Doing business in Brazil

This publication is
a joint project with
Doing business in Brazil
Contents
Executive summary
4
Foreword
6
Introduction – Doing business in Brazil
8
Conducting business in Brazil
16
Taxation in Brazil
22
Audit and accountancy
34
Human Resources and Employment Law
36
Trade
38
Banking in Brazil
40
HSBC in Brazil
42
Country overview
44
Contacts
46
Disclaimer
This document is issued by
HSBC Bank Brazil SA (the ‘bank’)
in Brazil in partnership with
PricewaterhouseCoopers (PwC).
It is not intended as an offer or
solicitation for business to anyone in
any jurisdiction. It is not intended for
distribution to anyone located in or
resident in jurisdictions which restrict
the distribution of this document.
It shall not be copied, reproduced,
transmitted or further distributed by
any recipient.
The information contained in this
document is of a general nature only.
It is not meant to be comprehensive
and does not constitute financial,
legal, tax or other professional
advice. You should not act upon
the information contained in this
publication without obtaining specific
professional advice. This document
is produced by the Bank together
with PricewaterhouseCoopers
(‘PwC’). Whilst every care has been
taken in preparing this document,
neither the Bank nor PwC makes
any guarantee, representation or
warranty (express or implied) as to its
accuracy or completeness, and under
no circumstances will the Bank or
PwC be liable for any loss caused by
reliance on any opinion or statement
made in this document. Except as
specifically indicated, the expressions
of opinion are those of the Bank
and/or PwC only and are subject to
change without notice. This document
is not a ‘Financial Promotion’.
The materials contained in this
publication were assembled in
May 2012 and were based on the
law enforceable and information
available at that time.
Executive summary
Brazil is one of the most
promising emerging markets
in the world. A high degree
of diversification in its product
exportation base, a diversified
list of trading partners, internal
economic stability, increasingly
large work force and good
social standards are helping
to attract more and more global
investors. In addition to this, the
forthcoming 2014 Soccer World
Cup and 2016 Olympics are
generating a large number
of infrastructure investment
opportunities.
The Brazilian Government
and Congress have made
a concerted effort to improve
the economic stability of the
country and have implemented
changes in Brazil’s tax
legislation, governance,
and regulatory background.
There are still a few reforms
to be implemented by the
new Government, but Brazil
is demonstrating that
it is becoming increasingly
connected with the international
business network.
The purpose of this publication
is to provide foreign investors
with a broader view of the
current economic, legal and
business environment, to be
faced when doing business
in Brazil.
4
Key points for foreign
investors to consider when
looking at this territory:
•Brazilisthebiggestcountry
in Latin America, occupying
almost half of South America.
•Thebasiclegalconcepts
regulating foreign capital in
Brazil are defined in Laws
4131 of 1962 and 4390 of
1964, which were regulated
by Decree 55762 of 1965.
The legal concept of foreign
capital includes tangible and
intangible assets.
•InBrazilthereisawidevariety
of federal programmes designed
to encourage national economic
development and also to promote
regional development. They
tend to favour operations in the
poorer Northeast (SUDENE)
and Amazon (SUDAM) regions.
Several programmes provide
export incentives.
•Relevantbenefitsaregranted
to foreign investors not
domiciled in tax havens and
who invested in Brazil pursuant
to the regulations established
by Resolution 2.689.
•Therearenolegalminimum
share capital requirements
for a corporation, except for
financial institutions and
insurance companies, and
certain other legal entities
with specific business purposes.
•Dividends remitted to nonresident shareholders or
quotaholders are not subject
to any withholding tax.
•C apitalgainsearnedbylocal
resident entities are taxed at a
higher rate than the capital gains
of non-residents.
•Paymentsofanytypemadeto
tax havens are generally subject
to withholding at a higher rate.
•A sageneralrule,foreign
exchange transactions made
in order to allow payments
to non-residents, considering
royalties, technical services,
technical, administrative and
any other assistance or any
other revenue, including the
reimbursement of any costs,
are subject to specific financial
tax (IOF – see page 14 for
more information).
•On16December2009,the
Brazilian government started
to establish minimum capital
requirement to invest through
or ’the thin cap rules’, through
Provisional Measure 472, with
immediate effects.
Foreword
Currently, business opportunities
reach the world over. At the
time when business and
economic horizons have
broadened there has also
been a significant increase in
competition among companies.
For this reason it is essential
to have a secure, dependable,
and well-positioned partner to
stay ahead of the competition.
This is what HSBC offers to
our corporate clients.
HSBC Brazil is present in 545
municipalities and includes a
customer base of more than
5.2m individual clients and
almost 460 thousand business
clients. HSBC seeks to generate
excellent business relationships
that perform for its clients,
attending to each and every
need with appropriate support.
Brazil is in the top-ten of world
economies, sporting a vibrant
agricultural industry that
continues to grow. The country
has awakened the attention
of the world by creating
a healthy and productive
business environment. In 2008,
when global markets were
shaken by the economic crisis,
Brazil was one of the least
affected. This demonstrates
Brazil’s stable and balanced
economy supported by a strong
and consistent economic policy.
According to World Bank data,
6
Brazil accounts for more
than half of the South American
economy, and is responsible
for more than 2% of the
world’s GDP. Besides this,
the country has experienced
a remarkable growth in the
sector of oil extraction. With
the discovery of a layer of
pre-salt basins, by 2020, Brazil
could jump from its current
production of 2m barrels
extracted daily to 3.9m
barrels per day, doubling its
production in just 10 years.
Economic stability is sustained
by a democratic system of the
government and relies on one
of the most fascinating cultures
on Earth, characterised by the
diversity of ethnicities that
create an extraordinary legacy,
revealed in music, visual arts
and drama, literature, sports
and traditions. Brazil is the
world champion of biodiversity
and is the home for some
of the planet’s greatest natural
assets such as the Amazon, the
Pantanal and the Atlantic Forest.
For all of this, Brazil is one of the
most promising and diversified
business markets in the world.
This guide, in partnership with
PricewaterhouseCoopers, helps
entrepreneurs to understand
the characteristics of the
Brazilian market, optimising
business opportunities.
André Brandão
President and
Chief Executive Officer
HSBC Bank Brasil SA
Introduction
Doing business in Brazil
Economic environment
Economic History
The Brazilian economy is large and
diverse by almost any standard.
There is still a considerable
state and semi-state participation
in various strategic sectors,
such as transport and utilities.
Brazil has undergone several
privatisation programmes of
state-owned companies, most
of which took place in 1998.
Nearly all of the former state
companies are now controlled
by the private sector.
Natural resources and agriculture
have been the traditional
mainstay of the economy,
supported by abundant human
resources. Since the 1960s,
however, the emphasis has
been placed on industrial
development financed largely
with international loans and
investments. As a result,
exports today reflect a
much more balanced mix of
commodities and manufactured
items. Moreover, the profile
of imports became more
restricted during the 1970s
and 1980s because of the
import substitution and the
scarcity of foreign currency.
This situation is changing
following the lowering of trade
barriers and the increased
opening of the economy to
globalisation.
The most important business
sectors in Brazil are mineral and
8
energy resources, agricultural,
fisheries and forestry. There are
several other sectors that have
undergone expansion during
the past few years such as
manufacturing, high-tech
industries, service industry,
transport and communications.
Current Economic Climate
Over the last year, Brazil’s
benchmark interest rate (SELIC
– Special Settlement and
Custody System) has hovered
around 11.04%. While it may
seem to be a high average,
it is in fact a positive
improvement if one considers
that the average for the previous
three-year period was 19.22%.
In the beginning of 2012, the
Brazilian Monetary Policy
Committee (COPOM) has been
showing the intention to
significantly reduce the overnight
market rate (Selic). A reduction
of the basic rate of interest is
part of a strategy adopted by the
Brazilian government to protect
the domestic economy of the
international financial crisis,
which, in the government view,
threatens the consumption and
growth of local industry.
During the last decade, Brazil’s
risk has registered at around
800 or 900 pts, subjected to
peeks mainly due to political
reasons. The best recent
example refers to 2002, when
the year started at the Risk
average around 800 pts, however,
in the second semester, owing
to the presidential election, the
risk went over 2,200 pts.
By February 2011, the Brazil Risk
registered 184 points. In relation
to the inflation rate, one of the
historically most relevant
indicators of Brazilian economy,
numbers are also positive.
Repeating the tendency
observed in relation to Brazil’s
risk, in 2002, the year of the
presidential election, the annual
variance of inflation reached
25.30% (according to the
general price index measured
by Getúlio Vargas Foundation
‘IGP-M‘).
