Country Guide Br March 2013

8/10/2019 Country Guide Br March 2013

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This publication is

a joint project with

Doing business in Brazil


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Executive summary 4

Foreword 6

Introduction Doing business in Brazil 8

Conducting business in Brazil 16

Taxation in Brazil 22

Audit and accountancy 34

Human Resources and Employment Law 36

Trade 38

Banking in Brazil 40

HSBC in Brazil 42

Country overview 44

Contacts 46

Disclaimer

This document is issued by

HSBC Bank Brazil SA (the bank)

in Brazil in partnership with

PricewaterhouseCoopers (P wC).

It is not intended as an offer or

solicitation for business to anyone in

any jurisdiction. It is not intended for

distribution to anyone located in or

resident in jurisdictions which restrict

the distribution of this document.

It shall not be copied, reproduced,

transmitted or further distributed by

any recipient.

The information contained in this

document is of a general nature only.

It is not meant to be comprehensive

and does not constitute financial,

legal, tax or other professional

advice. You should not act upon

the information contained in this

publication without obtaining specific

professional advice. This document

is produced by the Bank together

with PricewaterhouseCoopers

(PwC). Whilst every care has been

taken in preparing this document,

neither the Bank nor PwC makes

any guarantee, representation or

warranty (express or implied) as to its

accuracy or completeness, and underno circumstances will the Bank or

PwC be liable for any loss caused by

reliance on any opinion or statement

made in this document. Except as

specifically indicated, the expressions

of opinion are those of the Bank

and/or PwC only and are subject to

change without notice. This document

is not a Financial Promotion.

The materials contained in this

publication were assembled in

May 2012 and were based on the

law enforceable and information

available at that time.

Contents


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Brazil is one of the most

promising emerging markets

in the world. A high degree

of diversification in its product

exportation base, a diversified

list of trading partners, internal

economic stability, increasingly

large work force and good

social standards are helping

to attract more and more global

investors. In addition to this, the

forthcoming 2014 Soccer World

Cup and 2016 Olympics are

generating a large numberof infrastructure investment

opportunities.

The Brazilian Government

and Congress have made

a concerted effort to improve

the economic stability of the

country and have implemented

changes in Brazils tax

legislation, governance,

and regulatory background.

There are still a few reforms

to be implemented by the

new Government, but Brazil

is demonstrating that

it is becoming increasingly

connected with the international

business network.

The purpose of this publication

is to provide foreign investors

with a broader view of the

current economic, legal and

business environment, to be

faced when doing business

in Brazil.

Key points for foreigninvestors to consider whenlooking at this territory:

Brazil is the biggest country

in Latin America, occupying

almost half of South America.

The basic legal concepts

regulating foreign capital in

Brazil are defined in Laws

4131 of 1962 and 4390 of

1964, which were regulated

by Decree 55762 of 1965.The legal concept of foreign

capital includes tangible and

intangible assets.

In Brazil there is a wide variety

of federal programmes designed

to encourage national economic

development and also to promote

regional development. They

tend to favour operations in the

poorer Northeast (SUDENE)

and Amazon (SUDAM) regions.

Several programmes provide

export incentives.

Relevant benets are granted

to foreign investors not

domiciled in tax havens and

who invested in Brazil pursuant

to the regulations established

by Resolution 2.689.

There are no legal minimumshare capital requirements

for a corporation, except for

financial institutions and

insurance companies, and

certain other legal entities

with specific business purposes.

Dividends remitted to non-

resident shareholders or

quotaholders are not subject

to any withholding tax.

Capital gains earned by localresident entities are taxed at a

higher rate than the capital g ains

of non-residents.

Payments of any type made to

tax havens are generally subject

to withholding at a higher rate.

As a general rule, foreign

exchange transactions made

in order to allow payments

to non-residents, considering

royalties, technical services,

technical, administrative and

any other assistance or any

other revenue, including the

reimbursement of any costs,

are subject to specific financial

tax (IOF see page 14 for

more information).

On 16 December 2009, theBrazilian government started

to establish minimum capital

requirement to invest through

or the thin cap rules, through

Provisional Measure 472, with

immediate effects.

Executive summary

4


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Currently, business opportunities

reach the world over. At the

time when business and

economic horizons have

broadened there has also

been a significant increase in

competition among companies.

For this reason it is essential

to have a secure, dependable,

and well-positioned partner to

stay ahead of the competition.

This is what HSBC offers to

our corporate clients.

HSBC Brazil is present in 545

municipalities and includes a

customer base of more than

5.2m individual clients and

almost 460 thousand business

clients. HSBC seeks to generate

excellent business relationship s

that perform for its clients,

attending to each and every

need with appropriate support.

Brazil is in the top-ten of world

economies, sporting a vibrant

agricultural industry that

continues to grow. The country

has awakened the attention

of the world by creating

a healthy and productivebusiness environment. In 2008,

when global markets were

shaken by the economic crisis,

Brazil was one of the least

affected. This demonstrates

Brazils stable and balanced

economy supported by a strong

and consistent economic policy.

According to World Bank data,

Brazil accounts for more

than half of the South American

economy, and is responsible

for more than 2% of the

worlds GDP. Besides this,

the country has experienced

a remarkable growth in the

sector of oil extraction. With

the discovery of a layer of

pre-salt basins, by 2020, Brazil

could jump from its current

production of 2m barrels

extracted daily to 3.9m

barrels per day, doubling itsproduction in just 10 years.

Economic stability is sustained

by a democratic system of the

government and relies on one

of the most fascinating cultures

on Earth, characterised by the

diversity of ethnicities that

create an extraordinary legacy,

revealed in music, visual arts

and drama, literature, sports

and traditions. Brazil is the

world champion of biodiversity

and is the home for some

of the planets greatest natural

assets such as the Amazon, the

Pantanal and the Atlantic Forest.

For all of this, Brazil is one of the

most promising and diversified

business markets in the world.

This guide, in partnership with

PricewaterhouseCoopers, helps

entrepreneurs to understand

the characteristics of the

Brazilian market, optimising

business opportunities.

Andr BrandoPresident and

Chief Executive Officer

HSBC Bank Brasil SA

Foreword

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Economic environment

Economic HistoryThe Brazilian economy is large and

diverse by almost any standard.

There is still a considerable

state and semi-state participation

in various strategic sectors,

such as transport and utilities.

Brazil has undergone several

privatisation programmes of

state-owned companies, most

of which took place in 1998.

