Investing in Brazil

A Q&A guide to investing in Brazil.

This Q&A gives an overview of the key factors affecting inward investment, including information on the jurisdiction's legal system; key laws and regulatory authorities; investment restrictions; and details of international treaties, customs and monetary unions. The guide also provides information on investor individuals; visa permits; restrictions on foreign ownership; transfer pricing and thin capitalisation rules; imports and import duties; safety regulations and standards for commercial goods and services; structuring and tax incentives; investment guarantees; recent developments and proposals for reform.

To compare answers across multiple jurisdictions, visit the Investing in... Country Q&A tool.

This Q&A is part of the Investing in…Multi-jurisdictional Guide. For a full list of contents, please visit www.practicallaw.com/investingin-mjg.

Contents
1. How does your jurisdiction compare internationally as a destination for inward investment?

Brazil is among the ten largest economies in the world, but still offers good opportunities for investment, partnerships and commerce, particularly considering it is still a developing nation. In recent years, foreign investment in Brazil has provided good returns to investors, even during the slowdown in the country's economic growth. The gross domestic product (GDP) of approximately US$500 million confirms the volume of the country's economy, especially when its production is measured by purchasing power. Covering an area bigger than 8.5 million square kilometres, Brazil is the world's fifth largest country in territory and its population is estimated to be around 200 million.

 
2. What types of companies are attracting foreign investment into your jurisdiction and what are the most active sectors?

Currently, the sector that receives the greatest attention is infrastructure. Between 2013 and 2017, about US$800 billion is expected to be invested in Brazil's infrastructure and energy sectors, mostly for the development of roads, rail lines, ports and airports. As a result, the construction sector in Brazil has seen a positive impact from this investment. The major growth in this industry relates to the 2014 World Cup and, specifically for Rio de Janeiro, the 2016 Summer Olympic Games. The state government of Rio de Janeiro estimates that since the announcement of the city as the host until 2016, investments in the state may reach US$50 billion. Again, the most affected sectors will be infrastructure, construction and transportation. Public-private partnerships are expected to be responsible for the major projects.

 
3. What will be the main factors affecting the market and how do you expect the market to develop?

There are several factors that tend to directly affect the Brazilian economy, the main one being the re-election of President Dilma Rousseff. The markets reacted tepidly to the re-election of President Rousseff on 26 October 2014. In her first public pronouncements after the election, she promised to be more open to dialogue and partnership with the private sector, acknowledging the need for more private investment to spur economic growth.

There are various points on the economic agenda (fiscal and monetary policy) and political agenda (political reform and reduced corruption) that will need addressing and should guide government actions during her second term, with important effects on the financial market. According to most analysts, the main point of interest is the choice of the new finance minister.

 

Legal system

4. Please briefly outline the government and legal system.

Brazil is a federal republic made up of a union of 26 states, municipalities and the Federal District. The country has a codified legal system. The Constitution of 1988 determines the relative powers at the federal, state and municipal level, in order to prevent conflict between laws of different spheres. In case there is such a conflict, federal legislation is hierarchically superior to that at the state and municipal level.

The Brazilian legal system is a codified system, in the tradition of continental Europe. The main source of law is statute, with precedent playing a subsidiary role. However, in recent years, important steps have been taken towards the establishment of the common law principle of stare decisis (the doctrine of precedent) in the legal system. The first was through Constitutional Amendment 45 of 2004, which allows the Federal Supreme Court to issue súmulas vinculantes, or binding precedents, which must be followed by all courts, on matters considered to have general importance, by approval of two-thirds of the justices. The second was an amendment of the Civil Procedure Code to introduce two mechanisms to reduce case loads. These two mechanisms were a declaration of general repercussion, and classification as repetitive appeal, so that the decisions in these appeals have binding status on all lower courts.

Brazil is a federation, with the federal, state and municipal governments having their own duties and rights to pass and enforce laws and create and collect taxes, within the limits set by the Federal Constitution.

Most private law matters, such as rules governing business entities, contractual rules, commerce, financing, labour relations and intellectual property, are dealt with by the federal government.

At the federal and state levels of government there is an executive branch, legislative branch and a judicial branch. Municipalities do not have a judicial branch. The territorial coverage of the municipalities is comprehensive, meaning there are no unincorporated areas in Brazil. The municipalities are governed by a major and municipal council.

The Brazilian judiciary is fully independent of the other branches. The federal and state governments (including that of the Federal District, location of the nation's capital Brasília, which is a state/municipality hybrid) have their own systems. Within the federal judicial branch there are specialised divisions, such as the Labour Justice and the Military Justice systems. Decisions by the legislative and executive branches can be challenged in court, as to their compliance with the Constitution and/or the law.

The Brazilian Federal Constitution (Constitution) is at the apex of the legal system, and all the legislation and regulation must be compatible with constitutional rules and principles.

The rules of business law are scattered throughout many different statutes. However, two of them merit special mention: the Law of Introduction to the rules of Brazilian Law (Lei de Introdução às normas de Direito Brasileiro (LINDB) and the Civil Code of 2002 (Civil Code). The LINDB is applicable to all areas of law in Brazil and provides general rules on conflict of laws (including private international law), interpretation of Brazilian legal texts and integration mechanisms of the legal system. The Civil Code contains the basic rules on private law, including general rules on legal entities, obligations, contracts, limitations and so on.

 
5. What are the key laws and regulatory authorities governing foreign investment in your jurisdiction?

There are no major obstacles to making foreign investments in Brazil. The Brazilian legal system does not make a distinction between foreign and national investments (Article 172 and Law 4,131/62; Article 3, Brazilian Constitution). There are no incentives for foreign capital and, in general, there are not many restrictions and limitations apart from a few exceptions established by the Constitution and infra-constitutional statutes. These limitations include the participation of foreign capital in health care organisations, and the acquisition of property along the Brazilian borders by resident foreigners.

Law 4,131/62, Article 1 of the Constitution (Foreign Capital Law), deals with foreign direct investment (there are other laws dealing specifically with foreign portfolio investments which are beyond the scope of this Q&A). The Foreign Capital Law states that foreign capital is considered to be:

  • Any goods, machinery and equipment that enters Brazil with no initial disbursement of foreign exchange, intended for the production of goods and services.

  • Any funds brought into the country to be used in economic activities, provided that they belong to individuals or companies resident or headquartered abroad.

The inflow of foreign capital in Brazil is made through investments and loans. Both are subject to registration with the Central Bank of Brazil (Central Bank), which is a public independent regulatory body similar to the United States' Federal Reserve System.

 
6. What international treaty organisations and/or economic, customs or monetary unions or free-trade areas is your jurisdiction a member of?

Brazil is a party to several international agreements, which means that the economy is robust in several respects. Some are more important and deserve attention.

Brazil and the WTO – Multilateralism

Brazil has been a World Trade Organisation (WTO) member since 1 January 1995 and has played an increasingly important role, either by participating actively in all negotiations, or by being one of the most frequent users of the dispute settlement system.

Brazil in WTO negotiations. Brazil's heavy involvement in diplomatic activities in the WTO is linked to the Brazilian government's stance that the WTO is the most important path to defend the interests of the country in foreign trade matters. This is because although Brazil has important interests in the agricultural sector (farm commodities like soybeans, sugar, coffee, beef and poultry), Brazil is also an important exporter of services and manufactured products (for example, airplanes). This context makes the multilateral system more appropriate to address Brazil's concerns. Therefore, multilateral negotiations have always received significant attention from Brazilian foreign policymakers.

Brazil in the dispute settlement system. Brazil has always been an advocate of the WTO's Dispute Settlement Body (DSB). Since 1991, Brazil has been the complainant in 20 disputes and the respondent in nine, including consultations that have led to the establishment of panels. The following are among the most important dispute settlement cases in which Brazil was a complainant:

  • European Communities - Export subsidies on sugar (DS 266).

