controls *

General Import Process + Timeline

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Brazilian Import Process

Register with the government registration systemSecretary of Foreign Trade SECEX, SISCOMEX system

Subject to significant variability

Obtain import license, if requiredAutomatic

Non-Automatic (process may take several months)

ANVISA, IBAMA, MAPA, DECEX, CNEN, ANP, ANEEL, DPF, COMEX, MCT . . .

Radar

Simplified

Ordinary

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II-Import Dutyvaries based on product

& Country of origin

(NCM, HS)

0-35% Import Duty0-5% raw materials,

20% finished consumer

goods, 35% autos and

luxury items

0-35%

12%

avg

Import Duty 6%

IPI-Industrial Product

TaxVaries based on product

(CNM) up to 300%

tobacco

20% avg VAT 16% VAT 19%

PIS-Social Integration

Program Contribution1.65%

COFINS-Social

Security Financing

Contribution

7.6%

ICMS-State Tax 7-25%*

SP 18%

*Current legislation & recent Supreme Court decisions may impact the applicable ICMS rate.

Import Taxes + Duties

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Ex-tarifário Program

Tariff reductions generally reduce the applicable tariff from 16% to 0-2%, II and may also reduce IPI

Resolução CAMEX 35/2006

The importer must file for the Ex-tarifário

A certificate or statement from the appropriate body, technical reports, public consultation among other things may be considered to determine the existence of a similar domestic good

If no similar good is produced domestically, an importer may qualify for reduced or eliminated tariffs

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Ex-tarifário Program

Even if a domestic good performs a similar function, an importer may qualify for the program if:

Higher quality product or service

Higher productivity of equipment (may consider part of an integrated system that increases overall productivity)

Increased efficiencySupplies required

Consumption of energy or raw materials

Reduced delivery time

Other specific performance factors may be considered depending on product

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Manaus Free Trade Zone – ZFM

Western Amazon – AO

Free Trade Areas – ALC

General Process

Cert of importer eligibility on the SISCOMEX

Classification of imported goods HS / NCM

Submit Invoice

Register Transaction on SISCOMEX

Import Licenses

Free Trade Zones

ICMS credit to importer

PIS/COFINS/II/IPI reduction

IRPJ reduced 75% until 2013

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Employee Considerations: The Other SideBusiness visa

Permanent visaLegal entity administrator

Private investor

Foreign bank representative

Temporary visaLabor visa

Technical visa 1 year / 90 Days

Apprenticeship / professional training

Touring vessel

Permanent Establishment Issues

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Employee Considerations: The Other Side

Business Visa

To attend meetings, make commercial contacts

90 days, may be extended additional 90 days in 12 month period

Permanent Visa

Legal entity administrator

5 years, R$ 600k registered with Central Bank of Brazil, or R$150k & plan to generate at least 10 new Brazilian jobs within 2 years*

Temporary Visa

Technical Visa 1 year / 90 Days

3 years experience in the functional field

Specific for customer, or training plan

Resume

Criminal background check

File with Ministry of Labor in Brasilia

When enter Brazil, register with Federal Police to obtain RNE

If d/n register, then daily fine

Permanent Establishment Issues

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Thank You!

Luis M. AlcaldeOf [email protected]

David M. [email protected]

Rafael Villac Vicente de [email protected] (55 11) 3218-8443