Nearly all of the former statecompanies are now controlled

by the private sector.

Natural resources and agriculture

have been the traditional

mainstay of the economy,

supported by abundant human

resources. Since the 1960s,

however, the emphasis has

been placed on industrial

development financed largely

with international loans and

investments. As a result,

exports today reflect a

much more balanced mix of

commodities and manufactured

items. Moreover, the profile

of imports became more

restricted during the 1970s

and 1980s because of the

import substitution and the

scarcity of foreign currency.

This situation is changing

following the lowering of trade

barriers and the increased

opening of the economy to

globalisation.

The most important business

sectors in Brazil are mineral and

energy resources, agricultural,

fisheries and forestry. There are

several other sectors that have

undergone expansion during

the past few years such as

manufacturing, high-tech

industries, service industry,

transport and communications.

Current Economic ClimateOver the last year, Brazils

benchmark interest rate (SELIC

Special Settlement and

Custody System) has hoveredaround 11.04%. While it may

seem to be a high average,

it is in fact a positive

improvement if one considers

that the average for the previous

three-year period was 19.22%.

In the beginning of 2012, the

Brazilian Monetary Policy

Committee (COPOM) has been

showing the intention to

significantly reduce the overnight

market rate (Selic). A reduction

of the basic rate of interest is

part of a strategy adopted by the

Brazilian government to protect

the domestic economy of the

international financial crisis,

which, in the government view,

threatens the consumption and

growth of local industry.

During the last decade,Brazils

risk has registered at around

800 or 900 pts, subjected to

peeks mainly due to political

reasons. The best recent

example refers to 2002, when

the year started at the Risk

average around 800 pts, however,

in the second semester, owing

to the presidential election, the

risk went over 2,200 pts.

By February 2011, the Brazil Risk

registered 184 points. In relation

to the inflation rate, one of the

historically most relevant

indicators of Brazilian economy,

numbers are also positive.

Repeating the tendency

observed in relation to Brazils

risk, in 2002, the year of thepresidential election, the annual

variance of inflation reached

25.30% (according to the

general price index measured

by Getlio Vargas Foundation

IGP-M).

For 2011, the registered index

is 6.5%.

Location and accessto other marketsBrazil is the largest country in

the southern hemisphere and

the fifth-largest country in the

world, covering nearly half of

South America. It is a member

of Latin American Integration

Association (ALADI ), the World

Trade Organisation (WTO) and

the Common Market of the

Southern Cone (MERCOSUL),

which is formed by the current

members Brazil, Argentina,

Paraguay and Uruguay, with

Chile, Bolivia, Peru, Colombia,

Ecuador and Venezuela as

associated countries.

Under the MERCOSUL

agreement, tariffs are abolished;

the movement of labour, goods

and services is unrestricted;

capital investment is encouraged;

macroeconomic policy is

coordinated; and foreign-trade

policies and tariffs for non-member

countries are harmonised.

Position in GlobalMarket/GrowthBrazil is among the top-ten

economies in the world andit has experienced a sustained

growth in the past two

decades.

With a population of about

191m people, its consumer

market is large and has

potential for high growth, since

in the past few years millions of

people have reached the middle

classes.

Availability of Customer/WorkforceIn general, adequate labour is

available. Semi-skilled and unskilled

labour is fairly abundant,

recognised as hard-working and

willing to learn, and is relatively

mobile. Skilled labour tends to

be in short supply. Personnel with

proven technical, professional or

management skills are growing

as company in-house training

and other courses take place.

IntroductionDoing business in Brazil

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Incentives for foreign investors

Tax or Grant incentivesRelevant benefits are granted

to foreign investors not

domiciled in tax havens

and who invested in Brazil

pursuant to the regulations

established by Resolution

2.689. (This Monetary Council

Normative Instructi on governs

the foreign investments in the

Brazilian financial and capital

markets by non-residents.)

Capital gains on stock and

derivatives traded in stock

and futures exchange are

exempt from capital gain tax.

In addition, income on public

bonds became tax exempt,

provided they were acquired

by these investors after

16 February, 2006.

Regarding Private Equity and

Real Estate, the good news

came with the introduction of

the FIP (Participation Investment

Fund) which became an

interesting vehicle used to

hold assets through Special

Purpose Companies (SPCs).

A benefit for foreign investors

is that they are exempt from

withholding income tax due

on FIP and Investment Funds

in FIP quotas. This exemption

is subject to compliance with

the rul es of concentration of

investment in the fund and

on the distribution of earnings

established by law. The most

notable among these

prerequisites is the requirement

that no investor may hold more

than 40% of the funds quotas or

earnings.

The National Bank for Social

& Economic Development

(BNDES) offers low-priced

financing, in order to support

the implementation, expansion,

modernisation or relocation

of plant, including capital

goods acquisition and

associated working capital.

Direct foreign investmentwas rising significantly until

2008, reaching US$43,887m.

However in 2009, owing to the

global credit crunch, this direct

foreign investment contracted

to the sum of US$25,949m.

Brazil has various incentives

available for exporters, including

(under certain conditions)

exemption from withholding

tax, exemption from excise tax

(IPI), value-added tax on sales

and services (ICMS), social

contribution on billing (COFINS)

and contributions to the social

integration programme (PIS)

on exports of manufactured

products, low-cost export

financing.

In Brazil, there is a wide variety

of federal programmes designed

to encourage the economic

development of Brazil and also

to promote regional development.

They tend to favour operations

in the poorer Northeast

(SUDENE) and Amazon

(SUDAM) regions.

An important concept in foreign

capital legislation in Brazil is

the one which reflects the

constitutional principle (Federal

Constitution, article 5) that

guarantees equal treatment

to all. This principle, in Law

4131/62 and later amendments

to Federal Constitution, grants

to foreign capital invested in

Brazil legal treatment identical

to that given to local capital,

under equal conditions, and any

discrimination not contemplatedby this law is prohibited.

Prior approval of the Central

Bank is no longer required for all

foreign currency loans received,

but they should be documented

in a formal contract, which will

set out the terms and conditions,

including the interest. The

Brazilian Central Bank will have

to be informed of all the conditions

of the loan as approval is required

after the loan transaction has

actually been entered into. It is

also necessary to obtain

prior approval from the Central

Bank for operations relating to

the conversion of some

liabilities into investment.

Capital may be repatriated

without payment of tax up

to the amount registered

in foreign currency with the

Central Bank. Amounts in

excess are considered as

capital gains under exchange

disposition and, therefore are

subject to withholding income

tax of 15% (25% if the

beneficiaries are domiciled

in jurisdictions considered

as tax havens).