  • United States - Subsidies on upland cotton (DS 267).

  • United States - Equalizing excise tax imposed by Florida on processed orange and grapefruit products (DS 250).

  • United States - Definitive safeguard measures on imports of certain steel products (DS 259).

  • Canada - Export credits and loan guarantees for regional aircraft (DS 222).

  • Brazil - Export financing program for aircraft (DS 46), as respondent.

Besides having participated as a complainant and respondent, Brazil also participated in several disputes as a third party.

Brazil is therefore one of the most active users of the WTO dispute settlement system. Although most of the results have been in Brazil's favour, the results achieved in the panels have not always been implemented by the respondent parties. The absence of effective means of enforcing the decisions of the DSB is a severe limitation on its usefulness, and Brazilian diplomats are acutely aware of this fact.

Regional trade agreements

The General Agreement on Tariffs and Trade (GATT) allows the formation of regional trade areas, so that regional and the multilateral trade agreements can exist simultaneously.

Since regionalism appears to offer a quicker way of achieving results, most WTO members are currently part of at least one regional trade agreement. Approximately 300 regional trade agreements have been notified to the WTO and it is estimated that 150 of them are currently in force.

Brazil in regional trade agreements. In order to increase trade opportunities, Brazil is also part of some regional agreements and negotiations. Not only do such agreements open markets, but they also aim to bring stability in the rules and policies of the relevant trade area.

Mercosur. The Southern Cone Common Market (Mercosul in Portuguese, Mercosur in Spanish and as commonly appears in English) was constituted in March 1991 by the Treaty of Asuncion, which aimed to set up a common market among Argentina, Brazil, Paraguay and Uruguay.

Mercosur was designed to achieve a true common market by establishing:

  • A free trade zone (already reached by Mercosur).

  • A customs union (currently in progress), in which a common external tariff (TEC) is applied to the products from other countries and trade blocks.

  • A common market involving the unfettered circulation of products, people, capital and services.

The common market seeks the free circulation of goods, services and production factors, as well as the elimination of restrictions on reciprocal trade, the establishment of a common external tariff, the adoption of common trade policies, and the co-ordination of macroeconomic and sectorial policies.

Today, Mercosur cannot be said to have achieved the second stage of a customs union, since the number of exceptions to the common external tariff and the variation of these exceptions are so large that the system in practice does not work properly.

To date, Mercosur has completed the free trade stage, which is the initial stage of the regional integration process, by which the member countries sought to reduce duties and other trade barriers within the block.

Currently, the products sold within Mercosur are, in general, free of duties and other trade barriers.

While problems still exist, Mercosur is trying to put the Common External Tariff (TEC) system into place to consolidate the customs union among the member countries. In Brazil, the TEC was implemented with the issuance of Decree 1,343 on 23 December 1994. Since then it has been amended several times, mainly to adapt it to the new version of the Common Mercosur Nomenclature (NCM).

Co-ordination of macroeconomic and sectorial policies among the member countries is still not considered a priority. Their economies are different, and their economic policies in many respects reflect this situation.

Still, Mercosur is Brazil's most important trade agreement to date. Some advances have been made, such as the execution of the Olivos Protocol, dealing with a dispute settlement within Mercosur.

Mercosur is also expanding its reach, now including Bolivia, Chile (as an associated member) and Venezuela, with several trade agreements with third parties too.

Latin American Integration Association (ALADI)

The ALADI is the largest Latin-American group of integration. ALADI comprises 13 countries: Bolivia, Ecuador, Paraguay, Chile, Colombia, Peru, Uruguay, Venezuela, Cuba, Argentina, Brazil, Panamá and Mexico.

The 1980 Montevideo Treaty (TM80) is the overall legal framework that constituted and governs ALADI. It was signed on 12 August 1980 and establishes the general principle of pluralism, convergence, flexibility, differential treatment and multiplicity.

ALADI aims at the gradual and progressive implementation of a common Latin American market, through the adoption of tariff preferences and the elimination of non-tariff barriers, through three mechanisms:

  • Regional tariff preference granted to products originating in the member countries, based on the tariffs in force for third countries.

  • Regional scope agreement, among member countries.

  • Partial scope agreements, between two or more countries of the area.

ALADI presents tariff benefits. To provide greater participation of the business sector in the integration process, ALADI presents each of its member countries with the consolidated granted preferences which were received in agreements signed under the TM80. Furthermore, ALADI offers a support system to less developed countries, determines rules governing foreign trade, and contains technical regulations for products circulating in the market. It has therefore facilitated trade among member countries, and has been concerned with the development of the region.

 
7. What other international agreements apply to foreign investment?

The other international agreements that apply to foreign investment in Brazil include:

  • Brazil- Argentina (2002), which deals with specific trade rules in the automotive sector.

  • Brazil- Uruguay (1983), which deals with specific trade rules in the automotive sector.

  • Brazil- Cuba (1999), which grants fixed preferences to certain products.

  • Brazil- Mexico (2002), which grants fixed preferences to certain products.

 

Investor individuals

8. Are there any visas, permits or other requirements for foreign individuals entering your jurisdiction for business purposes?

The following types of visas can be granted to a foreigner seeking entrance into Brazil:

  • Transit.

  • Tourist.

  • Temporary.

  • Permanent.

  • Courtesy.

  • Official.

  • Diplomatic.

Foreigners coming to Brazil on a work assignment usually receive a temporary visa, granted in the following cases:

  • On a cultural or study trip.

  • On a business trip.

  • As an artist or athlete.

  • As a student.

  • As a scientist, teacher, technician or professional of another category.

  • Under a contractual arrangement or for service to the Brazilian government.

  • As a newspaper, magazine, radio, television or foreign agency correspondent.

  • As a religious minister, or member of an institute of consecrated life or of a congregation or religious order.

Foreigners coming to Brazil to assume executive positions with signing authority must obtain a permanent visa, granted based on investment requirements of the foreign parent company.

 
9. Are there any visa waivers or fast-track procedures available for foreign individuals entering your jurisdiction as investors?

A business or "temporary II" visa is aimed at foreign professionals travelling to Brazil for specific short-term business reasons, without the intention to take up residence in the country. Business visas are normally issued with a validity of 90 days, except for citizens of Australia, Canada, India, New Zealand and the United States, to whom visas can be issued for up to five years due to government reciprocity agreements. Business visas can also be waived by Brazil under international agreements or reciprocal treatment. Despite the validity of the visa, the period in which the foreign person can remain in the country is established by the Federal Police at the port of entry. Also, regardless of the duration of the visa, the maximum period allowed in Brazil is 90 days. This permit of stay can be extended for the same period, provided the request is made to the Federal Police before the ending date. Decree 7,821/2012, which implemented the agreement between Brazil and the European Union on short-term visa waiver for holders of common passports, also applies to business visas.

 
10. What are the circumstances under which an individual becomes liable to pay tax in your jurisdiction? Can individuals be liable for tax on foreign-source income?

The basic guideline for individual taxation determines that residents are taxed on their worldwide income, while non-residents only have their Brazilian income subjected to taxation at the source.

During the first 183 days, consecutive or not, of their stay in Brazil, foreigners that hold temporary visas without a local employment agreement are considered to be non-residents. Therefore, they are subject to Brazilian income tax of 25%, charged only at the source of their Brazilian income. It is not necessary for them to file a tax return. After the 184th day residing in the country or from the moment a permanent visa is issued, if earlier, the tax rules on residents apply.

From the date of the arrival, foreigners holding temporary or permanent visas with a local employment agreement are treated as residents, and therefore are taxed on their worldwide income.