For 2011, the registered index
is 6.5%.
Location and access
to other markets
Brazil is the largest country in
the southern hemisphere and
the fifth-largest country in the
world, covering nearly half of
South America. It is a member
of Latin American Integration
Association (ALADI), the World
Trade Organisation (WTO) and
the Common Market of the
Southern Cone (MERCOSUL),
which is formed by the current
members Brazil, Argentina,
Paraguay and Uruguay, with
Chile, Bolivia, Peru, Colombia,
Ecuador and Venezuela as
associated countries.
Under the MERCOSUL
agreement, tariffs are abolished;
the movement of labour, goods
and services is unrestricted;
capital investment is encouraged;
macroeconomic policy is
coordinated; and foreign-trade
policies and tariffs for non-member
countries are harmonised.
Position in Global
Market/Growth
Brazil is among the top-ten
economies in the world and
it has experienced a sustained
growth in the past two
decades.
With a population of about
191m people, its consumer
market is large and has
potential for high growth, since
in the past few years millions of
people have reached the middle
classes.
Availability of Customer/
Workforce
In general, adequate labour is
available. Semi-skilled and unskilled
labour is fairly abundant,
recognised as hard-working and
willing to learn, and is relatively
mobile. Skilled labour tends to
be in short supply. Personnel with
proven technical, professional or
management skills are growing
as company in-house training
and other courses take place.
Language
The official language of Brazil
is Portuguese. There are no
significant local dialects or other
deviations from the official
language, but a number of words
and phrases differ from those
used in Portugal. English is the
foreign language most used
by the business community
in Brazil.
Ease of Doing Business/
Ease of Leaving
The general policy is to admit
foreign capital and treat it in
the same way as local capital.
All inward investments must
be registered with the Central
Bank to ensure ultimate
repatriation rights within
30 days. It should be noted
that acquisitions of local
companies should be thoroughly
investigated to confirm their
real underlying value.
The basic legal concepts
regulating foreign capital in
Brazil are defined in Laws
4131 of 1962 and 4390 of
1964, which were regulated
by Decree 55762 of 1965.
The legal concept of foreign
capital includes tangible and
intangible assets.
10
An important concept in foreign
capital legislation in Brazil is
the one which reflects the
constitutional principle (Federal
Constitution, article 5) that
guarantees equal treatment
to all. This principle, in Law
4131/62 and later amendments
to Federal Constitution, grants
to foreign capital invested in
Brazil legal treatment identical
to that given to local capital,
under equal conditions, and any
discrimination not contemplated
by this law is prohibited.
Prior approval of the Central
Bank is no longer required for all
foreign currency loans received,
but they should be documented
in a formal contract, which will
set out the terms and conditions,
including the interest. The
Brazilian Central Bank will have
to be informed of all the conditions
of the loan as approval is required
after the loan transaction has
actually been entered into. It is
also necessary to obtain
prior approval from the Central
Bank for operations relating to
the conversion of some
liabilities into investment.
Capital may be repatriated
without payment of tax up
to the amount registered
in foreign currency with the
Central Bank. Amounts in
excess are considered as
capital gains under exchange
disposition and, therefore are
subject to withholding income
tax of 15% (25% if the
beneficiaries are domiciled
in jurisdictions considered
as tax havens).
Loans may be repatriated
within the terms of the registered
loan contract. Interest is freely
remittable within the loan contract
terms subject to withholding
income tax at the rate of
15% (25% if the beneficiaries
are domiciled in jurisdictions
considered as tax havens).
Although it may seem easy
for investors to do business in
Brazil, it is important to highlight
a few key aspects imposed
by Brazilian laws which
can still be considered as
bureaucratic. The most usual
procedure for a foreign investor
to start doing business in Brazil
is by organising a company.
In order to do so, the company
must request a Federal Tax
Number (CNPJ) by registering
the Cademp (Cadastro de
Empresas) at Central Bank. If
the intention is to invest other
Brazilian companies or if the
intention is exclusively to be
part of the Brazilian financial
market, then the company must
register itself at the Brazilian
Securities Commission – CVM.
Nowadays, one of the most
bureaucratical procedures to
be followed in Brazil is to
execute the decision of winding
up local presence. A lot of
compliance and tax duties can
be demanded in this case. The
time required to close a
business in Brazil may be
significant.
Incentives for foreign investors
Tax or Grant incentives
Relevant benefits are granted
to foreign investors not
domiciled in tax havens
and who invested in Brazil
pursuant to the regulations
established by Resolution
2.689. (This Monetary Council
Normative Instruction governs
the foreign investments in the
Brazilian financial and capital
markets by non-residents.)
Capital gains on stock and
derivatives traded in stock
and futures exchange are
exempt from capital gain tax.
In addition, income on public
bonds became tax exempt,
provided they were acquired
by these investors after
16 February, 2006.
Regarding Private Equity and
Real Estate, the good news
came with the introduction of
the FIP (Participation Investment
Fund) which became an
interesting vehicle used to
hold assets through Special
Purpose Companies (SPCs).
A benefit for foreign investors
is that they are exempt from
withholding income tax due
on FIP and Investment Funds
in FIP quotas. This exemption
is subject to compliance with
the rules of concentration of
investment in the fund and
on the distribution of earnings
established by law. The most
notable among these
prerequisites is the requirement
that no investor may hold more
than 40% of the fund’s quotas or
earnings.
The National Bank for Social
& Economic Development
(BNDES) offers low-priced
financing, in order to support
the implementation, expansion,
modernisation or relocation
of plant, including capital
goods acquisition and
associated working capital.
Direct foreign investment
was rising significantly until
2008, reaching US$43,887m.
However in 2009, owing to the
global credit crunch, this direct
foreign investment contracted
to the sum of US$25,949m.
Brazil has various incentives
available for exporters, including
(under certain conditions)
exemption from withholding
tax, exemption from excise tax
(IPI), value-added tax on sales
and services (ICMS), social
contribution on billing (COFINS)
and contributions to the social
integration programme (PIS)
on exports of manufactured
products, low-cost export
financing.
In Brazil, there is a wide variety
of federal programmes designed
to encourage the economic
development of Brazil and also
to promote regional development.
They tend to favour operations
in the poorer Northeast
(SUDENE) and Amazon
(SUDAM) regions.
Several programmes provide
export incentives. In the
SUDENE and SUDAM regions,
incentives are available for the
implementation of new
industrial projects or expansion,
diversification or improvement
of an existing industry.
Statistics for Foreign
Direct Investment
As reported by the Brazilian
Central Bank (BACEN)
website, the Census of foreign
capitals in Brazil figures stress
the performance of the Brazilian
economy as a point of attraction
for foreign capital during the
second half of the nineties
which deepened the process
of internationalizing the country’s
economy.
Greater economic stability and a
permanent process of structural
reforms, including the approved
breaking of state monopolies,
was clearly reflected in
increased flow of capital to Brazil.
The first indication in the
Census that stresses the higher
degree of foreign capital share
in Brazil is the number of forms
received by the Central Bank:
11,404 informants with a
foreign share in excess of
10% of voting capital or 20%
of total authorized capital.
There was a relevant increase
of 80.4% on the 6,322
informants of the previous
Census that took 1995 as
base-year. This increase,
caused by both establishment
of new corporations and
acquisition of previously
existing ones, together with
fresh capital sharing in those
already recording some foreign
ownership in 1995, was
the main thrust behind the
substantial changes recorded
in the figures surveyed.
According to the information
gathered, total paid-in capital
of informants reached
R$351.7bn, representing
an unprecedented nominal
increase of 319.7% against
the R$83.8bn of 1995.
Even taking the devaluation
of the Real in this period
into account, the figures
still have a strong impact,
reaching over twice the figures
of the previous census (from
US$86.2bn, in 1995, to
US$179.8bn, in 2002, calculated
based on the exchange rate
in effect at the end of each
period). It should be noted
that in 1995 residents held the
larger share of paid-in capital:
51.5% of the total. Conversely,
in 2000, the largest share was
for non-residents; 57.3% of
the total, revealing the trend
of foreign investors to share the
capital of Brazilian corporations
in a majority position.
On this issue, taking into
consideration just the figures
related to the 9,712 informants
where the share of foreign
capitals is in a position
of majority (over 50%),
we reached the figure
of R$263.4bn of paid-in capital,
of which 70.3% (R$185.0bn)
are held by non-residents.
Seen from the viewpoint of
total assets of entities featuring
foreign share, the consolidated
results of the survey reveal
another prominent result in
its total value: R$914.1bn,
contrasted to the R$280.4bn
of 1995. Converted by the
end-of-period exchange rate,
these are US$467.4bn and
US$280.4bn, respectively.