Loans may be repatriated

within the terms of the registered

loan contract. Interest is freely

remittable within the loan contract

terms subject to withholding

income tax at the rate of

15% (25% if the beneficiaries

are domiciled in jurisdictions

considered as tax havens).

Although it may seem easyfor investors to do business in

Brazil, it is important to highlight

a few key aspects imposed

by Brazilian laws which

can still be considered as

bureaucratic. The most usual

procedure for a foreign investor

to start doing business in Brazil

is by organising a company.

In order to do so, the company

must request a Federal Tax

Number (CNPJ) by registering

the Cademp (Cadastro de

Empresas) at Central Bank. If

the intention is to invest other

Brazilian companies or if the

intention is exclusively to be

part of the Brazilian financial

market, then the company must

register itself at the Brazilian

Securities Commission CVM.

Nowadays, one of the most

bureaucratical procedures to

be followed in Brazil is to

execute the decision of winding

up local presence. A lot of

compliance and tax duties can

be demanded in this case. The

time required to close a

business in Brazil may be

significant.

LanguageThe official language of Brazil

is Portuguese. There are no

significant local dialects or other

deviations from the official

language, but a number of words

and phrases differ from those

used in Portugal. English is the

foreign language most used

by the business community

in Brazil.

Ease of Doing Business/

Ease of LeavingThe general policy is to admit

foreign capital and treat it in

the same way as local capital.

All inward investments must

be registered with the Central

Bank to ensure ultimate

repatriation rights within

30 days. It should be noted

that acquisitions of local

companies should be thoroughly

investigated to confirm their

real underlying value.

The basic legal concepts

regulatingforeign capital in

Brazil are defined in Laws

4131 of 1962 and 4390 of

1964, which were regulated

by Decree 55762 of 1965.

The legal concept of foreign


intangible assets.

10


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Several programmes provide

export incentives. In the

SUDENE and SUDAM regions,

incentives are available for the

implementation of new

industrial projects or expansion,

diversification or improvement

of an existing industry.

Statistics for ForeignDirect InvestmentAs reported by the Brazilian

Central Bank (BACEN )

website, the Census of foreigncapital s in Brazil figures stress

the performance of the Brazilian

economy as a point of attraction

for foreign capital during the

second half of the nineties

which deepened the process

of internationalizing the countrys

economy.

Greater economic stability and a

permanent process of structural

reforms, including the approved

breaking of state monopolies,

was clearly reflected in

increased flow of capital to Brazil.

The first indication in the

Census that stresses the higher

degree of foreign capital share

in Brazil is the number of forms

received by the Central Bank:

11,404 informants with a

foreign share in excess of

10% of voting capital or 20%

of total authorized capital.

There was a relevant increase

of 80.4% on the 6,322

informants of the previous

Census that took 1995 as

base-year. This increase,

caused by both establishment

of new corporations and

acquisition of previously

existing ones, together with

fresh capital sharing in those

already recording some foreign

ownership in 1995, was

the main thrust behind the

substantial changes recorded

in the figures surveyed.

According to the information

gathered, total paid-in capital

of informants reached

R$3 51.7bn, representingan unprecedented nominal

increase of 319.7% against

the R$83.8bn of 1995.

Even taking the devaluation

of the Real in this period

into account, the figures

still have a strong impact,

reaching over twice the figures

of the previous census (from

US$86.2bn, in 1995, to

US$179.8bn, in 2002, calculated

based on the exchange rate

in effect at the end of each

period). It should be noted

that in 1995 residents held the

larger share of paid-in capital:

51.5% of the total. Conversely,

in 2000, the largest share was

for non-residents; 57.3% of

the total, revealing the trend

of foreign investors to share the

capital of Brazilian corporations

in a majority position.

On this issue, taking into

consideration just the figures

related to the 9,712 informants

where the share of foreign

capitals is in a position

of majority (over 50%),

we reached the figure

of R$263.4bn of paid-in capital,

of which 70.3% (R$185.0bn)

are held by non- residents.

Seen from the viewpoint of

total assets of entities featuring

foreign share, the consolidated

results of the survey reveal

another prominent result in

its total value: R$914.1bn,

contrasted to the R$280.4bn

of 1995. Converted by the

end-of-period exchange rate,

these are US$467.4bn andUS$280.4bn, respectively.

Also important is the growth

of the total assets of entities

with a majority share of foreign

capital, which from the

R$158.8bn of 1995,

corresponding to 58.3% of

the total, came to R$641.6bn,

or 70.2%. Indeed, in the first

census these entities counted

4,902 in a population of 6,322

(77.5%), increasing to 9,712

of 11,404 (8 5.2%).

Barriers, risks and downsidesfor foreign investors

Depending on the nature of the

business activity there will be an

involvement of some regulatory

agencies such as:

Central Bank (BACEN)responsible for the execution

of monetary policy, exchange

controls, registration and control

of foreign capital and profit

remittances and regulation of

Banks and Financial Institutions.

Securities C ommissions(CVM) responsible for theregulation of the securities

markets and listed companies.

Administrative Council forEconomic Defence (CADE) investigation and suppressing

unfair business practices and

anti-trust monitoring.

National Institute ofIndustrial Property (INPI)

responsible for patent, trademark registration and

technological development.

INPI has powers over

agreements for the transfer

of technology.

Foreign TradeDepartment (DECEX) responsible for administration

of foreign trade and control

of export and import licences.

Transport Limitation

Since the inclusion of

government-controlled

railroads to the Brazilian

National Privatisation

Programme, there has been

significant investment in

development and modernisation

of the railroad network, which

is mainly located in the Southeast

and Southern regions, although

there are plans (federal and

private projects) for some

major extensions in the North

and Central-West regions. For

the North-East region, future

investments are anticipated.

Road transport is still the

preferred method of transport

for both long-distance and

intercity travel, although most

of the major federal and state

highways have not been

well-maintained. Nearly all

road transport and haulage

companies are now in the

process of privatising the

remaining roads which are

not yet privatised.

The airline network is well-

developed and the majority

of the voting stock of airline

companies is held by the

private sector. Urban transport

continues to present significant

problems in major centres.

Limited subway systems are

now functioning in Rio de

Janeiro and So Paulo.

However, until a more

extensive network is developed,

subways will not significantly

alleviate the problems of urban

transport. Many companies

provide private bus services

to their employees.