Tax authorities must be notified by foreigners who hold temporary visas and employment agreements or permanent visas, in the case of departure from the country. The foreigner must prepare an individual income tax return referring to the period of 1 January until the date of the departure and one for the previous tax year, in case this has not been done within the proper deadline (30 April). Meanwhile, the foreigner should also request a federal tax clearance certificate.

From the moment the foreigner has completed all the procedures and requested the certificate, he is no longer considered a resident and all the earnings from Brazil will be taxed at the source at a rate of 25%, except for earnings or gains on financial investments, which are taxed at the same rates applicable to residents.

 

Investment restrictions

11. Are there any restrictions on foreign ownership and investment in specific industry sectors? Do any formalities, permit or notification requirements apply?

Generally, the Brazilian Constitution does not carry restrictions on foreign capital. Nevertheless, some kinds of foreign investments are still prohibited or limited by the Constitution, particularly in the following areas:

  • Oil industry.

  • Rural properties.

  • Health care organisations.

  • Journalistic or media companies, such as television, newspaper and radio.

Participation of foreign investors in the financial sector is still limited to the same level that it was in October 1988, and the opening of new branches of foreign banking institutions is frozen until this activity is regulated by law. However, the Brazilian government can permit the opening of new branches and increase participation if such steps are needed because of international agreements, reciprocity or national interest.

There are other restrictions that are imposed on foreign capital by infra-constitutional legislation, such as the participation in (among others):

  • Companies owning land in frontier areas.

  • Airline companies with domestic flight concessions, internal navigation and shipping of merchandise.

  • Fishing.

  • Mining.

  • Highway operations.

 
12. Does the government retain and exercise control over certain industry sectors? If so how?

Despite a wave of privatisation in the 1990s and early 2000s, the Brazilian government still has a major presence in some key economic sectors, such as:

  • Electricity, especially generation.

  • Oil and gas, through shareholding control of Petrobras.

  • Mining, through shareholding by the pension funds of state-owned companies and possession of a golden share in Vale.

Most privatisation activity occurred during the two terms of President Fernando Henrique Cardoso, which were between 1995 to 2003. The succeeding administrations of Luiz Ignácio Lula da Silva (2003 to 2011) and now Dilma Rousseff have slowed down in this respect, with the creation of some new state-owned firms and the scrapping of plans for further privatisation. Therefore, there are still many companies in a variety of sectors in which the government has direct equity participation.

Another way the government plays an important role in the economy is through low-interest loans from government-owned or controlled banks, in the industrial, commercial and agricultural sectors. The National Bank for Economic and Social Development (BNDES), Banco do Brasil and Caixa Econômica Federal are the main banks in this respect.

 
13. Are there restrictions on foreign ownership or occupation of real estate? Do any formalities, permit or notification requirements apply?

The Brazilian government imposes some restrictions on the acquisition of real estate in the country. Although there are no restrictions for foreign ownership of urban real estate, foreign companies and individuals not residing in Brazil are prohibited from directly acquiring rural real estate near Brazilian borders. In addition, the direct acquisition of rural properties by resident foreigners and/or locally incorporated companies whose controllers are non-resident foreigners is restricted. All foreign entities and individuals must obtain a taxpayer identification number to own property.

The ownership of rural real estate by foreigners who do not reside in Brazil or foreign companies legally operating in the country is regulated by Law 5,709/1971.

 
14. Are there any minimum capital requirements for foreign investment?

No minimum capital investment is required to start a business in Brazil. However, there are exceptions, such as the need to have some liquidity and certain solvency ratios for participation in public tenders or when a foreign individual is appointed as a Brazilian entity's manager, administrator or executive director. In the latter case, a minimum capital investment in foreign currency of an amount equal to or higher than BRL600,000 per foreign employee, or BRL150,000 per foreign worker, and the commitment to create at least 10 new jobs (per foreign worker) over the following two years is required for both corporations and limited liability companies.

 
15. Are there any exchange control or currency regulations? Are there any restrictions on the remittance of profits abroad?

The remittance of profits abroad and the payment of cash dividends, as well as the distribution of profits to company owners, are all exempt from income withholding tax.

Prior to distribution to the shareholders, corporations must allocate 5% of their annual net income to a legal reserve until the reserve equals 20% of total capital. The extension of such imposition to limited liability companies has been a topic of discussion for the Brazilian legal community.

 

Imports

16. Are there any restrictions on the importation of commercial goods?

There are few restrictions to the importation and exportation of goods or services. The importation of certain products is subject to certain limits by law, while the exportation of some types of products (such as those of animal origin, oil, gas and others) is subject to special procedures, for instance prior authorisation from the Brazilian government. Commerce in used goods (including capital goods) and human and animal health-related items may also require prior licensing. Importing used consumer goods for commercial purposes is prohibited. In general, it is not necessary to obtain a prior import licence to join in an import transaction. However, it is necessary for the transaction to be registered in the SISCOMEX, (the electronic system whose main function is to provide permits, certificates and licences to import and export), so the goods are given an Import Declaration (DI) number to clear through customs. In case the tariff code of the goods require a prior licence, it must be obtained before the shipment of the goods to Brazil, and it is customarily valid for 90 days after the date of shipment. It is possible to obtain an import licence for drawback operations or goods to be delivered to receivers in the Manaus Free Trade Zone. Some items, such as human blood, weapons and ammunition, nuclear material, petrochemicals, herbicides, pesticides and drugs, must be approved by special entities for issuance of the licence. After obtaining the import licence, it is also necessary for the importer to register the transaction in the SISCOMEX electronic system to get customs clearance.

 
17. What import duties apply to commercial goods?

Import duty (II) is a federal tax based on the customs value of the imported goods. The custom value is ordinarily related to the sum of the cost, insurance and freight values (CIF) plus other costs determined by the customs valuation rules. The tariff code of the goods is responsible for determining the applicable customs duty rate, according to the Common External Tariff for non-Mercosur members (External Tariff Code or TEC). The average rate is 15%. The importer cannot recover the import duty. Federal tax (IPI) and state value-added tax (ICMS) are also applicable to importation.

The tax on manufactured products (IPI) is a federal tax levied on the import and manufacturing of goods. The applicable rate depends on the product and its fiscal classification under the TIPI (IPI rate table, based on the TEC), but the average rate is 15% over the CIF value of the goods plus II and certain customs expenses. As a general rule, the IPI will also be due on the subsequent sale, and thus the amount paid in the importation will be treated as a credit (although some taxpayers are successfully challenging such levy).

ICMS state tax is levied on the importation and circulation of goods and certain services, charged on the CIF value of the goods plus II, IPI, and ICMS itself, plus other customs charges. The applicable rate depends on the state where the importer has its domicile. In general, rates vary from 17% (for example in Distrito Federal and Espírito Santo) to 18% (for example in São Paulo and Minas Gerais) or 19% (for example in Rio de Janeiro), but lower rates may apply, depending on factors such as the state where the importer is located, the nature of the product imported or service rendered, and benefits granted because of special customs regimes. Also, the ICMS tax will be creditable against the amount due on the subsequent transaction.

Contributions to the social integration programme (PIS-Importation) and contributions to finance social security on imports (COFINS-Importation) are federal social contributions (contribuições socias) levied on the importation of goods and services. These social contributions can only be levied by the federal government and are taxes whose revenues are reserved for specific uses, rather than going into a general fund. In most cases, they are charged at a combined rate of 9.25% (1.65% for PIS and 7.6% for COFINS). The base calculation of PIS and COFINS on imported goods is the sum of the customs value (CIF) and the PIS and COFINS themselves. A PIS and COFINS tax credit applies for goods acquired under the non-cumulative PIS/COFINS regime, which is similar to a value added tax. Such credit can be used to offset PIS and COFINS tax liabilities. It is also possible for these levies to be waived on some imports.