Also important is the growth
of the total assets of entities
with a majority share of foreign
capital, which from the
R$158.8bn of 1995,
corresponding to 58.3% of
the total, came to R$641.6bn,
or 70.2%. Indeed, in the first
census these entities counted
4,902 in a population of 6,322
(77.5%), increasing to 9,712
of 11,404 (85.2%).
Securities Commissions
(CVM) – responsible for the
regulation of the securities
markets and listed companies.
Barriers, risks and downsides
for foreign investors
Since the inclusion of
government-controlled
railroads to the Brazilian
National Privatisation
Programme, there has been
significant investment in
development and modernisation
of the railroad network, which
is mainly located in the Southeast
and Southern regions, although
there are plans (federal and
private projects) for some
major extensions in the North
and Central-West regions. For
the North-East region, future
Depending on the nature of the
business activity there will be an
involvement of some regulatory
agencies such as:
Central Bank (BACEN) –
responsible for the execution
of monetary policy, exchange
controls, registration and control
of foreign capital and profit
remittances and regulation of
Banks and Financial Institutions.
Administrative Council for
Economic Defence (CADE) –
investigation and suppressing
unfair business practices and
anti-trust monitoring.
National Institute of
Industrial Property (INPI) –
responsible for patent, trade
mark registration and
technological development.
INPI has powers over
agreements for the transfer
of technology.
Foreign Trade
Department (DECEX) –
responsible for administration
of foreign trade and control
of export and import licences.
Transport Limitation
investments are anticipated.
Road transport is still the
preferred method of transport
for both long-distance and
intercity travel, although most
of the major federal and state
highways have not been
well-maintained. Nearly all
road transport and haulage
companies are now in the
process of privatising the
remaining roads which are
not yet privatised.
The airline network is welldeveloped and the majority
of the voting stock of airline
companies is held by the
private sector. Urban transport
continues to present significant
problems in major centres.
Limited subway systems are
now functioning in Rio de
Janeiro and São Paulo.
However, until a more
extensive network is developed,
subways will not significantly
alleviate the problems of urban
transport. Many companies
provide private bus services
to their employees.
Prohibited or restricted
Industries
Government permission
is required for the operation
of certain types of business,
such as banks and financial
institutions, mining companies,
oil refineries, maritime, road and
air transport companies, as well
as companies involved in health
products and health care.
Restrictions on foreign
investor participation exist
in certain areas, such as:
(i) communications (television,
radio stations or newspapers);
(ii) aviation (Brazilian airlines);
(iii) participation in classified
(operations) government
contracts; (iv) coastal and
freshwater shipping; (v)
mining and hydroelectric
energy, etc.
Furthermore, the direct or
indirect foreign ownership
of rural land is regulated and
subject to limitations as to the
total area. Ownership of land
near Brazil’s borders is subject
to further restrictions.
Currency/exchange control
The Central Bank allows the
official exchange rate to float
freely, but forex trading is
restricted to authorised dealers.
The Central Bank intervenes
when there are signs of
speculative operations. There
is an active parallel exchange
market that, although illegal, is
quoted in the daily newspapers,
as well as an official tourist rate
that normally approximates the
parallel rate.
IOF
As a general rule, foreign
exchange transactions made
in order to allow payments to
non-residents, in the form of
royalties, technical services,
14
technical, administrative and
any other assistance or any
other revenue, including the
reimbursement of any costs,
are subject to the tax on
financial transactions (IOF).
These transactions are subject
to the maximum IOF rate of
25%. The current IOF rate for any
foreign exchange transaction
(both inbound and outbound)
such as FDI or Intragroup loan
agreement is 0.38% payable
upfront; however there are many
other types of foreign exchange
transactions where different tax
rates are applied. As a result,
the IOF may not be avoided if
the payment requires a foreign
exchange transaction from the
Real into a foreign currency, or
from a foreign currency into the
Real. Payments of interest,
for the importation of goods
and for the acquisition of an
investment in Brazil by a local
resident from a foreigner, are
also subject to the IOF.
The IOF of 6% is charged on
foreign loans with an average
maturity of less than 720 days
(the average term was
increased on March 12, 2012
from 720 days to 1,800 days).
All other foreign loans are
subject to the IOF at 0% rate.
The average maturity is
determined based on the
balance of the loan relative to
the number of days of the
outstanding balance of the
related loan.
From October 2009, the
Brazilian government changed
the IOF tax rates that are levied
on certain foreign currency
exchange transactions related
to the inflow of funds to Brazil
made by Resolution 2689 to 6%,
and 0% if the equities are traded
through the Exchanges. As to
the outflow of funds from Brazil
related to investments in the
financial markets, the IOF rate
continues to be 0%.
respectively of total trade
business.
Key Markets and Trade
Handshakes are the most
common form of greeting
between business colleagues.
In more informal situations,
women will tend to greet each
other with a kiss on either cheek,
while men may briefly embrace.
Brazil has a very strong industrial
base. It exports not only natural
resources and agricultural
products, but also industrial
and commercial products.
At the top of the list are natural
resources (such as iron ore)
and agricultural products (such
as soy beans, coffee and sugar).
Moving down the list, there are
manufactured products including
vehicle parts, airplanes,
petrochemical products
and ethanol.
Brazil is one of the leading
developing countries, and is
one of the four emerging markets
comprising the B-R-I-Cs (i.e.
Brazil, Russia, India and China).
Since 2010, China has played
an important role as Brazil‘s
main commercial partner,
followed by the United States,
Argentina and Germany.
These top commercial
partners represent 15.9%,
12.4%, 8.2%, and 5%
Brazil is the largest telecoms
market in Latin America and
Brazilians are the biggest users
of the internet in the region.
Future trends include growth
of Voice over Internet Protocol,
convergence applications and
Next Generation wireless.
Business etiquette
When you meet someone for
the first time, it is polite to say
‘muito prazer’ (‘my pleasure’).
Expressions such as ‘como vai’
and ‘tudo bem’ are common
forms of saying ‘Hello‘ once
you know someone and can
show you are making an effort
to know them.
Brazilian companies tend to
have vertical hierarchies where
managers at the top make most
of the decisions. Differences
in class are still very prevalent
in Brazilian society and business
culture. Class is mostly
determined by economic status
and is reflected in the salaries
people receive, resulting in large
disparities of pay and status.
There are laws against
discrimination, however,
and most class differences
in business are subtle.
Relationships are one of the
most important elements in
the Brazilian business culture.
By cultivating close personal
relationships and building trust,
you will have a greater chance
of successfully doing business
in Brazil.
The use of titles and first names
can vary across Brazil. Typically,
it is polite to address your
Brazilian counterpart with a
title and surname at the first
meeting or when writing to
them. Once you know them,
it is common to use just their
first name, or else their title
followed by their first name.
*Source:ht tp://www.mdic.gov.br
/arquivosdwnl_1298052907.pdf
Conducting business in Brazil
Forms of business
Forms of foreign Investment
Investment made by foreigners
is normally structured via
the acquisition of interests
or financial assets or via the
incorporation of new entities.
Depending on the nature
of the assets to be invested,
the applicable regime will
be different. Basically, for
assets in the financial and
capital markets, the applicable
rule in force is Resolution of
Monetary Council 2689.
The Resolution provides that
non-resident investors are not
allowed to trade in securities
of public companies except
for the trade over (i) the stock
market, (ii) electronic systems,
or (iii) an over-the-counter
market which is organised
by an entity authorised by the
Securities Commission (‘CVM’)
to trade in securities of publiclyheld companies.
There are situations when it is
possible to transfer the ‘2689
equities’ outside of an organised
market, such as in cases of:
subscriptions, stock dividends,
conversions of debentures
into stock, indexes referenced
in securities, acquisitions
and sales of shares of open
investment funds in securities
and, when previously
authorised by the Securities
Commission, the cases of closing
shareholders capital, cancellation
or suspension of trading.
16
Currently, there are important
tax incentives granted for the
2689 investors.
For the assets not related
to financial and capital markets,
but more linked to the
acquisition of private
companies, the basic legal
concepts regulating foreign
capital in Brazil are defined
in Laws 4131 of 1962 and 4390
of 1964, which were regulated
by Decree 55762 of 1965.
The legal concept of foreign
capital includes tangible and
intangible assets.
The corporate forms in which a
business are normally conducted
in Brazil are the following:
Corporations (Sociedade por
Ações – S/A) – Only corporate
form that can have stocks
traded publicly.