Prohibited or restrictedIndustries

Government permission

is required for the operation

of certain types of business,

such as banks and financial

institutions, mining companies,

oil refineries, maritime, road and

air transport companies, as well

as companies involved in health

products and health care.


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Restrictions on foreign

investor participation exist

in certain areas, such as:

(i) communications (television,

radio stations or newspapers);

(ii) aviation (Brazilian airlines);

(iii) participation in classi fied

(operations) government

contracts; (iv) coastal and

freshwater shipping; (v)

mining and hydroelectric

energy, etc.

Furthermore, the direct orindirect foreign ownership

of rural land is regulated and

subject to limitations as to the

total area. Ownership of land

near Brazils borders is subject

to further restrictions.

Currency/exchange control

The Central Bank allows the

official exchange rate to float

freely, but forex trading is

restricted to authorised dealers.

The Central Bank intervenes

when there are signs of

speculative operations. There

is an active parallel exchange

market that, although illegal, is

quoted in the daily newspapers,

as well as an official tourist rate

that normally approximates the

parallel rate.

IOF

As a general rule, foreign

exchange transactions made

in order to allow payments to

non-residents, in the form of

royalties, technical services,

technical, administrative and

any other assistance or any

other revenue, including the

reimbursement of any costs,

are subject to the tax on

financial transactions (IOF).

These transactions are subject

to the maximum IOF rate of 25%.

The current IOF rate for any

foreign exchange transaction

(both inbound and outbound)

such as FDI or Intragroup loan

agreement is 0.38% payableupfront; however there are many

other types of foreign exchange

transactions where different tax

rates are applied. As a resul t,

the IOF may not be avoided if

the payment requires a foreign

exchange transaction from the

Real into a foreign currency, or

from a foreign currency into the

Real. Payments of interest,

for the importation of goods

and for the acquisition of an

investment in Brazil by a local

resident from a foreigner, are

also subject to the IOF.

The IOF of 6% is charged on

foreign loans with an average

maturity of less than 360 days

(the average term was

decreased on 5 December

2012 from 720 days to 360

days). All other foreign loans

are subject to the IOF at 0%

rate. The average maturity

is determined based on the

balance of the loan relative

to the number of days of the

outstanding balance of the

related loan.

From October 2009, the

Brazilian government changed

the IOF tax rates that are levied

on certain foreign currency

exchange transactions related

to the inflow of funds to Brazil

made by Resolution 2689 to 6%,

and 0% if the equities are traded

through the Exchanges. As to

the outflow of funds from Brazil

related to investments in the

financial markets, the IOF rate

continues to be 0%.

Key Markets and Trade

Brazil has a very strong industrial

base. It exports not only natural

resources and agricultural

products, but also industrial

and commercial products.

At the top of the list are natural

resources (such as iron ore)

and agricultural products (such

as soy beans, coffee and sugar).

Moving down the list, there are

manufactured products including

vehicle parts, airplanes,

petrochemical products

and ethanol.

Brazil is one of the leading

developing countries, and is

one of the four emerging markets

comprising the B-R-I- Cs (i.e.

Brazil, Russia, India and China).

Since 2010, China has played

an important role as Brazils

main commercial partner,

followed by the United States,

Argentina and Germany.

These top commercial

partners represent 15.9%,

12.4%, 8.2%, and 5%

respectively of total trade

business.

Brazil is the largest telecoms

market in Latin America and

Brazilians are the biggest users

of the internet in the region.

Future trends include growth

of Voice over Internet Protocol,

convergence applications and

Next Generation wireless.

Business etiquette

Handshakes are the most

common form of greeting

between business colleagues.

In more informal situations,

women will tend to greet each

other with a kiss on either cheek,

while men may briefly embrace.

When you meet someone for

the first time, it is polite to say

muito prazer (my pleasure).

Expressions such as como vai

and tudo bem are common

forms of saying Hello once

you know someone and can

show you are making an effort

to know them.

The use of titles and first names

can vary across Brazil. Typically,

it is polite to address your

Brazilian counterpart with a

title and surname at the first

meeting or when writing to

them. Once you know them,

it is common to use just their

first name, or else their title

followed by their first name.

Brazilian companies tend to

have vertical hierarchies where

managers at the top make most

of the decisions. Differences

in class are still very prevalent

in Brazilian society and business

culture. Class is mostly

determined by economic status

and is reflected in the salaries

people receive, resulting in large

disparities of pay and status.

There are laws against

discrimination, however,

and most class differencesin business are subtle.

Relationships are one of the

most important elements in

the Brazilian business culture.

By cultivating close personal

relationships and building trust,

you will have a greater chance

of successfully doing business

in Brazil.

*Source:ht tp://www.mdic.gov.br

/arquivosdwnl_1298052907.pdf

14


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Forms of foreign Investment

Investment made by foreigners

is normally structured via

the acquisition of interests

or financial assets or via the

incorporation of new entities.

Depending on the nature

of the assets to be invested,

the applicable regime will

be different. Basically, for

assets in the financial and

capital markets, the applicablerule in force is Resolution of

Monetary Council 2689.

The Resolution provides that

non-resident investors are not

allowed to trade in securities

of public companies except

for the trade over (i) the stock

market, (ii) electronic systems,

or (iii) an over-the-counter

market which is organised

by an entity authorised by the

Securities Commission (CVM)

to trade in securities of publicly-

held companies.

There are situations when it is

possible to transfer the 2689equities outside of an organised

market, such as in cases of:

subscriptions, stock dividends,

conversions of debentures

into stock, indexes referenced

in securities, acquisitions

and sales of shares of open

investment funds in securities

and, when previously

authorised by the Securities

Commission, the cases of closing

shareholders capital, cancellation

or suspension of trading.

Currently, there are important

tax incentives granted for the

2689 investors.

For the assets not related

to financial and capital markets,

but more linked to the

acquisition of private

companies, the basic legal

concepts regulating foreign

capital in Brazil are defined

in Laws 4131 of 1962 and 4390

of 1964, which were regulated

by Decree 55762 of 1965.The legal concept of foreign


intangible assets.

The corporate forms in which a

business are normally conducted

in Brazil are the following:

Corporations (Sociedade porAes S/A) Only corporateform that can have stocks

traded publicly.

SA Sociedade por acoes(also known as SOCIEDADEANONIMA) A limited liabilitycompany. It must have at least

two shareholders. There isno minimum share capital

except for financial institutions,

insurance, utility and export

trading companies. It may

be public or private. Shares

in public corporations are freely

transferable; shares in private

corporations are restricted.