The Tax on Financial Operations (IOF-Exchange) applies on the exchange transaction performed, usually, at the rate of 0.38% on the amount remitted abroad.

 
18. Are the safety regulations and standards applicable to commercial goods in your jurisdiction compatible with other standards that are recognised internationally?

The National Institute of Metrology, Quality and Technology (INMETRO) provides information to Brazilian exporters and suggestions for the promotion of Brazilian products. In addition, INMETRO reaches international technical co-operation agreements with other bodies (such as the Latin American Integration Association (ALADI)), seeking access to new and overseas markets. INMETRO is recognised internationally and is responsible for fulfilling Mercosur's National Co-operation of SGT No. 3, which harmonises technical regulations and conformity assessment procedures. Therefore, Brazilian products feature all the standards required to be recognised internationally.

 
19. Are there any similar or equivalent restrictions on providing services into another jurisdiction?

There is currently no answer content for this Question, as it was added to the guide after this article was written.

 

Structuring and tax

20. How is foreign investment into your jurisdiction typically structured? What forms of legal vehicle are attractive to foreign investors?

Despite the considerable variety of enterprise types existing in the Brazilian legal system, the most common are the:

  • Limited liability company (sociedade limitada), governed by Law 10,406/2002, articles 1052 to 1087 of the Brazilian Civil Code.

  • Corporation (sociedade anônima), governed by Law 6,404/1976 of the Brazilian Civil Code.

Limited liability companies

Constitution. The company is constituted through the execution of the articles of association.

For its constitution it is necessary to have at least two partners, whether individuals or legal entities, which must subscribe all the shares (called "quotas") of the initial capital stock. The exception to this is in the case of an individual company with limited liability (Empresa Individual de Responsabilidade Limitada (EIRELI)), which consists of a single person holding the entire share capital, fully paid, which must not be less than one hundred times the highest minimum wage in force in the country. In addition, the holder does not respond with their personal assets for the debts of the company.

The articles of association must establish the quotas of each partner in the capital, and how the quotas will be paid up.

Start-up capital. There is no minimum start-up capital.

The stock capital of the company must be expressed in local currency and can consist of any kind of property, subject to pecuniary valuation.

There is no need for the start-up capital to be paid up at the time of constitution, but it must be paid up within one year from incorporation. The partners' liability is limited to the value of their investments, but all are jointly and severally liable for paying up the capital.

In case the company's administrator is a foreigner, the capital stock must be at least BRL600,000 and must be paid up at constitution (this is a requirement to obtain the permanent visa and work permit of the foreigner administrator).

Management. The company can be managed by any individual (administrator), whether or not holding equity.

The administrator must be resident in Brazil. If a foreigner, he must have a permanent visa to live and work in Brazil. Recently, it was decided that the company can also have a board of directors and/or executive board.

Representation of foreigner shareholders or partners and administrators. Partners residing abroad must maintain an attorney-in-fact (also known as a power of attorney) in Brazil with powers to receive service of process in actions against them or the company, and for representation in matters of interest of the company.

The signatures on the documents signed abroad will have to be notarised and the notary's signature will need to be legalised/certified by the nearest Brazilian consulate.

If a foreign partner does not know someone in Brazil to act as attorney-in-fact, there are some companies that offer this type of service. The price for a Brazilian representative varies from BRL5,000 to BRL9,000.

Filing of documents. Financial statements must be filed at the end of the financial year (31 December). The company must prepare its inventory, balance sheet and other financial statements, which must be approved by the partners in a meeting. To be enforceable against third parties, the minutes of this meeting must be registered with the respective state commercial registry.

Amendments to the articles of association must be filed with the commercial registry. Such amendments are necessary any time the capital stock is changed or a new legal representative (for example, an officer) is appointed, among other matters.

Transfer of shares/quotas. This requires an amendment of the articles of association and registration with the commercial registry.

Publication of acts. Minutes of general meetings that approve reducing the capital must be published for awareness of creditors.

Corporation

Constitution. The company is constituted by a general meeting of incorporation, for approval of the company's bye-laws.

There must be at least two shareholders, individuals or legal entities.

The general meeting of incorporation must establish the shares of each party in the capital, and how the shares will be paid up.

Start-up capital. There is no minimum start-up capital.

The stock capital of the company must be expressed in local currency and may consist of any kind of property subject to pecuniary valuation.

At the general meeting of incorporation, the shareholders must pay up at least 10% of the total capital stock in local currency in a reserve account.

The general meeting of incorporation must establish the term for the capital stock to be paid up.

In case the company's administrator is a foreigner, the capital stock must be at least BRL600,000 and must be paid-up at constitution (this is a requirement to obtain the permanent visa and work permit of the foreigner administrator).

Management. The company can have a board of directors and an executive board, or just the latter, as established in the bye-laws. The board of directors, if existing, must have at least three members, and the executive board at least two. The officers must be Brazilian residents.

The board of directors, if any, is responsible for setting the overall policy and overseeing the activities performed by the executive board. If there is no board of directors, this overall policy is the responsibility of the shareholders, expressed by decisions at general meetings.

The executive board (formed of the officers) is responsible for representing the company in all acts and for day-to-day management of the business activities.

Representation of foreigner shareholders or partners and administrators. Directors residing abroad must maintain an attorney-in-fact (also known as a power of attorney) in Brazil with powers to receive service of process in actions against them or the company, and for representation in matters of interest to the company.

The signatures on the documents signed abroad will have to be notarised and the notary's signature will need to be legalised/certified by the nearest Brazilian consulate.

If a foreign director does not know someone in Brazil to act as attorney-in-fact, there are some companies that offer this type of service. The price for a Brazilian representative varies from BRL5,000 to BRL9,000.

Filing of documents with the commercial registry. Financial statements must be filed at the end of the financial year. The executive board must prepare the balance sheet, income statement and statement of changes in financial position (except for private corporations with a net worth of less than BRL1 million). These documents must be filed with the state commercial registry, and published in a large-circulation newspaper in the case of public corporations.

For private corporations, the minutes of ordinary and extraordinary general meetings must be filed with the commercial registry within 30 days to be effective against third parties.

Any amendments to the bye-laws must be filed with the commercial registry for all corporations.

Transfer of shares/quotas. These must be registered in the company's share register book and share transfer book.

Publication of acts. Financial statements must be published once a year, unless the company has fewer than 20 shareholders, and a net worth of less than BRL1million. General meeting minutes must be published.

 
21. What are the circumstances under which a business becomes liable to pay tax in your jurisdiction?

Local companies' taxes are levied on worldwide income. Foreign companies can be taxed if they engage in certain commercial business activities in Brazil through representatives domiciled in the country, who were granted the legal power to bind the foreign seller to the local importer. This situation does not apply if the final transaction is concluded by the foreign company abroad.

 
22. What are the main business tax rates?

The tax system is made up of:

  • Federal taxes.

  • State taxes.

  • Municipal taxes.

The Brazilian Constitution establishes the taxing powers of each federal entity (municipal, state and federal governments). It also establishes the general tax principles.

Within its competence, each entity can create its own taxes. However, the Constitution imposes that general rules of taxation, including definition of all taxes and relevant taxable events, tax basis and taxpayers, must be established by a federal law.

Federal Taxes

There are a number of federal taxes, including:

  • Corporate income tax (IRPJ).

  • Personal income tax (IRPF).

  • Withholding tax (IRRF).

  • Social contribution on net profits (CSLL).

  • Contribution to the social integration programme (PIS) and contribution to finance social security (COFINS).