SA – Sociedade por acoes
(also known as SOCIEDADE
ANONIMA) – A limited liability
company. It must have at least
two shareholders. There is
no minimum share capital
except for financial institutions,
insurance, utility and export
trading companies. It may
be public or private. Shares
in public corporations are freely
transferable; shares in private
corporations are restricted.
Setting up a business
When setting up a new legal
entity in Brazil, given that
the incorporation of a branch
requires authorisation granted
via a presidential decree,
the process is generally
bureaucratic and lengthy.
In view of this, the majority
of foreign businesses in Brazil
are set up under the form of
subsidiaries based primarily
on the insulating effect that
incorporation has on the liability
of the foreign parent company
for the subsidiary‘s acts. When
incorporating a subsidiary
in Brazil, the most common
vehicle is the Limited Liability
Company (Sociedade Limitada
– LTDA) or the Corporation.
Limited Liability Companies
(Sociedade Limitada) –
The Brazilian equivalent of a
closely-held company in the
United States and a private
limited liability company in
the United Kingdom.
Limitada or Ltda –
(Sociedade por quotas de
responsabilidade limitada) –
Private limited liability
company. It must have
at least two shareholders.
There is no minimum share
capital. Shares are called
quotas and their transferability
is restricted. The liability
of quota holders is limited
to the amounts invested.
Joint Ventures – The form
of a corporation assemble
under one of the partnerships
stated above.
Branches – Significant
bureaucracy in its creation
and maintenance renders
this form limited to few
multinationals.
Regulatory matters/issues
In general terms, there are no
restrictions on the ownership
by foreign investors, except for:
i.
Communications (television,
radio stations or newspapers);
ii.
Aviation (Brazilian airlines);
iii. Participation
in classified
government contracts;
iv. Coastal
v. Mining
and freshwater shipping;
and hydroelectric
energy, etc.
18
The financial year (12-month
period) of Brazilian legal entities
can be freely chosen for corporate
purposes. Accordingly, certain
Brazilian companies adopt the
same financial year of the parent
company, for corporate/reporting
purposes (e.g. 1 July to 30 June).
Nonetheless, as companies
are required to observe the
calendar-year (January through
December) for tax purposes,
most of domestic entities
choose the same period as
their corporate financial year.
Registration formalities
There are no legal minimum
share capital requirements
for a corporation, except
for financial institutions and
insurance companies, and
certain other legal entities
with specific business
purposes.
Upon the decision to incorporate
a new legal entity in Brazil,
an inaugural meeting of
prospective shareholders
must be held to approve
the bylaws, which sets up
the corporation‘s core activities,
appoints management, and
indicates the amount of
capital, registered office
and distribution of shares
(as per the subscription list)
among shareholders (others).
Besides the requirements listed
above, a corporation is required
to have the subscription of all the
shares into which the corporate
capital stock is divided according
to the bylaws, with the initial
subscribers being at least two
individuals or legal entities that
are considered to be founders.
In addition, at least 10% of the
issuance price of the shares
subscribed in cash, unless
specific legislation requires
a higher percentage, and
deposit thereof at a bank. This
deposit is released when the
corporation has been registered
with the Board of Trade (Junta
Comercial) or after six months,
if no registration has been made.
After the fulfilment of these
requirements, a quorum of
subscribers of at least one half
of the capital is required for
the meeting to approve the
incorporation of a corporation.
If this quorum is not reached,
a second meeting may be held
before any number of subscribers.
Upon approval of the bylaws,
the shareholders should
elect the members of the
management bodies. There
are no nationality requirements
for management, but a
foreigner must hold a permanent
visa and be domiciled in Brazil
to be eligible for the job. At
the end of the meeting, the
minutes shall be signed by
all subscribers in attendance
or by the number required to
validate the resolutions. These
documents must be kept at the
corporation and a copy must
be filed with the Board of Trade.
Ongoing filing requirements
A newly incorporated corporation
acquires legal existence upon
filing its incorporation documents
with the Board of Trade and
the subsequent publishing of
its meeting’s minutes in a local
newspaper and the Official
Gazette (Diário Oficial). The
certificate issued by the Board
of Trade confirming the filing
of the incorporation documents
serves as a legal document for
the transfer of assets used to
pay in the capital and becomes
a matter of public record.
An annual meeting must be held
with the shareholders within
the first four months of the end
of the corporate financial year,
to approve the annual financial
statements and the management
report, approve the proposed
distribution of net income for the
year, elect the executive officers
or the board of directors’
members (if applicable) and
approve the authorised capital,
minimum or fixed dividends and
premiums on reimbursements
(if applicable).
Shareholders meetings
must normally be called
by publishing an appropriate
announcement at least three
times in the Official Gazette
and in a local newspaper.
Exchange Controls or
restrictions on repatriation
of profit
Dividends remitted to nonresident shareholders or
quotaholders are not subject
to withholding tax.
Profits may be remitted abroad
without limitations, to the extent
that there is foreign registered
capital and retained earnings
available. As from 1 January
1996, profits/dividends
distributed to non-resident
beneficiaries relating to periods
beginning on or after this date,
are not subject to withholding tax.
On 16 December 2009,
thin capitalisation rules were
introduced to the Brazilian
tax system.
The new legislation set forth
that interest paid or credited by
a Brazilian entity to a related
individual or legal entity, not
resident or domiciled in a tax
haven or a favourable tax regime
jurisdiction, can only be considered
deductible for tax purposes if
such expense is necessary for
the activities of the local entity,
and if the amount of debt granted
20
by the related party does not
exceed twice the amount of
the participation it holds in the
stockholder equity of the Brazilian
entity. A second test also needs
to be satisfied including the
total amount of all debts with
any foreign-related party. If both
tests exceed the 2:1 ratio, the
portion of interest related to the
exceeding amount will not be
tax deductible.
Similar provisions are also
applicable to interest paid or
credited by a Brazilian entity to an
individual or legal entity (related
or not) resident or domiciled in
a tax haven or a favourable tax
regime jurisdiction. In this case,
the expense would only be
considered tax-deductible if the
amount of debt does not exceed
30% of the amount of the
participation it holds in the
stockholder equity of the Brazilian
entity. A second test also needs
to be satisfied including the
total amount of all debts with
any foreign party resident or
domiciled in a tax haven
jurisdiction. If both tests exceed
the 30% ratio, the portion of
interest related to the exceeding
amount will not be tax deductible.
Liabilities for
Directors Company
In the most common types of
entities, LTDA and SA, executive
officers are not personally liable
for the obligations they undertake
in the name of a corporation
and in the normal course of
business. However, they are
liable for losses and damages
caused by negligent or fraudulent
conduct or by violating the law
or the corporation’s bylaws.
Taxation in Brazil
Corporation income tax (or equivalent)
International aspects
Foreign operations
Brazilian resident companies
are taxed on worldwide income.
Foreign branch profits are taxed
as earned and foreign subsidiary
profits are taxed when distributed
or made available. Double taxation
is avoided by means of foreign
tax credits.
Resident individuals are subject
to tax on all income from abroad
but are allowed to take credit
for the foreign tax paid thereon,
provided reciprocal treatment is
accorded to Brazilian-source
income in the country from which
the income is received.
Brazil has signed various
treaties for the avoidance
of double taxation.
Fees and other related
expenses paid in Brazil for
services rendered abroad
are subject to withholding
tax of 15%, or a lower rate
under some tax treaties.
Centre of International
Financial or Operations
There are no tax breaks
to encourage multinational
companies to locate
headquarters or administrative
offices in Brazil and/or the use
of Brazil as a base for offshore
financial operations. However,
the various Brazilian states
do offer different financial
22
incentives – they compete
between themselves – in
order to attract companies.
Corporate Income Tax (IRPJ)
Corporate income tax is
based on the calendar year,
with monthly tax payments, and
is generally computed on the
basis of annual or quarterly
taxable income. Under the
Actual Profit Method (APM),
IRPJ is charged at the rate of
15% plus a surcharge of 10%
on annual taxable income in
excess of R$240,000
(approximately US$120,000).
Additions of expenditure to
and deductions of expenditure
from the accounting profit
figure are required in order
to calculate the amount
on which corporation tax
is based. These adjustments
are either permanent or
temporary. Permanent
adjustments include gifts
and donations, and temporary
adjustments (which are
reverted in the future)
include provisions. All
these adjustments should
be controlled in the Livro
de Apuração do Lucro Real
(LALUR), Part A.
