Overview of Brazil
– Brazil is predicted to overtake both the UK and France to become the seventh largest economy in 2020 (source Euromonitor International ). According to a PWC report Brazil is expected to replace Germany and become the 5th largest trading nation in the world by 2050 (source PWC).
In recent years, Brazil has experienced government turmoil, a downgrading of its’s sovereign risk rating, a recession and a flattening of demand in most retail sectors. To bring the economy back on track the government implemented important reforms with its market-friendly agenda receiving support from Congress. Business investment confidence has returned to Brazilian markets and the International Monetary Fund (IMF) expects Brazil to return to growth in 2017.
Brazil has a population of 207 million with 38% of the population under 25 years of age (source cia.gov)
Brazil’s main export commodities are cars, trucks, planes, ships, satellites, offshore oil platforms, white goods, fashion goods, cosmetics and consumer electronic products.
Brazil has a large and internationally competitive agribusiness sector, oil and gas reserves, vast mineral resources with an advanced financial services sector.
Brazil’s Business culture
In Brazil the currency used for International trade is US dollars.
Portuguese is the language of choice when negotiations are conducted. If English is used it can be advantageous to have an interpreter present.
It is important to keep in mind that personal contacts play an important role in Brazil and can make the difference in doing business deals. Indeed it is recommend that you are accompanied to business meetings by a local contact and that all initial written correspondence with potential business partners be in Portuguese or in English.
For business meetings dress code is semi informal. In business discussions it is best to use titles if any (e.g. Professor, Doctor), and ‘Senhor’ (Mr) or ‘Senhora’ (Mrs) or use the title ‘Mr’ or ‘Mrs’ and then their first name, not their last name (i.e. Sr Carlos, Sra Julia).
In Brazil it is always worth remember that during meetings there is a culture of not saying “no”, but that does not mean that your proposal is being agreed to either.
Setting up in Brazil
For those interested in exporting to Brail it is advised to establish a local presence through an agent/distributor, representative office or joint venture partnership. This can ensure that business contacts are serviced and maintained.
In Brazil the use of agents is very popular. Brazil enjoys a large choice of reputable and experienced sales agents. Agents are a popular choice for new exporters seeking to develop a market presence, particularly for smaller companies. Agents generally involve lower market entry costs than representatives and can provide good access to potential buyers. The challenge is to find an agent with the right contacts and right experience to suit your product.
Establishing of a joint-venture partnership with a local Brazilian company has also become a popular option. One attraction of such partnerships is that costs and risk are shared by the partners, with the Brazilian partner bringing to the venture local market knowledge, know-how and experience in the Brazilian business environment. It is advised to seek legal advice prior to setting up a tie up with a Brazilian partner.
Setting up a representative office in Brazil can be costly but is suitable for those exporters who require a high degree of control over their products and after-sales service, or where commercially sensitive intellectual property is involved.
Banking and Finance
In Brazil several commercial banks and financial institutions controlled by the Federal State with the largest stated-owned banks being Banco do Brasil and Caixa Economica Federal.
The private financial sector includes has commercial banks, multiple service banks, investment banks, credit cooperatives and others.
Tariffs and Regulations
Brazilian Tariffs and duty rates are constantly revised and are subject to change without notice. For further information please visit the:
Tariffs and non-tariff barriers
Imports are subject to a number of taxes and fees in Brazil, which are usually paid during the customs clearance process. There are three taxes that account for the bulk of import costs: the Import Duty (II), the Industrialized Product tax (IPI) and the Merchandise and Service Circulation tax (ICMS). In addition to these taxes, several smaller taxes and fees apply to imports. Note that most taxes are calculated on a cumulative basis.
All products exported to Brazil are taxed by an import tax (unless otherwise specifically exempting the product from such payment). The key points to note about the import tax include:
- It is levied on the customs value.
- The customs value is generally assessed based on the transaction value and that coincides with the cost, insurance and freight (CIF) value.
- The import tax rate is selective and depends on the product’s tariff classification.
Brazil and its Southern Common Market (Mercosul) partners, Argentina, Paraguay, and Uruguay implemented the Mercosul Common External Tariff (CET) on January 1, 1995. Venezuela became a full member of Mercosul in 2012. Each country maintains a separate exceptions list of items for tariffs.
Foreign exporters and Brazilian importers must register with the Foreign Trade Secretariat (SECEX)
Depending on the product, Brazilian authorities may require more documentation. For instance, the Ministry of Health controls all products that may affect the human body, including pharmaceuticals, vitamins, cosmetics and medical equipment/devices. Such products can only be imported and sold in Brazil if the foreign company establishes a local Brazilian manufacturing unit or local office, or the foreign company appoints a Brazilian distributor who is authorized by the Brazilian authorities to import and distribute medical products. Such products must be registered with the Brazilian Ministry of Health. The registration process is often complex and/or time consuming.
Product certification, labelling and packaging
Label requirements vary in accordance to the product category. Special label requirements will apply to food, beverage, agrochemicals, pharmaceuticals and cosmetics and may have to be approved by regulatory bodies.