  • Rural property tax (ITR).

  • Compulsory loans.

  • Payroll levies.

  • Tax on manufactured products (IPI).

  • Import duty (II).

  • Tax on financial transactions (IOF).

  • Contribution for intervention in the economic system (CIDE).

  • Freight surcharge for merchant marine vessels (AFRMM).

Corporate income tax (IRPJ). The rate of IRPJ is 15%, plus a 10% surtax on annual taxable income exceeding BRL240,000.

Under the real profit regime, income tax is paid monthly at a rate of 15% on the actual taxable income (calculated in accordance with the additions and exclusions established by the income tax legislation), plus a 10% surtax, levied on any amount exceeding BRL20,000 per month. This regime applies to companies whose annual gross revenue does not exceed the limit of BRL78 million.

Annual income tax returns (DIPJ) are due, as a rule, by 30 June of the following year.

Personal income tax (IRPF). This is levied at the following progressive rates (as at December 2014):

  • 7.5% on monthly income from BRL1,787.78 to BRL2,679.29. A monthly deduction of up to BRL134.08 is allowed for certain expenses.

  • 15% on monthly income from BRL2,679.30 to BRL3,572.43. A monthly deduction of up to BRL335.03 is allowed for certain expenses.

  • 22.5% on monthly income from BRL3,572.44 to BRL4,463.81. A monthly deduction of up to BRL602.96 is allowed for certain expenses.

  • 27.5% on monthly income over BRL4,463.81. A monthly deduction of up to BRL826.15 is allowed for certain expenses.

For adjustment purposes, the tax return (DIRPF) must be filed by 30 April in the following year.

Withholding tax (IRRF). This is levied on the payment, credit or remittance of income, interest or capital gains to a person or legal entity domiciled abroad. The general rate is 15%. This rate is raised to 25% in some transactions where the beneficiary company or individual is domiciled in a country which taxes income at a rate lower than 17%, or where there are favoured tax regimes (for example, "tax havens").

Royalties and interest, in general, are subject to a 15% withholding tax. Dividends paid to beneficiaries in Brazil and abroad are exempt.

Social contribution on net profits (CSLL). This is 9% for all companies. When the income tax is paid on a presumed profit regime, the social contribution must be calculated at 9% on an estimated tax basis ranging from 12% to 32% of the company's gross revenue, arising from operational activities, plus the total gross revenue derived from non-operational activities.

When the income tax is paid under a real profit regime, the social contribution should be calculated at 9% of the actual profits.

Contribution to the social integration programme (PIS) and contribution to finance social security (COFINS). The PIS rates are:

  • 0.65% on the total monthly revenue if the company is subject to the cumulative regime of this levy (for example, companies using the presumed profit regime).

  • 1.65% of total monthly revenue if the company is subject to the non-cumulative system (for example, most companies subject to the real profit regime).

The COFINS rates are:

  • 3% on the total monthly revenue if the company is subject to the cumulative regime of this levy (for example, companies using the presumed profit regime).

  • 4% for financial institutions.

  • 7.6% of total monthly revenue if the company is subject to the non-cumulative system (for example, companies using the presumed profit regime).

Neither of these taxes are due on the export of goods and services.

These taxes are also levied on the import of products and services, as a rule, at the rates of 1.65% and 7.6% for PIS and COFINS, respectively. The amounts paid on import in certain cases can be offset against tax due on subsequent transactions (see Question 17).

Rural property tax (ITR). ITR is levied annually at variable rates on the value of rural real estate. Rates vary according to the degree of use of the land. Land classified as "urban" is subject at the municipal level to the Urban Property Tax (IPTU), as described further below.

Compulsory loans. A compulsory loan can be levied by the federal government whenever there is a need to cover an extraordinary expense that has occurred as a result of a public disaster, war or its imminence, or in the case of a public investment of an urgent nature or in the national interest. There are currently no such levies in effect.

Payroll levies. Payroll levies are calculated on an employee's monthly salary at varying rates, depending on the company's activity:

  • Social security contribution, 20%.

  • Other social charges, up to 8.8%.

  • Severance indemnity guarantee fund (FGTS), 8%.

The employer must also deduct each employee's income tax (if applicable) and their portion of the social security contribution.

Tax on manufactured products (IPI). IPI is levied by the federal government on the sale of manufactured products by a domestic manufacturer, or on the import of such products, at rates varying according to the classification of the product.

Importers, manufacturers (or the party classified as such by the law) and dealers of products subject to taxation when purchased from a previous taxpayer, are all taxpayers. A buyer at an auction of seized or abandoned products is also a taxpayer.

For IPI tax purposes, manufacturing is any process whereby a product's nature or purpose is modified or improved for marketing.

IPI is a value-added tax, so it is recoverable to the extent that tax paid on the import or acquisition of products can be offset against the tax due on subsequent transactions.

IPI tax rates vary according to the degree of "essentiality" of the product. Non-essential or hazardous products (such as cigarettes) can be taxed at the highest rate.

Import duty (II). Import duty is levied by the federal government on the import of products, at varying rates according to the classification of the product in the Mercosur External Tariff Code (TEC), which is based on the Harmonised Tariff System. The tax basis for import duty is the sum of the cost, insurance and freight (CIF) value of the product. See Question 17.

The TEC has been adopted by all Mercosur countries, although each of them has a list of exceptions. To protect each country's local industry, these exceptions are items that do not come under the TEC, and accordingly bear higher or lower rates that will gradually conform to the TEC rates.

Because the variation of tariff rates can be a useful governmental tool to balance trade accounts, as a rule its rates may be raised at any time through an act of the executive branch, within the parameters established in the governing law. Despite this possibility, a rate increase exceeding the TEC rate will only be allowed with the approval of the other Mercosur members.

Tax on financial transactions (IOF). IOF may be levied on transactions involving credit, currency exchange, insurance and securities trading. As a regulatory tax, IOF rates can be raised and lowered by the executive branch at any moment, with immediate application, within the parameters set by law.

Contribution for intervention in the economic system (CIDE). This 10% tax is imposed on companies that license, purchase or otherwise acquire technological knowledge. The scope of the tax has been extended to include payments for technical services, administrative assistance and similar services.

Freight surcharge for merchant marine vessels (AFRMM). The AFRMM applies at a rate of 25% on the freight paid for the importation of goods, which have been transported by water.

State Taxes

There are a number of state taxes including:

  • Tax on the circulation of merchandise and interstate and intermunicipal transportation and communication services (ICMS).

  • Vehicle tax (IPVA).

  • Tax on the transmission of property due to death or donation (ITCMD).

Tax on the circulation of merchandise and interstate and inter- municipal transportation and communication services ( ICMS). ICMS is a state tax levied by the states on the transfer of title of merchandise and on interstate and intermunicipal transportation and communication services, as well as on the import of such goods and services.

Rates vary from 0% to 25%. Internal rates vary from 17% (for example, in Federal District and Espírito Santo) or 18% (for example, in São Paulo and Minas Gerais) up to 19% (for example in Rio de Janeiro). The rate on interstate transactions varies from 7% or 12%, depending on the state of destination.

With a mechanism similar to value added tax (VAT), the ICMS is recoverable to the extent that tax paid on the import or acquisition of products can be offset against the tax due on subsequent transactions.

The rates vary from state to state, and many states grant deferrals and lower rates as a way to attract new investments in productive activities. However, such breaks must be approved by the National Revenue Policy Council (CONFAZ), formed of representatives of all the states and the federal government, to co-ordinate ICMS policies nationwide. Many state governments grant these benefits without such approval, triggering lawsuits from other states, who declare them unconstitutional, as part of an on-going "fiscal war".

Vehicle tax ( IPVA). This tax applies to ownership of automotive vehicles and is levied annually on the value of the vehicle.