Certain companies can also
apply to pay IRPJ according
to a presumed profit method
(PPM). The amount of (IRPJ/
corporate income tax) will be
obtained from a percentage
of the gross revenues. Service
providers will be charged at a
rate of 8% (effective tax rate).
Sellers of goods and assets will
be charged at a rate of 2%
(effective tax rate). There are
restrictions on applying the PPM
Annual where gross revenues
in the preceding calendar year
are greater than R$48m.
Financial institutions in general,
leasing companies, insurance
companies, and non-private
pension funds are not allowed
to adopt PPM.
In some cases, depending on
the effective rate obtained
in the APM, PPM can be
considered a tax incentive.
Certain classes of income
receive special tax treatment.
Some of them are excluded
from taxation or can receive
specified tax deduction.
Companies are required to file
a corporate income tax return
on an annual basis (generally
up to the last working day of
June of the subsequent year).
Other corporate returns must
also be filed by legal entities.
Social Contribution on Net
Income (CSLL)
Brazilian tax legislation also
provides for a social
contribution tax on profits,
which also has the nature
of a corporate income tax.
Its taxable basis is quite similar
to corporate income tax, but
with certain distinct adjustments.
CSLL is charged at the rate of
9%. For financial institutions,
the applicable rate is 15%.
For CSLL, temporary and
permanent adjustments
are applied in the same way
as for Corporate Income Tax.
Tax losses carry forward
(IRPJ and CSLL)
There is no time limit for the
carry forward of tax losses.
However, the taxable profit of
each year can only be reduced
by tax losses up to a maximum
of 30%. Furthermore, it is
neither possible to carry back
tax losses nor transfer them
to other Brazilian companies.
Tax losses of an acquired
company cannot be carried
forward to be offset against
the taxable income of a new
activity if the following two
conditions are both met:
i.
Some companies can also
apply to pay CSLL based
on the presumed profit method
(PPM). Service providers will
be charged at a rate of 2.88%
(effective tax rate). Sellers
of goods and assets will be
charged at a rate of 1.08%
(effective tax rate).
The same restrictions on the
application of the PPM method
to Corporate Income tax apply
to CSLL.
In some cases, depending
on the effective rate obtained
in the APM, PPM can be
considered a tax incentive.
odification in the ownership
m
of the company; and
ii. modification
in the activity
of the company.
Capital gains
Capital gains earned by localresident entities are taxed
at the normal corporate rate
(34%), while capital gains of
non-residents are taxed at the
rate of 15% (unless otherwise
specified by international
tax treaties).
Individuals are taxed at the
rate of 15% on capital gains.
Payments of any type made
to tax havens are generally
subject to withholding tax
at a rate of 25%.
Withholding Taxes (IRRF)
The current rates applicable
to the following payments
to non-residents are:
i.
Dividends Not Taxable
ii. Interest
iii.
15%*†
Royalties 15%*†
iv. Technical
and Admin.
Services 15%*†
v.
Other Services 25%*†
*These rates are effective
unless otherwise specified
by tax treaty.
† Payments
of any type made
to tax havens, defined as
jurisdictions that do not tax
income or tax income at a rate
lower than 20%, are subject
to withholding at a rate of 25%.
The Brazilian concept of ‘tax
haven‘ jurisdictions has been
amended and has been in
effect since 1 January, 2009.
To that extent, it is likely that
any other jurisdiction (not
necessarily a country) that
falls into the new definition
(e.g. a jurisdiction that grants
tax benefits to non-resident
investors that do not perform
business activities on it; or a
jurisdiction that does not allow
access to information relating
to the ownership of shares of
local entities, the ownership
of goods, and/or rights or
information regarding
economic transactions) could
now be subject to Transfer
Pricing and Thin Capitalisation
rules in relation to the
rendering of services and the
acquisition or selling of goods,
among others.
26
At 7 June 2010, Federal Tax
Authorities published in the
Normative Instruction 1.037/10,
article 1, the new list of Tax
Havens. This new list includes
new tax havens jurisdictions in
addition to the previous list that
was published in 2002 that was
Andorra, Anguilla, Antigua and
Barbuda, Dutch Antilles, Aruba,
Bahamas, Bahrain, Barbados,
Belize, Bermuda, Campione
D’Italia, Cyprus, Singapore,
Costa Rica, Djibouti, Dominica,
United Arab Emirates, Gibraltar,
Granada, Hong Kong, Cayman
Islands, Cook Islands, Madeira,
Isle of Man, Channel Islands
(Jersey Guernsey, Alderney,
Sark), Marshall Islands,
Mauritius, Turks and Caicos,
U.S. Virgin Islands, British Virgin
Islands, Lebuan, Lebanon,
Liberia, Liechtenstein,
Luxembourg (holding 1929),
Macao, Maldives, Malta,
Monaco, Monserrat, Nauru,
Nieui, Panama, Saint Kitts, Saint
Vincent, U.S. Samoa, Western
Samoa, San Marino, Saint
Cristobal and Nevis, Saint
Vincent and the Grenadines,
Saint Lucia, Seychelles, Oman,
Tonga, Vanuatu.
The new members are:
Ascension Island, Brunei, French
Polynesia, Granada, Kiribati,
Norfolk Island, Pitcairn Islands,
Qeshm, Saint Helena, Saint
Pierre and Miquelon, Solomon
Islands, Swaziland and Tristan of
Cunha. On the other hand it was
excluded from the previous list
the jurisdiction of Malta and the
Luxembourg Holdings set up
under the Law 1929.
Introduced in the Brazilian Tax
system in 2008, via Law 9.430,
article 24-A, 'privileged tax
regime' can be defined as the
regime with the following
characteristics: (i) no income tax
or income tax lower than 20%,
(ii) tax benefits for non-resident
shareholders regardless of
whether they carry out
economic activities in the
country or dependency, (iii) tax
benefits for non-resident
shareholders to the extent that
they do not carry out economic
activities in the country; (iv)
worldwide income either
exempt or taxed at a maximum
rate lower than 20%, and (v) no
access to the identity of
shareholders, the owners of
assets/rights, and no information
on economic transactions.
Based on the concept introduced
in 2008, NI 1.037, article 2,
enumerates some types of
entities that fall under at least
one of the characteristics above.
These entities are:
•The financial investment
corporations (Sociedad Anonima
Financiera de Inversion, or SAFI)
under the laws of Uruguay;
•The International Trading
Companies (ITC) under the laws
of Iceland;
•The offshore KFTs under the
laws of Hungary;
•The limited liability companies
(LLC) under U.S. state laws that
are not subject to U.S. federal
income tax and whose members
are non-residents (in the U.S.);
•The Entidades de Tenencia de
Valores Extrajeros (ETVEs)
under the laws of Spain;
•The ITCs or International Holding
Companies (IHCs) under the
laws of Malta;
•The holding companies under the
Laws of Denmark which do not
excise substantive activities; and
•The holding companies under
the Laws of the Netherlands
which do not excise substantive
activities (suspended from
the list).
Note that different tax effects
could impact transactions
between Brazilian counterparts
with counterparts in tax havens
or with privileged tax regime
entities.
It should also be noted that
the tax authorities respect the
exemption from withholding for
all dividend payments, including
dividend payments subject
to withholding tax under the
provisions of a tax treaty. In the
case of royalties, the royalty
contract has to be approved
by the National Institute of
Industrial Property (INPI) and
filed with the Brazilian Central
Bank.
Deductions for royalties are
generally limited to 5% of net
sales of the relevant products or
services; the percentage depends
on the type of product or activity.
Federal Excise Tax (IPI)
This Federal Excise Tax is paid by
manufacturers on behalf of their
customers at the time of sale,
either to another manufacturer
who will further the
manufacturing process or to the
retailer who sells to the end user.
The tax paid is stated separately
on the sales invoice. Certain
exemptions are given to goods
considered to be of basic
necessity to the country‘s
economy. The rates are defined
28
by the product’s tax code
according to the Harmonised
System.
As mentioned above, when
manufactured products are
sold between producers,
the IPI is imposed. However,
the subsequent manufacturer
is allowed a credit against
its IPI liability, equal to the
IPI paid to its suppliers (noncumulative tax).
IPI is also imposed on import
transactions. Export revenues
are tax exempt from IPI –
however, the IPI tax credit
recorded on the acquisition
of inputs may be kept.
Contribution for the Social
Integration Programme (PIS)
PIS, generally levied at 1.65%,
is a Federal social contribution
calculated as a percentage of
gross revenue. Note that higher
rates are imposed in certain
sectors. A PIS credit system is
meant to ensure the tax is
applied only once on the final
value of each transaction,
which means that the company
is granted a tax credit calculated
on acquisition of inputs and on
certain expenses (noncumulative system).