Conducting business in BrazilForms of business

16


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Registration formalities

There are no legal minimum

share capital requirements

for a corporation, except

for financial institutions and

insurance companies, and

certain other legal entities

with specific business

purposes.

Upon the decision to incorporate

a new legal entity in Brazil,

an inaugural meeting ofprospective shareholders

must be held to approve

the bylaws, which sets up

the corporations core activities,

appoints management, and

indicates the amount of

capital, registered office

and distribution of shares

(as per the subscription list)

among shareholders (others).

Besides the requirements listed

above, a corporation is required

to have the subscription of all the

shares into which the corporate

capital stock is divided according

to the bylaws, with the initial

subscribers being at least twoindividuals or legal entities that

are considered to be founders.

In addition, at least 10% of the

issuance price of the shares

subscribed in cash, unless

specific legislation requires

a higher percentage, and

deposit thereof at a bank. This

deposit is released when the

corporation has been registered

with the Board of Trade (Junta

Comercial) or after six months,

if no registration has been made.

After the fulfilment of these

requirements, a quorum of

subscribers of at least one half

of the capital is required for

the meeting to approve the

incorporation of a corporation.

If this quorum is not reached,

a second meeting may be held

before any number of subscribers.

Upon approval of the bylaws,

the shareholders should

elect the members of the

management bodies. Thereare no nationality requirements

for management, but a

foreigner must hold a permanent

visa and be domiciled in Brazil

to be eligible for the job. At

the end of the meeting, the

minutes shall be signed by

all subscribers in attendance

or by the number required to

validate the resolutions. These

documents must be kept at the

corporation and a copy must

be filed with the Board of Trade.

Ongoing filing requirements

A newly incorporated corporation

acquires legal existence upon

filing its incorporation documents

with the Board of Trade and

the subsequent publishing of

its meetings minutes in a local

newspaper and the Official

Gazette (Dirio Oficial). The

certificate issued by the Board

of Trade confirming the filing

of the incorporation documents

serves as a legal document forthe transfer of assets used to

pay in the capital and becomes

a matter of public record.

An annual meeting must be held

with the shareholders within

the first four months of the end

of the corporate financial year,

to approve the annual financial

statements and the management

report, approve the proposed

distribution of net income for the

year, elect the executive officers

or the board of directors

members (if applicable) and

approve the authorised capital,

minimum or fixed dividends and

premiums on reimbursements(if applicable).

Shareholders meetings

must normally be called

by publishing an appropriate

announcement at least three

times in the Official Gazette

and in a local newspaper.

When setting up a new legal

entity in Brazil, given that

the incorporation of a branch

requires authorisation granted

via a presidential decree,

the process is generally

bureaucratic and lengthy.

In view of this, the majority

of foreign businesses in Brazil

are set up under the form of

subsidiaries based primarily

on the insulating effect that

incorporation has on the liability

of the foreign parent companyfor the subsidiarys acts. When

incorporating a subsidiary

in Brazil, the most common

vehicle is the Limited Liability

Company (Sociedade Limitada

LTDA) or the Corporation.

Regulatory matters/issues

In general terms, there are no

restrictions on the ownership

by foreign investors, except for:

i.Communications (television,

radio stations or newspapers);

ii.Aviation (Brazilian airlines);

iii.Participation in classified

government contracts;

iv.Coastal and freshwater shipping;

v.Mining and hydroelectric

energy, etc.

Limited Liability Companies(Sociedade Limitada) The Brazilian equivalent of a

closely-held company in the

United States and a private

limited liability company in

the United Kingdom.

Limitada or Ltda (Sociedade por quotas deresponsabilidade limitada) Private limited liability

company. It must have

at least two shareholders.There is no minimum share

capital. Shares are called

quotas and their transferability

is restricted. The liability

of quota holders is limited

to the amounts invested.

Joint Ventures The formof a corporation assemble

under one of the partnerships

stated above.

Branches Significantbureaucracy in its creation

and maintenance renders

this form limited to few

multinationals.

The financial year (12-month

period) of Brazilian legal entities

can be freely chosen for corporate

purposes. Accordingly, certain

Brazilian companies adopt the

same financial year of the parent

company, for corporate/reporting

purposes (e.g. 1 July to 30 June).

Nonetheless, as companies

are required to observe the

calendar-year (January through

December) for tax purposes,

most of domestic entitieschoose the same period as

their corporate financial year.

Setting up a business

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Exchange Controls orrestrictions on repatriationof profit

Dividends remitted to non-

resident shareholders or

quotaholders are not subject

to withholding tax.

Profits may be remitted abroad

without limitations, to the extent

that there is foreign registered

capital and retained earnings

available. As from 1 January1996, profits/dividends

distributed to non-resident

beneficiaries relating to periods

beginning on or after this date,

are not subject to withholding tax.

On 16 December 2009,

thin capitalisation rules were

introduced to the Brazilian

tax system.

The new legislation set forth

that interest paid or credited by

a Brazilian entity to a related

individual or legal entity, not

resident or domiciled in a tax

haven or a favourable tax regime

jurisdiction, can only be considereddeductible for tax purposes if

such expense is necessary for

the activities of the local entity,

and if the amount of debt granted

by the related party does not

exceed twice the amount of

the participation it holds in the

stockholder equity of the Brazilian

entity. A second test also needs

to be satisfied including the

total amount of all debts with

any foreign-related party. If both

tests exceed the 2:1 ratio, the

portion of i nterest related to the

exceeding amount will not be

tax deductible.

Similar provisions are alsoapplicable to interest paid or

credited by a Brazilian entity to an

individual or legal entity (related

or not) resident or domiciled in

a tax haven or a favourable tax

regime jurisdiction. In this case,

the expense would only be

considered tax-deductible if the

amount of debt does not exceed

30% of the amount of the

participation it holds in the

stockholder equity of the Brazilian

entity. A second test also needs

to be satisfied including the

total amount of all debts with

any foreign party resident or

domiciled in a tax haven

jurisdiction. If both tests exceedthe 30% ratio, the portion of

interest related to the exceeding

amount will not be tax deductible.

Liabilities forDirectors Company

In the most common types of

entities, LTDA and SA, executive

officers are not personally liable

for the obligations they undertake

in the name of a corporation

and in the normal course of

business. However, they are

liable for losses and damages

caused by negligent or fraudulent

conduct or by violating the law

or the corporations bylaws.