Tax on transfer of property due to death or donation (ITCMD). This tax is levied on the transfer of title of real estate or movable property on death or through donation. Rates are progressive and vary from state to state according to the value of the property that is being transferred, but cannot exceed 4% of the amount of the property.

Municipal Taxes

Municipal taxes include:

  • Tax on the transfer of real estate (ITBI).

  • Urban property tax (IPTU).

  • Service tax (ISS).

Tax on the transfer of real estate (ITBI). ITBI is levied on the paid inter vivos transfer of real estate. Rates are progressive and vary from municipality to municipality according to the value of the property.

Urban property tax (IPTU). IPTU is levied annually on the assessed value of urban real estate. Rates vary from municipality to municipality.

Service tax (ISS). ISS is levied on the provision of services (except transportation and communication services, which are subject to state ICMS), at rates ranging from 2% to 5%, depending on the kind of service, and varying from municipality to municipality.

The tax is generally owed to the municipality where the company has its headquarters or main establishment. The major exception is construction services, in which case competence rests with the municipality where the project is located. However, some services give rise to conflicting claims by different municipalities.

The treaty network

Brazil has tax treaties to avoid double taxation (based on the OECD model) with 30 countries around the world. They include, among others:

  • Canada.

  • China.

  • France.

  • India.

  • Italy.

  • Japan.

  • Mexico.

  • Spain.

These tax treaties are aimed at avoiding double taxation on the same taxable event both by Brazil and by the other signatory country, and at reducing the internal withholding tax rates levied in each country for income earned by residents of the other country.

Double taxation is avoided by means of offsetting techniques, through which the income tax paid in one country may be used to reduce or eliminate the income tax due in the other, or by taxing the income in only one country. Tax treaty provisions always prevail over internal rules.

Remittances abroad

The general rate applicable to foreign remittances is 15%. However, remittances to jurisdictions which tax the income at a rate lower than 17% (such as those considered as "tax havens"), are subject to income withholding tax at a rate of 25%, except for the following transactions:

  • Dividend payments, which are exempt.

  • Interest on foreign long-term loans payable after 15 years, received by national companies in countries which have signed tax agreements to avoid double taxation with Brazil. The interest rate to be used is the one in force in the country where the loans were taken (income tax at 15% rate).

  • Interest and commissions related to foreign credits and allocated to export financing (income tax at 0% rate).

  • Lease payments (income tax at 15% rate).

  • Interest, commissions, costs and discounts on bonds issued abroad (including commercial papers) as long as the amortisation period is at least 96 months (income tax at 15% rate).

Restrictions on intercompany transactions

Transfer pricing rules apply to exports, imports and loans between related companies. The transfer pricing is calculated by the following methods:

  • Importation:

    • compared independent price;

    • production cost plus profit; and

    • resale price minus profit.

  • Exportation:

    • exportation sale price;

    • retail price of the destination country minus profit;

    • wholesale price of the destination country minus profit;

    • acquisition or production cost plus tax and profit.

Interest deductibility is limited to the Libor on six-month US dollar deposits, plus an annual pro rata rate of 3%, on intercompany loans that are not registered with the Central Bank of Brazil.

 
23. What is the tax treatment in your jurisdiction of profits from an investee company remitted outside your jurisdiction by an investor?

The remittance of profits abroad and the payment of cash dividends, as well as the distribution of profits to company owners, are all exempt from income withholding tax.

As previously mentioned, amounts paid, credited, delivered, employed or remitted by a party in Brazil to a company domiciled abroad are usually subjected to income withholding tax of 15% or 25% ("tax havens"), and depending on the nature of the payment, other taxes may apply (see Question 22).

Brazil has signed double taxation conventions (based on the OECD model, with some variations privileging Brazil as a source-oriented jurisdiction) with 30 countries. All of the treaties contain the provisions of article 7 of the OECD model, in which business profits are subject to residence-level taxation.

 
24. What transfer pricing and thin capitalization restrictions may apply to investments in your jurisdiction from elsewhere?

Brazilian companies may be subject to transfer pricing rules on importation and exportation of goods and services, when dealing with related parties abroad or companies domiciled in "tax havens". Brazilian rules are not fully in line with the principles considered by the OECD guidelines and most countries which regulate transfer pricing.

For example, transfer pricing rules in Brazil determine that Brazilian taxpayers must adopt established profit margins to comply with them under one of the methods provided. This procedure does not necessarily result in the same profit margin according to the OECD principles and conditions.

As set by the Brazilian thin capitalization rules, interest paid or credited by a company in Brazil to a related party abroad, or a non-related party established in a tax haven jurisdiction or eligible as a privileged tax regime, can only be deducted from the basis for calculation IRPJ and CSLL for those companies subjected to the real profit regime, as long as the interest expense is considered to be necessary to the Brazilian company's activities, and provided that it meets certain parameters, established by law. The thresholds require a debt-to-equity ratio of 2:1, reduced to a 0.3:1 when taking loans from "tax havens" or privileged tax regimes.

The interest on any debt exceeding such parameters is not considered as necessary expenses to the company's activity, and hence is not deductible from the basis for calculating IRPJ and CSLL.

 

Incentives

25. What tax incentive or other schemes exist to encourage foreign investment?

There is no differentiation between foreign and local investors in terms of tax incentives. Foreign investors can benefit from the same tax incentives as local ones. States and municipalities can also grant tax benefits for each sector. Tax benefits can only be provided to registered companies and they are usually granted to the establishment that holds the main federal taxpayer registration (CNPJ).

In order for companies to be fully or partially discharged from certain taxes, investments can be made in free trade zones, such as the Manaus Free Trade Zone, if a series of conditions are satisfied, such as local component consumption and production.

There are several governmental incentive programmes that provide low-cost financing, mainly through the National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social (BNDES)).

Manaus Free Trade Zone (Zona Franca de Manaus or ZFM).

The Manaus Free Trade Zone offers special fiscal incentives for the development of industrial projects in the area, such as:

  • A 75% reduction of corporate income tax (IRPJ) calculated on the profits made from activities in the ZFM.

  • An exemption from Import Duty (II) on goods imported into the ZFM, if locally consumed or re-exported.

  • A reduction of up to 88% of II upon the importation of raw materials, intermediate products, secondary materials and foreign packaging used in manufacturing in ZFM.

  • An exemption from the tax on manufactured products (IPI) if locally consumed and/or produced.

  • An exemption from contributions to the social integration programme and contributions to finance social security on imports (PIS/COFINS-Importation) through ZFM.

  • A zero rate of PIS/COFINS due on revenue from the sale of raw, intermediate and packing materials.

  • Reduced rates of PIS/COFINS (mostly 3.65%) on sales of locally produced goods.

  • An exemption from the tax on the circulation of merchandise and interstate and intermunicipal transportation and communication services (ICMS) on sales if the goods are consumed, processed or re-exported from other Brazilian states to the ZFM.

  • Reduced ICMS rates on raw materials. Other local benefits can also be granted, such as exemptions from urban property tax (IPTU) and waste collection fees.

The incentives of ZFM are currently in force until 2073.

Superintendence for Development of Amazônia (SUDAM) and Superintendence for Development of the Northeast (SUDENE).

The federal government provides a tax reduction or exemption on construction, expansion, modernisation or diversification projects in sectors of the economy considered to be priorities for regional development in the areas covered by the former SUDAM and SUDENE. The reductions and exemptions include:

  • A reduction of 75% of IRPJ under the real profit regime.

  • An accelerated deprecation for calculation of IRPJ.

  • A deduction for 12 months of PIS/COFINS after the acquisition of new machines, apparatuses, instruments and equipment.