Note that there are certain
companies which must pay
PIS under the cumulative
system. The cumulative
system imposes a lower rate
(0.65%), however, it does not
enable the company to record
tax credits on acquisitions.
Since 1 May 2004, the PIS
contribution has applied to the
importation of goods and on
the payment of services to
non-residents. Export revenues
are tax exempt from PIS.
However, the PIS tax credit
recorded on the acquisition
of inputs and services may
be kept.
Contribution for Social
Security Financing (COFINS)
COFINS, generally levied at 7.6%,
is a monthly federal social security
contribution calculated as a
percentage of gross revenue.
Higher rates are imposed in certain
sectors. A COFINS credit system
is meant to ensure the tax is
applied only once on the final
value of each transaction, which
means that the company is
granted a tax credit calculated
on the acquisition of inputs
and on certain expenses
(non-cumulative system).
There are certain companies
which must pay COFINS under
cumulative system. The
cumulative system imposes a
lower rate (3%), but it does not
enable the company to record tax
credits on acquisitions. Financial
institutions also have a special
COFINS rate of 4% but some
deductions to the tax base
are allowed.
As from 1 May 2004, COFINS
contributions also apply to
imports of goods and on the
payment of services to nonresidents. Export revenues
are tax exempt from COFINS
(however, the COFINS tax credit
recorded on the acquisition of
inputs and services may be kept).
Financial Transactions Tax (IOF)
In October 2009, the Brazilian
government changed the IOF
tax rates that are levied on
certain foreign currency
exchange transactions related
to the inflow of funds to Brazil.
For foreign investors entering
into the financial and capital
markets, the applicable rate
was previously 0%. In 2010
the IOF rate was increased
to 2% for inflows of equities
traded through the Exchanges;
however, in December 2011
the rate went back to 0%.
Other inflows for the financial
and capital markets will trigger
IOF at 6%.
For the outflow of funds from
Brazil related to investments in
the financial markets, the IOF
rate continues to be 0%.
For investments according to
Law 4.131 (into LTDA and SA),
inflows and outflows will
trigger IOF at 0.38%.
Contribution for the
Intervention in the
Economic Domain (CIDE)
Brazilian companies with royalty,
licence, service and technical
assistance agreements with foreign
entities, shall pay a 10% CIDE,
based on the amount paid abroad.
Service Tax (ISS)
The ISS is a municipal tax on gross
billings for certain services
designated by the Federal
Government. The applicable
rates to be determined by each
municipality can vary between
2% and 5%.
In general, the service tax
is levied by the municipality
in which the Company is
headquartered. There are
some exceptions to this
rule for services involving
assembly, construction and
demolition, among others.
As from January 2004,
important changes to the ISS
legislation were made. The
original list of services subject
to the tax was expanded and
the importation of services is
now subject to ISS. Additionally,
ISS is not levied on exports of
services, except when the
services are rendered in Brazil
or the results of these services
are applied in Brazil.
Transfer Pricing
The rules of transfer pricing
in Brazil address imports and
exports of products, services
and rights charged between
related parties, inter-company
financing transactions not
registered at the Central Bank
of Brazil, as well as all import
and export transactions
between Brazilian residents
(individual or legal entity)
and residents in either low
tax jurisdictions (as defined
in the Brazilian legislation)
or jurisdictions with internal
legislation that call for secrecy
relating to corporate ownership,
regardless of any relation.
The rules require that a Brazilian
company substantiates its
inter-company import and export
prices on an annual basis by
comparing the
actual transfer price with a
benchmark price determined
under any one of the Brazilian
equivalents of the OECDs
comparable uncontrolled
price method (CUP method),
resale price method (RPM)
or cost plus method (CP
method). Tax payers are
required to apply the same
method, which they elect,
for each product or type
of transaction consistently
throughout the respective
financial year. However,
taxpayers are not required
to apply the same method for
different products and services.
Personal Income Tax
Residents of Brazil are taxed
on their worldwide income,
and non-residents are taxed
exclusively at source on their
Brazilian-source income. The
source of income is determined
by the place where the tax
payer is located, irrespective
of where the work is performed.
Foreigners, intending to live
and/or work in Brazil, whether
for a short or a long period, will
become tax-resident depending
on the type of visa they hold:
1.Permanent visas – Holders of
permanent visas are considered
residents as from the date of
arrival in Brazil.
2.Temporary visas – Holders
of temporary visas are also
considered residents as from
the date of arrival in Brazil,
as long as they have an
employment contract in Brazil.
Otherwise, they will become
tax residents as from their
184th day of presence in Brazil
within any given 12-month
period.
Tax rate – Income tax is
normally withheld at source, at
rates varying from 0% to 27.5%,
depending on the income
bracket. The final liability is
determined upon filing the
tax return. Any difference
between the amounts as
determined by the tax return
and that withheld at source
must be paid or is refunded
to the taxpayer. The Brazilian
Tax Authorities have issued
an annual tax table (below)
applicable to income tax
payable during tax year 2011.
Individuals are required to
submit income tax returns
by 30 April of every year.
There are penalties for late
and incorrect submission.
Monthly Income
(Brazilian
currency – BRL)
Income tax arising from
employment should be
withheld by the employers at the above-mentioned rates.
Social charges and other
employee rights are referred
to below.
Tax Rate
Amount to be
deducted from
tax – in R$
–
–
From 1,566.62 to
2,347.85
7.5%
117.49
rom 2,347.86 to
F
3,130.51
15%
293.58
From 3,130.52 to
3,911.63
22.5%
528.37
A bove 3,911.63
27.5%
723.95
Up to 1,566.61
*Source: http://www.receita.fazenda.gov.br/Aliquotas/ContribFont2012a2015.htm
Sales tax/VAT
State Value Added
Tax (ICMS)
The Constitution of 1988
granted authority to the
Brazilian States to collect tax
on the circulation of goods and
on the supply of inter-state and
inter-municipal transportation
services on communications,
even when the transaction and
the rendering of services start
in another country.
ICMS is not a cumulative tax,
that is, the tax is only assessed
on the increase in the price of
the product in each part of the
supply chain. The calculation
process involves a system
that, in each payment period,
the taxpayer must check the
amount of debits and credits
related to the State Value
Added Tax and, if the taxpayer
has more debits than credits,
they will have to pay the tax on
the difference between them.
It is a value added tax and
is collected by most States at
the usual rate of 17%, except
for the States of São Paulo,
Minas Gerais and Paraná,
where the tax rate is 18%
and Rio de Janeiro, where
the rate is 19%. Some products
trigger a higher rate (usually
25%) or a lower rate
(automotive industry and other
special industries are below
17% or 18%). Intra-states
transactions are subject to
lower rates, depending on the
State of origin and destination.
32
Other taxes
ICMS is also imposed on import
transactions. Export revenues
are tax exempt from ICMS,
however the ICMS tax credit
recorded on the acquisition of
inputs and services may be kept.
Please note that industries
located in certain States of
Brazil, such as Mato Grosso,
Goiás, Bahia, among others,
may apply for State tax
incentives, which correspond
mainly to reduction of tax due,
deferral of tax due or recording
of presumed tax credits. It is
important to mention that, as
most of such incentives are
not supported by the necessary
agreements pre-approved by
all States (CONFAZ meeting),
these tax incentives may be
questioned.
Property Taxes
(IPTU and ITBI)
A property tax – IPTU (Imposto
Predial e Territorial Urbano) is
levied annually based on the
fair market value of property
in urban areas at rates that
generally vary between
0.2 and 5% according to the
municipality and location of
the property. Payments can
be made in up to 10 monthly
instalments. In a few cases it
is possible to obtain exemption
from this tax.
Another property tax – ITBI
(Imposto de Transmissão de
Bens Imóveis Inter Vivos) is
levied at rates of up to 6% on
sales or transfers of properties
and is payable by the acquirer.
A reduced rate of 0.5% applies
to transactions under housing
programmes financed by federal
government schemes.
Audit and accountancy
Audit requirements
Audited Financial statements
are required for listed companies,
financial institutions and insurance
companies. Listed companies
with total annual gross revenue
above R$100m must present
quarterly information reviewed
by independent auditors.
Other regulated segments
might require audited financial
statements.
In light of recent changes to
the Corporate Law, all entities,
independent of their statutory
structure or whether they are
listed or regulated entities, must
have their financial statements
audited by an independent
auditor if they are deemed to
be ‘large’. ‘Large’ companies
are defined as those whose
gross revenue in the last year
was greater than R$300m
(approximately US$150m) or
held total assets over R$240m
(approximately US$120m)
within Brazil. These limits
are applicable not only
to individual legal entities but
also to a group of entities under
common control, even if the
control is abroad. Please note
that the analysis considers
the operations in Brazil only.