The labels should contain easily readable information about the product’s quality, quantity, composition, price, guarantee, shelf life, origin, and risks to the consumer’s health and safety.
The name and contact details of the importer and some additional information in Portuguese are mandatory on the back labels of most imported products.
It is important to note that Brazil requires special labels for toxic and food products that need to be addressed when exporting
Products should be labelled in metric units or show a metric equivalent.
Methods of quoting and payment
Quotations should be FOB and C&F (Incoterms 2000), ex-works, Brazilian port, and in US dollars. Payment terms can be in advance, collection (payment terms are freely negotiable, averaging 360 days), with or without a letter of credit coverage.
Documentary & Clearance Requirements
- Commercial invoice
- Bill of lading
- Certificate of origin – if a product is eligible to special multilateral agreements.
It is essential to have all Customs documents in complete order. Products can get delayed for various reasons, including minor errors or omissions in paperwork. Products held at customs in Brazil can be assessed high fees. Brazilian Customs frequently seizes shipments that appear to have inaccurate documentation. Customs has the right to apply fines and penalties at its discretion. For further information on customs regulations in Brazil:
Duties, Taxes & Fee’s for formal entry clearance:
Foreign-controlled companies and foreign residents generally receive the same treatment with taxation in Brazil as local companies and residents.
- The Industrialised Products Tax (IPI) is levied on most goods and is applied on the duty-paid value. The most common rate is between 10 per cent and 20 per cent, assessed on the duty-paid value. However, certain goods, such as alcoholic beverages are subject to rates of up to 150 per cent (tariff 20 per cent + IPI 130 per cent).
- Merchandise and Services Circulation Tax is also levied and varies from state to state. In Sao Paulo, for example, it is 18 per cent levied on the aggregate of the duty-paid value plus the IPI.
- Merchant Marine Commission of 25 per cent of freight cost.
- Warehousing charges begin at one per cent for five days and increase progressively up to 1.5 per cent for each period of 10 days after 20 useful days of storage.
- Port and dock charges vary based on the types of goods and their FOB value (Incoterms 2000), rates range from three per cent to 12 per cent.
- SISCOMEX Fee: fixed fees in local currency (Reals) for each import declaration, averaging US$20. A bank charge must be paid at the Bank of Brazil. The rate averages US$50.
- Clearance agent’s charge of two per cent, levied on the CIF value (Incoterms 2000).
- Bank fees covering letter of credit emissions and document handling may reach three per cent of the FOB price.
Imports into the Free Trade Zone of Manaus (State of Amazonas) are exempt from import duty.
Companies are advised to spend time investigating the Brazilian market, obtain professional advice where appropriate and thoroughly investigate the issues in entering the market and before establishing business relationships.
Companies wishing to operate in Brazil should commit to the highest level of corporate behaviour and familiarise themselves with the laws of their country and the penalties pertaining to bribery of foreign officials.
Intellectual Property Protection
Brazil is a signatory to the Uruguay Round Agreements, including the Trade Related Aspects of Intellectual Property (TRIPS) Agreement, signed in 1994. In addition, Brazil is a member of the World Intellectual Property Organisation (WIPO) and is a signatory to the Berne Convention (protection of copyrights). Brazil has also signed the Universal Convention on Copyrights, which protects literary and art works.
The registration of foreign software prior to marketing is no longer required. However, registration is usually recommended. The Ministry of Industry and Commerce provides registration through one of its agencies.
Software protection is granted for 50 years as of the following January from its publication. In contrast, copyright protection is for 70 years.
Foreigners may qualify for software protection, as long as their home country grants similar rights to Brazilians.
The registration of a trademark in Brazil is required to guarantee the protection of ownership rights. Trademarks that have not been registered previously, with certain exceptions, can be registered. Trademarks are registered at the INPI (Federal Intellectual Property Agency). Trade names are registered with the local Junta Comercial (Commercial Registry).
The fraudulent use of internationally famous trademarks has been a significant issue in Brazil. However, progress has been made in the last four years to provide greater protection for such marks. In addition, some foreign firms have been successful in taking court action against trademark infringements.
There are Four kinds of trademarks are legally protected in Brazil:
- Industry trademarks used by manufacturers to distinguish their product
- Trademarks used by merchants to identify their merchandise
- Service marks used to protect services or activities
- General marks used to identify the origin of a series of products or services that are individually distinguished by specific marks.
In order for an invention to be protected it must be patented in Brazil. Brazil is a signatory of the Paris Convention. Therefore, citizens of other signatory countries, which have filed for patents in their home country, have an exclusive right to apply for patents during certain periods depending on the nature of the property.
Brazil Information Resources
- National Institute of Metrology, Standardization and Industrial Quality – INMETRO
- National Council of Metrology, Standardization and Industrial Quality – CONMETRO
- National System of Metrology, Standardization and Industrial Quality – SINMETRO
- Brazilian Tax Authority (Receita Federal)
- Brazilian Ministry Development, Industry, and Trade
- Brazilian IPI and other tax rates
- Brazilian Common External Tariffs
About the Author
Aidan Conaty is founder of TCI China & Goodada. Aidan’s background is in Supply Chain Consultancy and he is a qualified accountant.