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International aspects

Foreign operationsBrazilian resident companies

are taxed on worldwide income.

Foreign branch profits are taxed

as earned and foreign subsidiary

profits are taxed when distributed

or made available. Double taxation

is avoided by means of foreign

tax credits.

Resident individuals are subject

to tax on all income from abroadbut are allowed to take credit

for the foreign tax paid thereon,

provided reciprocal treatment is

accorded to Brazilian-source

income in the country from which

the income is received.

Brazil has signed various

treaties for the avoidance

of double taxation.

Fees and other related

expenses paid in Brazil for

services rendered abroad

are subject to withholding

tax of 15%, or a lower rate

under some tax treaties.

Centre of InternationalFinancial or Operations

There are no tax breaks

to encourage multinational

companies to locate

headquarters or administrative

offices in Brazil and/or the use

of Brazil as a base for offshore

financial operations. However,

the various Brazilian states

do offer different financial

incentives they compete

between themselves in

order to attract companies.

Corporate Income Tax (IRPJ)Corporate income tax is

based on the calendar year,

with monthly tax payments, and

is generally computed on the

basis of annual or quarte rly

taxable income. Under the

Actual Profit Method (APM),

IRPJ is charged at the rate of

15% plus a surcharge of 10%on annual taxable income in

excess of R$240,000

(approximately US$120,000).

Additions of expenditure to

and deductions of expenditure

from the accounting profit

figure are required in order

to calculate the amount

on which corporation tax

is based. These adjustments

are either permanent or

temporary. Permanent

adjustments include gifts

and donations, and temporary

adjustments (which are

reverted in the future)

include provisions. Allthese adjustments should

be controlled in the Livro

de Apurao do Lucro Real

(LALUR), Part A.

Certain companies can also

apply to pay IRPJ according

to a presumed profit method

(PPM). The amount of (IRPJ/

corporate income tax) will be

obtained from a percentage

of the gross revenues. Service

providers will be charged at a

rate of 8% (effective tax rate).

Sellers of goods and assets will

be charged at a rate of 2%

(effective tax rate). There are

restrictions on applying the P PM

Annual where gross revenues

in the preceding calendar year

are greater than R$48m.

Financial institutions in general,

leasing companies, insurance

companies, and non-private

pension funds are not allowedto adopt PPM.

In some cases, depending on

the effective rate obtained

in the APM, PPM can be

considered a tax incentive.

Certain classes of income

receive special tax treatment.

Some of them are excluded

from taxation or can receive

specified tax deduction.

Companies are required to file

a corporate income tax return

on an annual basis (generally

up to the last working day of

June of the subsequent year).Other corporate returns must

also be filed by legal entities.

Taxation in BrazilCorporation income tax (or equivalent)

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Withholding Taxes (IRRF) The current rates applicable

to the following payments

to non-residents are:

i.Dividends Not Taxable

ii. Interest 15%*

iii. Royalties 15%*

iv. Technical and Admin.

Services 15%*

v.Other Services 25%*

* These rates are effective

unless otherwise specified

by tax treaty.

Payments of any type made

to tax havens, defined as

jurisdictions that do not tax

income or tax income at a rate

lower than 20%, are subject

to withholding at a rate of 25%.

Social Contribution on NetIncome (CSLL)Brazilian tax legislation also

provides for a social

contribution tax on profits,

which also has the nature

of a corporate income tax.

Its taxable basis is quite similar

to corporate income tax, but

with certain distinct adjustments.

CSLL is charged at the rate of

9%.For financial institutions,

the applicable rate is 15%.

For CSLL, temporary and

permanent adjustments

are applied in the same way

as for Corporate Income Tax.

Some companies can also

apply to pay C SLL based

on the presumed profit method

(PPM). Service providers will

be charged at a rate of 2.88%

(effective tax rate). Sellers

of goods and assets will be

charged at a rate of 1.08%

(effective tax rate).

The same restrictions on the

application of the PPM method

to Corporate Income tax applyto CSLL.

In some cases, depending

on the effective rate obtained

in the APM, PPM can be

considered a tax incentive.

Tax losses carry forward(IRPJ and CSLL)

There is no time limit for the

carry forward of tax losses.

However, the taxable profit of

each year can only be reduced

by tax losses up to a maximum

of 30% . Furthermore, it is

neither possible to carry b ack

tax losses nor transfer them

to other Braziliancompanies.

Tax losses of an acquired

company cannot be carried

forward to be offset againstthe taxable income of a new

activity if the following two

conditions are both met:

i.modification in the ownership

of the company; and

ii. modification in the activity

of the company.

Capital gains Capital gains earned by local-

resident entities are taxed

at the normal corporate rate

(34%), while capital gains of

non-residentsare taxed at the

rate of 15% (unless otherwise

specified by internationaltax treaties).

Individuals are taxed at the

rate of 15% on capital gains.

Payments of any type made

to tax havens are generally

subject to withholding tax

at a rate of 25%.


14/24

The Brazilian concept of tax

haven jurisdictions has been

amended and has been in

effect since 1 January, 2009.

To that extent, it is likely that

any other jurisdiction (not

necessarily a country) that

falls into the new definition

(e.g. a jurisdiction that grants

tax benefits to non-resident

investors that do not perform

business activities on it; or a

jurisdiction that does not allow

access to information relatingto the ownership of shares of

local entities, the ownership

of goods, and/or rights or

information regarding

economic transactions) could

now be subject to Transfer

Pricing and Thin Capitalisation

rules in relation to the

rendering of services and the

acquisition or selling of goods,

among others.

At 7 June 2010, Federal Tax

Authorities published in the

Normative Instruction 1.037/10,

article 1, the new list of Tax

Havens. This new list includes

new tax havens jurisdictions inaddition to the previous list that

was published in 2002 that was

Andorra, Anguilla, Antigua and

Barbuda, Dutch Antilles, Aruba,

Bahamas, Bahrain, Barbados,

Belize, Bermuda, Campione

DItalia, Cyprus, Singapore,

Costa Rica, Djibouti, Dominica,

United Arab Emirates, Gibraltar,

Granada, Hong Kong, Cayman

Islands, Cook Islands, Madeira,

Isle of Man, Channel Islands

(Jersey Guernsey, Alderney,

Sark), Marshall Islands,

Mauritius, Turks and Caicos,

U.S. Virgin Islands, British Virgin

Islands, Lebuan, Lebanon,

Liberia, Liechtenstein,

Luxembourg (holding 1929),

Macao, Maldives, Malta,

Monaco, Monserrat, Nauru,

Nieui, Panama, Saint Kitts, Saint

Vincent, U.S. Samoa, Western

Samoa, San Marino, Saint

Cristobal and Nevis, Saint

Vincent and the Grenadines,

Saint Lucia, Seychelles, Oman,

Tonga, Vanuatu.