34
Accounting Practices
Adopted in Brazil
The Accounting Practices
Adopted in Brazil (BR GAAP)
are based on the Corporate
Law, which was updated in
2008 with Law 11.638/07.
This Law has approximated
the BR GAAP to International
Financial Reporting Standards
(IFRS), although there still are
many remaining differences.
Although the starting point for
the BR GAAP is the Corporate
Law, there were inconsistencies
in the accounting treatment
between different companies
in Brazil due to the lack of
guidance in the Law, which
is very superficial on accounting
issues. The Brazilian Stock
Exchange Securities (CVM)
and other regulators, including
the Brazilian Federal Council
of Accountants (CFC), used
to issue accounting guidance
to the entities regulated by
them. After a round of
negotiations, from 2008 this
problem tends to disappear
in view of the creation of the
Brazilian National Standard
Setter (CPC – Comitê de
Pronunciamentos Contábeis),
which, from now on, will be
responsible for issuing the new
Brazilian accounting standards,
which will be subject to the
endorsement from the different
regulators. Once the regulators
are part of the CPC, it is
supposed that most of the
standards, if not all,
will be approved by them as
soon as they are issued in final
form. Prior to 2010, standalone
Financial Statements could be
prepared in accordance with
BR GAAP. However, the CVM,
the Brazilian Central Bank
(BCB) and Insurance Regulator
(SUSEP) have issued regulations
determining that entities must
prepare consolidated financial
statements in accordance
with IFRS from 2010.
The format of the financial
statements in Brazil is similar
to IFRS. Disclosure in BR GAAP
is very limited if compared
with disclosure requirements
prescribed by IFRS.
The Transitional
Tax Regime (RTT)
As mentioned above, Law
11,638/07 introduced new
accounting principles in Brazil.
In order to guarantee the tax
neutrality of such changes, the
Brazilian government issued
Law 11,491 on 27 May 2009.
The focus of this measure was
to guarantee that no adverse
tax consequences should be
triggered from the adoption
of the new accounting criteria
in connection with the
recognition of revenues, costs
and expenses computed on
the assessment of net profits.
To achieve this result, Brazilian
taxpayers will have the option
to elect for a Transitional Tax
Regime (Regime Tributário de
Transição – RTT), under which,
for tax purposes only, taxpayers
will be allowed to calculate
corporate income tax and follow
the applicable accounting
criteria before the enactment
of Law 11,638.
The transitional tax regime
was optional for the 2008 and
2009 calendar-years but has
been mandatory since 2010
and is in force until a new law
is enacted setting forth the
tax effects (if any) stemming
from the new methods and
accounting criteria. In addition,
the option of the RTT for the
Corporate Income Tax (IRPJ)
shall imply the adoption of
the tax regime also for social
contributions purposes
(CSLL, PIS and COFINS).
Human Resources
and Employment Law
Labour Relations
Employment and labour
relations in Brazil are primarily
governed by the Brazilian Federal
Constitution, the Brazilian Labour
Code – ‘CLT’ and Collective
Labour Agreements. The ‘CLT’
imposes on the employer
a series of obligations that
protect employees, reflecting
the paternalistic philosophy
of the Brazilian Legal System.
Main Employees’ Rights
Remuneration
According to the Brazilian
Labour Laws, an employment
contract (written or verbal)
must state the remuneration
of the employee. The
remuneration of an employee
includes, besides base salary,
fringe benefits and bonuses,
amongst others.
36
Government Severance
Indemnity Fund for
Employees (FGTS)
For individuals considered as
employees, the company must
make a monthly deposit to
the Government Severance
Indemnity Fund for Employees
(FGTS), at an amount equal
to 8% of an employee’s
remuneration. In case of a
dismissal without just cause,
incited by the company, an
employee may withdraw this
fund with an additional penalty
(to be paid by the employer)
equivalent to 40% of the
accumulated FGTS balance.
The company must contribute
an additional 10% fine to the
social fund.
13th Salary
The employer must pay annually
to the employee, the 13th
salary, which is a Christmas
bonus due to employees,
regardless of their remuneration.
It corresponds to an additional
one month salary and includes
annual or semi-annual bonuses
and fringe benefits.
The payment occurs, most
commonly, in two instalments,
50% in November and 50%
in December. An anticipation
of the first instalment may be
requested when the employee
leaves for vacation.
Social Security Contribution
Companies are subject to
the following social charges,
due on the employees’
monthly remuneration:
•SocialSecuritycontributions,
equal to 20% (with no ceiling),
plus:
•Corporatecharges:
SESI, SESC, SEST
SENAI, SENAC or SENAT
INCRA
SEBRAE
Education Salary
Work accident insurance
(from 1% to 3%)
Total (maximum rate)
1.5%
1.0%
0.2%
0.6%
2.5%
3.0%
8.8%
The corporate charges listed above
vary according to the nature of
the company’s activities.
In addition to the company’s
contribution (20%), employees
are required to pay a monthly
social security contribution
that varies from 8% to 11%
of their monthly compensation,
with a current set ceiling of
R$405.80 (approximately
US$202.50) per month (this
ceiling is altered from time
to time).
Working conditions/
hours worked
The Brazilian Federal
Constitution determines that
regular working hours should
not exceed 8 hours per day and
44 hours per week. Specifically
for financial institutions, working
hours should not exceed
6 hours per day. A series
of constitutional and legal
provisions establish a shorter
working week for a variety of
professional categories such as
bank clerks, telephone operators
and so forth, who are subject
to different working weeks
pursuant to specific regulations.
Time worked in excess of the
above is treated as overtime.
In general, compensation for
overtime work is paid at least
50% above the compensation
paid for normal working hours.
Wages and salaries
All work of equal value must
be remunerated at the same
rate, irrespective of the
nationality, age, sex, or marital
status of the employee.
A minimum wage is established
by law and is currently set
at approximately US$311 per
month (R$622). It should be
noted that the minimum wage
serves mainly as a base index
for adjusting wages and
certain prices. In practice,
it is paid only to some rural,
unskilled and migrant workers.
Foreign personnel
Legal entities with 3 or
more employees, are obliged
to maintain a proportionality
of 2/3 of Brazilian employees
to 1/3 of foreign employees.
The proportionality must also
be observed in relation to
total employee remuneration.
Lower proportionality may
be granted by the relevant
authorities in specific
circumstances (e.g. lack
of Brazilian workforce in a
specific sector). For
proportionality purposes,
foreigners residing in Brazil
for more than ten years who
are spouse or parent to a
Brazilian national, and those
of Portuguese nationality,
are considered as Brazilians.
Immigration law states that
a foreign individual may only
enter the country, to be
engaged in gainful activity,
under certain types of visas
(permanent and temporary,
type V), which will vary
depending on the kind of
activity performed and the
period of physical presence
in the country.
Temporary visa
Business Trip (Temporary visa)
The business visa permits a
foreign individual to enter Brazil
for a short term on specific
business assignments. The
business visa is recommended
to business owners or their
representatives that come
to Brazil exclusively in the
interests of their companies,
to offer or search for products,
to learn about the Brazilian
market or to close or draw
up agreements, for example.
Temporary visa V
– with a labour contract
A foreign national who enters
the country holding a temporary
visa type V – with a labour
contract, must have an
employment relationship
with a Brazilian company.
Temporary visa V – without
a labour contract (technician)
A foreign national entering
the country without a labour
contract and consequently,
without an employment
relationship with a Brazilian
company, must be under a
technology transfer and/or
technical assistance contract.
Permanent visa
A permanent visa is granted
to foreign individuals who intend
to settle in Brazil and that
satisfy specific requirements
established by the National
Immigration Council and/or
the Labour Ministry.
Trade
Import Tax (II)
Tax Treaty
Import tax is levied on the
CIF price. The rate depends
on the degree of necessity
and is defined by the product‘s
tax code according to the
Harmonised System. Taxes
on the importation are levied on
top of one another, as follows:
Currently, Brazil has double
tax treaties with the following
jurisdictions: South Africa,
Argentine, Austria, Belgium,
Canada, Chile, China, Korea,
Denmark, Ecuador, Spain,
Philippines, Finland, France,
Netherlands, Hungary, India,
Israel, Italy, Japan, Luxembourg,
Mexico, Norway, Peru, Portugal,
Czech Republic, Slovakia,
Sweden and Ukraine.
i.