  • Exemption from freight surcharge for merchant marine vessels (AFRMM) on the importation of goods.

Other incentives are granted, such as to companies that make machines, equipment and other devices based on digital technology, for government digital inclusion programmes. In this case, the profits are exempt from IRPJ and eligible for a 95% reduction of the tax on manufactured products (IPI).

Special customs regimes

Temporary admission. This regime allows the importation of goods that will remain in the country for a fixed period, with a total suspension of the taxes levied on importation, or a partial suspension in the case of economic use (commonly used for fairs, exhibitions, commercial, cultural and sports events, lease or rental transactions).

Drawback. The drawback is an incentive to export and can be applied in the following ways:

  • The suspension of payment of the II, IPI, PIS/COFINS–Importation taxes on the importation of goods for employment or consumption in the manufacture of imported products.

  • An exemption (or reduction to a zero rate) of II, IPI, PIS/COFINS–Importation taxes on the importation of goods for employment or consumption.

  • A total or partial refund of taxes paid on the importation of goods.

There are other methods, such as drawback for vessels, allowing suspension or exemption from taxes on the importation of goods used in the construction of vessels in Brazilian shipyards. ICMS benefits can also be available, but this varies among the states.

Special industrial bonded warehouse customs regime under computerised control (RECOF). RECOF allows the importation of purchases made from the domestic market, with a suspension of taxes levied on importation (II, IPI and PIS/COFINS), provided they are used in the manufacture of products intended for export or sale in the internal market. The benefit may also be extended to ICMS. The following items are eligible:

  • Products and their parts, including used ones, to be submitted to performance or durability testing (mainly from the automotive, information technology and telecommunications sectors, as well as semi-conductor and high-tech components).

  • Products and their parts, including used ones, for use in the development of other products (mainly from the automotive, information technology and telecommunications sectors, as well as semi-conductor and high-tech components).

  • Used foreign products for renovation, reconditioning, maintenance or repair, in the aviation, automotive, telecommunications, semi-conductor and other high-tech sectors (mainly from automotive, information technology and telecommunications sectors, as well as semi-conductor and high-tech components).

Special customs regime for importation inputs (RECOM). RECOM permits the importation of some "inputs", such as vehicle parts (vehicle chassis, bodies, parts, components and accessories), with the suspension of IPI, PIS-Importation and COFINS-Importation on import transactions carried out to the account and order of companies located abroad. The benefit may also be extended to ICMS.

Special customs regime for exportation and importation of goods for exploration and production of petroleum and natural gas (REPETRO). This regime allows the importation of certain goods to be used directly for the exploration and/or production of oil and gas, with a suspension of the importation taxes II, IPI, PIS-Importation, COFINS-Importation and AFRMM. The benefit may also be extended to ICMS. In general, companies holding concessions or authorisations to engage in upstream oil and gas activities can benefit from REPETRO.

Special customs regime for importation of crude oil and its derivatives (REPEX). REPEX allows the importation of crude oil and refined products with a suspension of import taxes II, IPI, PIS-Importation, and COFINS-Importation. The regime will only be granted to companies who have received authorisation from the Federal Revenue Secretariat, and the National Petroleum, Natural Gas and Biofuels Agency (ANP), to engage in the import and export of the products.

Special regime for reintegration of tax for export companies (REINTEGRA). Companies that produce goods for export can obtain partial or total reimbursement/netting of the residual tax amount paid previously on the production chain. That amount will be calculated by applying a rate of 3% on the total revenue from exportation. This amount is offset against federal taxes or reimbursed. This incentive is not applicable to trading companies and to goods which were previously imported.

Special regime of incentives for the development of infrastructure (REIDI). This regime allows the suspension of PIS and COFINS on the sale or importation of new machines, apparatuses, instruments and equipment, construction materials and some services, used or incorporated in infrastructure projects in the transport, port, energy, basic sanitation and irrigation sectors.

Incentives to technological innovation

Companies that engage in activities in the areas of technological research and/or development of innovative products or processes can benefit from:

  • For the development of technological innovation, a deduction of expenses in calculating IRPJ and CSLL.

  • For the acquisition of certain goods for use in research and/or innovation, a reduction of IPI.

  • Accelerated depreciation of new goods acquired or intangible assets employed in their research and development (R&D) activities.

  • For the purpose of registration or maintenance of trademarks, patents and cultivars, a reduction of the IRRF rate on foreign remittances.

 

Investment Guarantees

26. What legal guarantees exist against expropriation and/or provide for appropriate compensation? What is your government's track record in this regard?

The right to private property is guaranteed by Article 5, XXII, of the Brazilian Constitution. However, property must also serve the proper social function (Article 5, XXIII), and the government at all levels may exercise eminent domain (expropriation for public necessity, utility or social interest), upon paying fair compensation. The government's declaration of public utility must include legal grounds, a description of the property, the proposed allocation and purpose. Property owners can file lawsuits to try to obtain higher compensation.

 
27. Are there any issues in relation to the enforcement of intellectual property rights?

IP protection

Intellectual property protection encompasses the protection of copyrights, software, domain names, trade names and industrial property (patents, utility models, industrial designs, indications of origin and trademarks).

Legal provisions to protect intellectual property rights are included among the fundamental rights and guarantees of the Brazilian Constitution (Article 5, XXVII and XXIX), and in specific statutes (Copyright Law, Software Law, Industrial Property Law, Civil Code). Most of these statutes comply with the main international treaties on IP, such as the Berne Convention, Paris Union Convention and TRIPS.

Some of these intellectual property rights are considered below.

Copyright and software

Protection of copyright in Brazil covers not only literary, scientific and artistic works, but also neighbouring rights, sketches and plastic works related to geography, engineering, topography, architecture and science. Software is protected by Law 9,610/98 (Copyright Law), and more specifically by Law 9,609/98 (Software Law), both enacted in 1998 in compliance with the Berne Convention (effective in Brazil as of 1975 by Decree 75,999).

Business methods, ideas, games and mathematical concepts, as well as legal texts, blank forms and common information are not covered by copyright.

The local copyright system is grounded on the author's right doctrine, according to which the moral rights of a work are linked to the author's own personality and cannot be waived or assigned to third parties. Only a few of these moral rights can be claimed by the author's heirs, for example, the maintenance of the work's integrity.

Financial compensation for copyright use is due for seventy years starting from 1 January after the author's death. The software protection term is fifty years from 1 January after its creation or publication.

Although registration is possible with specific government offices, copyright and software protection are immediately enforceable and do not require registration. There are severe civil and criminal remedies for copyright and software violation, including punitive damages and jail (Penal Code).

Domain names

Registration of a ".br" domain name is essential for ensuring the exclusive use of a Brazilian URL address.

The local authority for domain names is the Committee for Brazilian Internet Management (Comitê Gestor Internet do Brasil(CGI)). The CGI delegates the registration of domain names and allocation of internet protocol addresses to the Centre for Information and Coordination of ".br" (Núcleo de Informação e Coordenação do (NIC) www.nic.br). Registration of domain names and searches for previously registered names can be done online at http://registro.br.

CGI's Regulation 2 enacted in 2005 states that a foreign entity must observe two requirements to register a domain name:

  • Designate a local attorney-in-fact.

  • State that the entity will be duly established in Brazil within twelve months.

Otherwise registration will be temporary.

Regulation 2 also states that a valid domain name must be distinct from other ones previously filed, that it must not mislead internet users and that it must not constitute a violation to the rights of third parties, such as trademarks, trade names and copyrights.

Prosecution of any violation of domain names is available under unfair competition provisions in the Industrial Property Law.

Trade names

A trade name is the designation for which a company is known and is bound to its obligations vis-à-vis third parties. It differs from a trade mark, which is used to designate a product or service, and from a title of establishment, which identifies the location where a company operates.