The new members are:

Ascension Island, Brunei, French

Polynesia, Granada, Kiribati,

Norfolk Island, Pitcairn Islands,

Qeshm, Saint Helena, Saint

Pierre and Miquelon, Solomon

Islands, Swaziland and Tristan of

Cunha. On the other hand it was

excluded from the previous list

the jurisdiction of Malta and the

Luxembourg Holdings set up

under the Law 1929.

Introduced in the Brazilian Tax

system in 2008, via Law 9.430,

article 24-A, 'privileged tax

regime' can be defined as the

regime with the followingcharacteristics: (i) no income tax

or income tax lower than 20%,

(ii) tax benefits for non-resident

shareholders regardless of

whether they carry out

economic activities in the

country or dependency, (iii) tax

benefits for non-resident

shareholders to the extent that

they do not carry out economic

activities in the country; (iv)

worldwide income either

exempt or taxed at a maximum

rate lower than 20%, and (v) no

access to the identity of

shareholders, the owners of

assets/rights, and no information

on economic transactions.

Based on the concept introduced

in 2008, NI 1.037, article 2,

enumerates some types of

entities that fall under at least

one of the characteristics above.

These entities are:

The nancial investmentcorporations (Sociedad Anonima

Financiera de Inversion, or SAFI)under the laws of Uruguay;

The International Trading

Companies (ITC) under the laws

of Iceland;

The offshore KFTs under the

laws of Hungary;

The limited liability companies

(LLC) under U.S. state laws that

are not subject to U.S. federal

income tax and whose members

are non-residents (in the U.S.);

The Entidades de Tenencia de

Valores Extrajeros (ETVEs )

under the laws of Spain;

The ITCs or International Holding

Companies (IHCs) under the

laws of Malta;

The holding companies under theLaws of Denmark which do not

excise substantive activities; and

The holding companies under

the Laws of the Netherlands

which do not excise substantive

activities (suspended from

the list).

26


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system imposes a lower rate

(0.65%), however, it does not

enable the company to record

tax credits on acquisitions.

Since 1 May 2004, the PIS

contribution has applied to the

importation of goods and on

the payment of services to

non-residents. Export revenues

are tax exempt from PIS.

However, the PIS tax credit

recorded on the acquisition

of inputs and services maybe kept.

Contribution for SocialSecurity Financing (COFINS)COFINS, generally levied at 7.6%,

is a monthly federal social security

contribution calculated as a

percentage of gross revenue.

Higher rates are imposed in certain

sectors. A COFINS credit system

is meant to ensure the tax is

applied only once on the final

value of each transaction, which

means that the company is

granted a tax credit calculated

on the acquisition of inputs

and on certain expenses

(non-cumulative system).

There are certain companies

which must pay COFINS under

cumulative system. The

cumulative system imposes a

lower ra te (3 %), but it does not

enable the company to record tax

credits on acquisitions. Financial

institutions also have a special

COFINS rate of 4% but some

deductions to the tax base

are allowed.

Note that different tax effects

could impact transactions

between Brazilian counterparts

with counterparts in tax havens

or with privileged tax regime

entities.

It should also be noted that

the tax authorities respect the

exemption from withholding for

all dividend payments, including

dividend payments subject

to withholding tax under the

provisions of a tax treaty. In thecase of royalties, the roya lty

contract has to be approved

by the National Institute of

Industrial Property (INPI) and

filed with the Brazilian Central

Bank.

Deductions for royalties are

generally limited to 5% of net

sales of the relevant products or

services; the percentage depends

on the type of product or activity.

Federal Excise Tax (IPI)This Federal Excise Tax is paid by

manufacturers on behalf of their

customers at the time of sale,

either to another manufacturerwho will further the

manufacturing process or to the

retailer who sells to the end user.

The tax paid is stated separately

on the sales invoice. Certain

exemptions are given to goods

considered to be of basic

necessityto the countrys

economy. The rates are defined

As from 1 May 2004, COFINS

contributions also apply to

imports of goods and on the

payment of services to non-

residents. Export revenues

are tax exempt from COFINS

(however, the COFINS tax credit

recorded on the acquisition of

inputs and services may be kept).

Financial Transactions Tax (IOF)In October 2009, the Brazilian

government changed the IOF

tax rates that are levied oncertain foreign currency

exchange transactions related

to the inflow of funds to Brazil.

For foreign investors entering

into the financial and capital

markets, the applicable rate

was previously 0%. In 2010

the IOF rate was increased

to 2% for inflows of equities

traded through the Exchanges;

however, in December 2011

the rate went back to 0%.

Other inflows for the financial

and capital markets will trigger

IOF at 6%.

For the outflow of funds from

Brazil related to investments inthe financial markets, the IOF

rate continues to be 0%.

For investments according to

Law 4.131 (into LTDA and SA),

inflows and outflows will

trigger IOF at 0.38%.

by the products tax code

according to the Harmonised

System.

As mentioned above, when

manufactured products are

sold between producers,

the IPI is imposed. H owever,

the subsequent manufacturer

is allowed a credit against

its IPI liability, equal to the

IPI paid to its suppliers (non-

cumulative tax).

IPI is also imposed on import

transactions. Export revenues

are tax exempt from IPI

however, the IPI tax credit

recorded on the acquisition

of inputs may be kept.

Contribution for the SocialIntegration Programme (PIS)

PIS, generally levied at 1.65%,

is a Federal social contribution

calculated as a percentage of

gross revenue. Note that higher

rates are imposed in certain

sectors. A PIS credit system is

meant to ensure the tax is

applied only once on the final

value of each transaction,which means that the company

is granted a tax credit calculated

on acquisition of inputs and on

certain expenses (non -

cumulative system).

Note that there are certain

companies which must pay

PIS under the cumulative

system. The cumulative

Contribution for theIntervention in theEconomic Domain (CIDE)Brazilian companies with royalty,

licence, service and technical

assistance agreements with foreign

entities, shall pay a 10% CIDE,

based on the amount paid abroad.