Import tax is applied to the CIF
price (FOB price plus insurance
and freight).
ii.
IPI is levied on the total of (i)
above (CIF price plus import tax).
iii.
PIS and COFINS are applied
to the total of (ii) above (CIF
price, import tax, and IPI) plus
ICMS due on imports and the
contributions are included in
their own basis.
iv.
ICMS is applied to the total of
(ii) above (CIF price, import tax,
IPI) plus PIS, COFINS and ICMS
is included in its own basis.
Import tax (II) is a cost to
the company (not recoverable).
ICMS, IPI, PIS and COFINS
paid on imports are generally
creditable.
38
Personal loan
(empréstimo pessoal). It is
repayable in up to 24 or 36
instalments, depending on the
bank. Competition is strong and
rates vary from bank to bank.
Banking in Brazil
All banking business is closely
monitored by banks themselves
and by the Central Bank of
Brazil (Banco Central do Brasil).
Banking rules are strictly
enforced.
interest rate (SELIC – Special
Settlement and Custody
System) is equal or under 8.5%
per year, the interest paid to
customer is 70% over SELIC,
plus the reference rate (TR)
variation.
In addition to the extensive
branch network of the major
retail banks, many of which
have self-service ATM halls,
most services available at the
bank itself are also available
via internet banking.
Currently, many banks
combine these two accounts
into an investment account
(conta investimento). Deposits
are automatically routed to the
savings account, and transferred
to the current account to cover
checks, debit card payments
and cash withdrawals. These
accounts are also used for
investments in funds, with all
investments and redemptions
transiting through the account.
Types of bank accounts:
Brazilian banks offer current
accounts, savings and
investment accounts, credit
and debit card services,
personal loans and overdrafts,
and in some cases, foreign
exchange services. Following
are the details of each one:
Current accounts
(conta- corrente). Usually
entitle the account holder to a
chequebook and/or debit card.
These accounts are normally
non-interest-bearing.
40
Savings accounts
(conta poupança). Pay monthly
interest on average daily
balances for the month. This rate
is currently 0.5% over the basic
reference rate, (Taxa Referencial
– TR). Interest earned on these
accounts is tax-free.
Due to a new local regulation,
deposits made on May 4th
2012 and onwards, have new
interest basis. Whenever
the Brazilian‘s benchmark
Salary payment account
(conta salário). A simple type
of checking account which was
launched by Brazilian Central
Bank in 2006 (Res. 3402/06)
with the following objectives:
i.
Allow low income customers
to withdraw their salaries
through Branches or ATM's
without the need to keep a
normal fee chargeable
checking account in the Pay
roll processor Bank chosen
by its Employer Company;
ii. Allow
individual customers
to readily transfer their salaries
to a checking account held in a
Bank which is not the same as
the Pay Roll processor chosen
by its Employer company. The
idea is to stimulate competition
among Banks for better quality
services and lower fees.
Overdraft
(cheque especial). It is normally
done by arrangement and
subject to the proper credit
analysis by the bank. Usually,
on opening an account, the
bank may make such a credit
line available. Interest rates
on such facilities are very high.
Setting up a bank account
(individual account)
The following documents
are required to open a retail
bank account, such as:
• Avalididentitydocument.
In the case of a foreigner
resident in Brazil, this will
mean their foreigner’s identity
card (Cédula de Identidade
para Estrangeiro – CIE)
which contains the foreign
register (Registro National
De Estrangeiro – RNE).
• IndividualTaxpayer’snumber
(Cadastro de Pessoa Física –
CPF).
• Proofofresidency,suchasa
utility bill in the name of the
person opening the account.
To obtain the CPF, it is
necessary to fill out the
application form at any Post
Office, branch of Banco do
Brasil or branch of the Caixa
Econômica Federal and
present the documentation
required (usually the original
or a certified copy of the RNE).
The applicant will receive
a counterfoil with a code
number and there is a small
fee. Thereafter, the applicant
will be notified to appear at
a unit of the Federal Revenue
Service and present their
documents and the
counterfoil in order to obtain
their definitive CPF.
HSBC in Brazil
Who are we?
HSBC Bank Brazil represents
one of the main financial groups
worldwide in our country.
Based on four pillars – Stability,
Proximity, Relationships and
Know-how, the institution
follows Principles and Values
that ensure an ethical, fair and
responsible standard when
doing business, always focusing
on the client.
Services offered by HSBC
Bank Brazil include Retail,
Commercial Banking,
Corporate, and Private Banking.
Head Office
HSBC Bank Brazil has its
headquarters in Curitiba (PR).
An International Brand
In March 1997, HSBC
Bamerindus S.A. was born,
which in 1999 became HSBC
Bank Internacional Brasil
S.A. – Banco Multipo. The
HSBC logo and hexagon
are used in order to adhere
to the worldwide brand.
Network in Brazil
Corporate Sustainability
HSBC Bank Brazil is now
present in 564 Brazilian cities,
with 867 agencies, 390
bank service offices, 1,059
electronic service stations
and 5,284 ATMs. The clients
also have over 39 thousand
ATMs in the network shared
with other banks in Brazil and
24hr Bank.
At HSBC, our commitment
to sustainability involves
taking a look at our own
business and endeavouring
to do more and do it,
better. The target of acting
sustainably can only be met
if sustainability is one of the
drivers for our processes,
organizational culture,
customer care, creation of
new products and services
and, above all, credit policies.
Clients
Over 5.2m individual clients
and 368,932 legal
entity clients.
National Ranking
•4thlargestnon-state-owned
bank ranked by total assets¹.
•6thlargestbybranches¹.
•6thlargestbydeposits¹.
•4thpositionontheCentral
Bank FX ranking by volume¹.
•2ndlargestInternational
Custodian and 4th
Domestic Custodian².
•6thlargestbyAUM³.
¹ ANBID – Local Banking
2
3
42
CVM Brazil – SEC
ANBID – Local Banking
•Weapplypoliciesand
processes to manage
potential social and
environmental risk in our
lending and other financial
activities in sensitive sectors.
•Wehelpourclientstoidentify
the opportunities presented
by the shift to a low-carbon
economy.
•Wetrytoreduceourown
environmental footprint and
share good practice on this
with our clients and other
stakeholders.
•Wefocusourcommunity
investment (philanthropic
activities) on education and
the environment.
Our education programmes
strive/aim to lift people out of
poverty, build financial literacy
and promote environmental
awareness.
Our environmental programme
focuses on the HSBC Climate
Partnership – a five-year
environmental programme
to reduce the impact of
climate change on people,
forests, freshwater and cities.
HSBC’s programme partners
are carrying out original
scientific research, developing
demonstration projects,
creating working models,
and proving clear solutions so
that governments can enact
legislation for the adoption of
low-carbon policies.
Country overview
Capital city
Brasilia
Area
3,287,000 square miles
Population
190,732,694*
Language
Portuguese
Currency
Real
International dialling code
+55
National Holidays
Scheduled Public Holidays for 2012
21 February
Good Friday
6 April
Tiradentes Day
21 April
Labour Day
1 May
Corpus Christi
7 June
Independence Day
7 September
Brazil’s Patron Saint Day (N.S.Aparecida)
12 October
All Souls’ Day
2 November
Proclamation Republic
15 November
Christmas Day
25 December
Business and banking hours
Commercial – 9am to 6pm
Banks
– 10am to 4pm
Political structure
Federal Republic
Stock Exchange
BM&FBovespa. Leading share indexes: IBOVESPA & IBrX
*Source: Censo IBGE 2010
44
Shrove Tuesday (Carnival)
Contacts
Alvaro Taiar
Tel: +55 11 3674 3628
Email: alvaro.taiar@br.pwc.com
Thierry François-Marsal
International Banking Centre
Phone: +55 11 3847 5450
Email: thierry.f.marsal@hsbc.com.br
3rd Edition: July 2012
Copyright
Copyright 2012. All rights reserved.
46
141TP_Brazil_090212_2
’PwC’ and ’ PricewaterhouseCoopers’
refer to the network of member firms
of PricewaterhouseCoopers International
Limited (PwCIL), or, as the context
requires, individual member firms of
the PwC network. Each member firm
is a separate legal entity and does not
act as agent of PwCIL or any other member
firm. PwCIL does not provide any services
to clients. PwCIL is not responsible or
liable for the acts or omissions of any
of its member firms nor can it control
the exercise of their professional judgment
or bind them in any way. No member
firm is responsible or liable for the acts
or omissions of any other member
firm nor can it control the exercise
of another member firm’s professional
judgment or bind another member
firm or PwCIL in any way.