Unlike other IP rights, which are nationally enforceable, trade names are only protected at the state level. The reason is that trade names are registered with each state's Commercial Registry, and there is currently no possibility of extending the scope of protection to all states. Trade names are registered at the same time as their owners file their articles of organisation or bye-laws.

The most important legislation on trade names is the Civil Code, which mainly provides that:

  • Trade names must reflect their entity's type (especially regarding the owners' personal liability).

  • A trade name must be original and different from others previously registered.

  • A trade name cannot be assigned to third parties.

Although trade name rules are outside the scope of Law 9,279/96 (Industrial Property Law), violations are included among the unfair competition provisions in that statute. Offenders are subject to both civil and criminal liability.

Patents

Patents can be registered if they comply with the three requirements established in the Industrial Property Law:

  • Novelty.

  • Inventive step.

  • Industrial application.

Registration is mandatory for enforcement and must be obtained from the National Industrial Property Institute (INPI).

Business methods per se, artistic works, computer software, biological materials and methods used in producing medicines, even if isolated from their natural environments, are outside the scope of patent protection.

After the filing of a patent application, it is not disclosed for eighteen months. After the application is published, it is analysed by an examiner of the INPI. Due to a huge backlog, it may take up to seven years until a patent is granted, although the mere filing of the application allows the applicant to enforce certain rights against violators.

Pipeline patents are allowed by the local statute, assuring the date of the first filing of a patent in other countries, as long as its subject matter has not yet been used and its owner has protection assured by a treaty or convention effective in Brazil. As soon as the patent is granted in the country where the first patent application was filed, its grant is mandatory in Brazil.

Compulsory licensing of patents occurs on request of an interested third party, if the owner of a patent is abusing its patent rights or its economic power by using its patent's exclusive rights.

The term of protection of a patent is 20 years from the filing date and renewal is not allowed.

The available civil remedies against patent infringement are:

  • Preliminary ex parte injunctions determining the immediate interruption of the manufacture, marketing and distribution of falsified products.

  • Search and seizure of counterfeit goods.

  • Indemnification covering loss of profits and actual damages.

Punitive damages are not provided in the Industrial Property Law. Criminal remedies are also available in that statute.

Marks

Marks are visually distinctive signs used to identify a product or service. According to the Industrial Property Law, a mark, or brand, is protected within the scope of a class, namely a specific business field, and must not cause confusion with other ones previously filed. They are protected nationwide upon registration with the INPI.

Slogans, prior trade names, words of common use, technical terms, flags and government signs are not allowed for registration as marks.

Well-known marks in their specific business fields are an exception to this scope, since under the Paris Convention, they do not require registration in Brazil to benefit from protection. Marks considered to be of high renown (alto renome) are afforded special protected in all classes.

The term of protection of a trademark registration is ten years after grant, and can be renewed as many times as its owners wants, but if an owner stops using a mark for five consecutive years, the mark will be subject to an administrative action for forfeiture.

Civil and criminal remedies for brand and patent infringement are the same.

 
28. Are there any issues in relation to the gaining and enforcement of judgments and/or arbitral awards?

The arbitral award consists of a private command issued by the arbitrator regarding the dispute between the parties. It has similar standing as a court ruling and is not subject to appeal.

Brazil has a specific law covering arbitration, Law 9,307/1996, by which all legally capable parties may stipulate arbitration to be used when it comes to disposable pecuniary rights, with no need for judicial recognition for enforceability.

Foreign arbitral awards, just as foreign judgments, must first be confirmed by the Superior Tribunal of Justice (the highest court in Brazil for non-constitutional matters), after which they can be enforced in any court with jurisdiction over the losing party's, or the winning party's, assets.

Parties can also apply to the judiciary for urgent measures, to preserve assets and evidence or force arbitration, subject to definitive decision by the arbitrators once appointed. Finally, only the state courts have the power of imperium to enforce arbitral decisions.

 

Recent developments and proposals for reform

29. Have there been any significant recent or proposed legal developments affecting investors?

Brazil acceded to the United Nations Convention on the International Sale of Goods (CISG), effective as of January 2014.

 
30. Are there any planned or on-going treaty negotiations or political developments that could have an impact on your jurisdiction's bilateral relationships with other nations and/or other economic, customs or monetary unions, free-trade areas or markets?

Brazilian victories in high-profile disputes in the WTO helped the country to increase its share in world exports since, with the reduction of protectionism in some countries and blocs, Brazil has managed to gain market share. According to WTO's World Trade Report 2013, Brazil's share of world exports rose from 0.99% in 1980 to 1.4% in 2011.

In addition, the creation of the New Development Bank (NBD), created by the BRIC countries, is another source of financing for projects in the country.

 

Main investment organisations

The Southern Cone Common Market (Mercosur) (Mercosul)

Main activities. Constituted in March 1991 by the Treaty of Asuncion, which aimed to set up a common market among Argentina, Brazil, Paraguay and Uruguay.

Wwww.mercosur.int/msweb/Portal%20Intermediario/

Latin American Integration Association (ALADI)

Main activities. The largest Latin-American group of integration. ALADI comprises 13 countries: Bolivia, Ecuador, Paraguay, Chile, Colombia, Peru, Uruguay, Venezuela, Cuba, Argentina, Brazil, Panamá and Mexico. ALADI aims at the gradual and progressive implementation of a common Latin American market, through the adoption of tariff preferences and the elimination of non-tariff barriers.

W www.aladi.org



Online resources

Regulations regarding the Brazilian financial system and foreign investment

W www.bcb.gov.br/?NORMS

Description. The official website, maintained by the Central Bank of Brazil (Banco Central do Brasil), which contains regulations on the Brazilian Financial System and foreign investment. The laws and regulations may not be up-to-date.

Introductory Law to the Civil Code (LINDB) and the Civil Code of 2002

W http://www4.planalto.gov.br/legislacao

Description. The official website maintained by the Federal Government, which contains the major federal legislation, including the LINDB and Civil code. The laws and regulations may not be up-to-date.

Brazilian Corporate Law in English (Law No 6,404/76)

W www.cvm.gov.br/ingl/regu/regu.asp

Description. The official website maintained by the CVM, contains the Brazilian Corporate Law. The entire content of the laws and regulations may not be up-to-date.

Brazilian Federal Revenue Office – RFB (tax and customs legislation in Portuguese)

W http://idg.receita.fazenda.gov.br/acesso-rapido/legislacao

Description. Maintained by the RFB, this website contains tax and customs legislation. The laws and regulations may not be up-to-date.



Contributor profile

Guilherme Tepedino Hernandez

Castro Barros Sobral Gomes Advogados

T +21 2132 1838
F +21 2132 1856
E gth@cbsg.com.br

First Law International Member Firm (Chambers Global Elite Network)

Areas of practice. Corporate law; mergers and acquisitions; project finance and foreign investment; negotiating and drafting commercial contracts.

Represented the CBSG office in Washington, D.C in 2001 and 2002.

Non-professional qualifications

  • Program of Instruction for Lawyers – Harvard University, Cambridge, U.S.A., 1999.
  • Postgraduate Course in Corporate Law – IAG Master – Rio de Janeiro Catholic University Law School,1999.
  • Law Degree from Rio de Janeiro Catholic University Law School, 1997.

Languages. Portuguese, English and Spanish

Professional associations/memberships

  • Brazilian Bar Association, Rio de Janeiro Section (1998).
  • International Bar Association (IBA).
  • Member of the Corporate Subcommittee of the Center for Legal Studies (CESA).

Publications. Frontiers in Infrastructure Finance, World Bank Institute, Washington, D.C., 2001


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