General Business Considerations

I will briefly explain some basic information regarding business in Brazil. Each situation has to be approached in accordance with a pre-established plan. The information provided is fundamental and mostly informative. Questions will be directed and answered according to each situation. There are several agencies in Brazil with which I continue to maintain close contact for any specific matter that will be available for further questions.

A) Tax Considerations
Brazil is a federation formed by the association of States, the Federal District and Municipalities. The current Federal Constitution, which was promulgated on October 5, 1988, allocates taxing power between these governments and central (federal) government, granting unto each of them the power to levy taxes.
The Brazilian tax system includes:

• Taxes (Federal, State, Municipal), service fees, betterment fees, social contribution, and regulatory fees.
• Import and export duties.
• Income and capital gains tax.
• Tax on industrialized goods (IPI).
• Tax on credit and exchange transactions.
• Tax on insurance and securities.
• Tax on finantial transactions (CPMF)
  
• Tax on large fortunes.
• Merchandise circulation tax (ICMS).

Each government is allotted specific taxes, which are listed in the constitution. Non-listed tax can only be levied by the Federal Government, but they must be approved by a special quorum, it cannot be cumulative and must have an assessment basis different from those applicable to listed taxes. The assessment for each tax bracket will be studied and applied in accordance with each proposed situation.

B) Labor Considerations
In Brazil the rights of employees are regulated by the Federal Constitution and by the CLT (Consolidated Labor Laws Book Code). As a result thereof, there is in Brazil, a special judicial system for such matters, which, in view of its importance and peculiarities, shall be considered by every international company willing to establish its presence in Brazil.

• Vacation time.
• Ticket Transportation.
• FGTS (Length of Service Guarantee).
• Social Security.
• Fringe Benefits.
• The thirteenth salary.

C) Import/Export Considerations

• Brazil import duties range from 0 to 40%. However, when bringing a product into the country the "other" taxes (IPI, ICMS, PIS, and COFINS) must be added in a cascade matter (tax over tax). The product after "nationalized" can reach up to 60% cost with all taxes and considerations applied. Each situation and product needs a specific study, and again the appropriate study will be done in a more specific situation. Legally there are ways to avoid some of these costs, but this must be planned in advance.
• Customs evaluations and considerations in accordance to NBM (Brazilian Nomenclature Committee).
• Rulings on product classification (DECEX) Directorate of Foreign Trade evaluation.
• Import licenses provided by SECEX or foreign trade bureau. Important: must be prepared with lots of time in advance.
• "Proforma" & Commercial Invoice. In order to apply for an import license much information will be necessary to obtain the necessary document.
• Export controls.
• Proper documentation of the company in Brazil.

D) Environmental Considerations
Depending on the nature of the business a specific study must be provided to the government with appropriate information. Typically there are three licenses associated with this step.

• Previous License.
• Installation License.
• Operational License.
• Possible document in case of any environmental impact.

E) Legal Considerations
Selected law firm to evaluate and prepare the "Articles of Incorporation". This document will be used for all governmental registrations or licenses necessary during the course of business. The registration for the company should be completed in the city where the company will have its main office. Also the law firm, as a precaution in the first year or two, should review and guide any contract between the company and any outsourced service.

F) Accounting / Book Keeping Considerations
The most riskiest issue, it is often prepared by an individual with the appropriate title and license with the government. Companies today choose larger firms to handle this task. The reasons are: it is a very skillful service and must be frequently updated due to changes in legislation, also it is a dedicated function in Brazil.

• Accounting consolidation with budget plan.
• Societary, tributary, and fiscal book keeping.
• Revision of procedures that regulate fiscal legislation.
• Income tax revenue.
• Fiscal consulting (ICMS, IPI, ISS, PIS, COFINS, IRPJ and social contributions.

G) Broker Considerations
The local broker firm facilitates with governmental bureaucracy and assists with international activities. They are often the individuals bringing and sending imported goods.

• Freight and Invoices.
• Consolidation and containers.
• Insurance costs.
• Documentation handling.

H) Insurance Considerations
Today the large insurance groups handle most of the international company's activity. There are three governmental or "quasi-governmental" bodies that influence and regulate the insurance market.

• National Private Insurance Council.
• Private Insurance Bureau.
• Brazilian Reinsurance Market.

Even though the insurance market is still in stages of development, there are several considerations that must be observed by the international company. Such as:

• Worker's Compensation.
• Personal property insurance.
• Inland transit.
• Common carrier liability.
• Auto bodily injury insurance.

Again, insurance in Brazil is governed by federal legislation and must be handled by companies with a legal presence in Brazil.

I) Integrated System Considerations
Due to technology and Brazilian government new federal legislation, companies are linking their systems to integrated software. These companies create and analyze each specific case for choosing the appropriate module. The systems today are often handling:

• Finance system.
• Industrial system.
• Production system.
• Personal administration system.
• System for property.
• System for fiscal and tax books integrated with accounting and management.
• Security access system.

Closing Statement
In order to finance and support Brazil's expansion and development, the government has made and continues to make, a conscious effort to create an environment which will continue to attract and maintain a high level of foreign investment in Brazil. In spite of the need for registration with the Central Bank of Brazil of all foreign capital entering the country, the government is facilitating the remittances for the purpose of repatriation or return of capital as profits and other forms of gain. There is specific legislation for those, which are standard issues in everyday Brazil.