Service Tax (ISS)

The ISS is a municipal tax on gross

billings for certain services

designated by the Federal

Government. The applicablerates to be determined by each

municipality can vary between

2% and 5%.

In general, the service tax

is levied by the municipality

in which the Company is

headquartered. There are

some exceptions to this

rule for services involving

assembly, construction and

demolition, among others.

As from January 2004,

important changes to the ISS

legislation were made. The

original list of services subject

to the tax was expanded andthe importation of services is

now subject to ISS. Additionally,

ISS is not levied on exports of

services, except when the

services are rendered in Brazil

or the results of these services

are applied in Brazil.

Transfer PricingThe rules of transfer pricing

in Brazil address imports and

exports of products, services

and rights charged between

related parties, inter-company

financing transactions not

registered at the Central Bank

of Brazil, as well as all import

and export transactions

between Brazilian residents

(individual or legal entity)

and residents in either low

tax jurisdictions (as definedin the Brazilian legislation)

or jurisdictions with internal

legislation that call for secrecy

relating to corporate ownership,

regardless of any relation.

The rules require that a Brazilian

company substantiates its

inter-company import and export

prices on an annual basis by

comparing the

actual transfer price with a

benchmark price determined

under any one of the Brazilian

equivalents of the OECDs

comparable uncontrolled

price method (CUP method),

resale price method (RPM)or cost plus method (CP

method). Tax payers are

required to apply the same

method, which they elect,

for each product or type

of transaction consistently

throughout the respective

financial year. However,

taxpayers are not required

to apply the same method for

different products and services.

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Residents of Brazil are taxed

on their worldwide income,

and non-residents are taxed

exclusively at source on their

Brazilian-source income. The

source of income is determined

by the place where the tax

payer is located, irrespective

of where the work is performed.

Foreigners, intending to live

and/or work in Brazil, whether

for a short or a long period, will

become tax-resident dependingon the type of visa they hold:

1. Permanent visas Holders of

permanent visas are considered

residents as from the date of

arrival in Brazil.

2. Temporary visas Holders

of temporary visas are also

considered residents as from

the date of arrival in Brazil,

as long as they have an

employment contract in Brazil.

Otherwise, they will become

tax residents as from their

184th day of presence in Brazil

within any given 12-month

period.

Tax rate Income tax is

normal ly withheld at source, at

rates varying from 0% to 27.5%,

depending on the income

bracket. The final liability is

determined upon filing the

tax return. Any difference

between the amounts as

determined by the tax return

and that withheld at source

must be paid or is refunded

to the taxpayer. The Brazilian

Tax Authorities have issued

an annual tax table (below)

applicable to income tax

payable during tax year 2011.

Individuals are required to

submit income tax returns

by 30 April of every year.

There are penalties for late

and incorrect submission.

Income tax arising from

employment should be

withheld by the employers

at the above-mentioned rates.

Social charges and other

employee rights are referred

to below.

Monthly Income(Braziliancurrency BRL)

Tax RateAmount to bededucted from

tax in R$

Up to 1,566.61

From 1,566.62 to2,347.85

7.5% 117.49

From 2,347.86 to

3,130.5115% 293.58

From 3,130.52 to

3,911.6322.5% 528.37

Above 3,911.63 27.5% 723.95

*Source: http://www.receita.fazenda.gov.br/Aliquotas/ContribFont2012a2015.htm

Personal Income Tax


17/24

State Value AddedTax (ICMS)

The Constitution of 1988

granted authority to the

Brazilian States to collect tax

on the circulation of goods and

on the supply of inter-state and

inter-municipal transportation

services on communications,

even when the transaction and

the rendering of services start

in another country.

ICMS is not a cumulative tax,

that is, the tax is only assessed

on the increase in the price of

the product in each part of the

supply chain. The calculation

process involves a system

that, in each payment period,

the taxpayer must check the

amount of debits and credits

related to the State Value

Added Tax and, if the taxpayer

has more debits than credits,

they will have to pay the tax on

the difference between them.

It is a value added tax and

is collected by most States at

the usual rate of 17%, exceptfor the States of So Paulo,

Minas Gerais and Paran,

where the tax rate is 18%

and Rio de Janeiro, where

the rate is 19%. Some products

trigger a higher rate (usually

25%) or a lower rate

(automotive industry and other

special industries are below

17% or 18%). Intra-states

transactions are subject to

lower rates, depending on the

State of origin and destination.

ICMS is also imposed on import

transactions. Export revenues

are tax exempt from ICMS,

however the ICMS tax credit

recorded on the acquisition of

inputs and services may be kept.

Please note that industries

located in certain States of

Brazil, such as Mato Grosso,

Gois, Bahia, among others,

may apply for State tax

incentives, which correspond

mainly to reduction of tax due,

deferral of tax due or recording

of presumed tax credits. It is

important to mention that, as

most of such incentives are

not supported by the necessary

agreements pre-approved by

all States (CONFAZ meeting),

these tax incentives may be

questioned.

Property Taxes(IPTU and ITBI)

A property tax IPTU (Imposto

Predial e Territorial Urbano) is

levied annually based on the

fair market value of property

in urban areas at rates that

generally vary between

0.2 and 5% according to the

municipality and location of

the property. Payments can

be made in up to 10 monthly

instalments. In a few cases it

is possible to obtain exemption

from this tax.

Another property tax ITBI

(Imposto de Transmisso de

Bens Imveis Inter Vivos) is

levied at rates of up to 6% on

sales or transfers of properties

and is payable by the acquirer.

A reduced rate of 0.5% applies

to transac tions under housing

programmes financed by federal

government schemes.

Sales tax/VAT Other taxes

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Audit requirements

Audited Financial statements

are required for listed companies,

financial institutions and insurance

companies. Listed companies

with total annual gross revenue

above R$100m must present

quarterly information reviewed

by independent auditors.

Other regulated segments

might require audited financial

statements.

In light of recent changes to

the Corporate Law, all entities,

independent of their statutory

structure or whether they are

listed or regulated entities, must

have their financial statements

audited by an independent

auditor if they are deemed to

be large. Large companies

are defined as those whose

gross revenue in the last year

was greater than R$30 0m

(approximately US$150m) or

held total assets over R$240m

(approximately US$120m)

within Brazil. These limits

are applicable not only

to individual legal entities butalso to a group of entities under

common control, even if the

control is abroad. Please note

that the analysis considers

the operations in Brazil only.

Transio RTT), under which,

for tax purposes only, taxpayers

will be allowed to calculate

corporate income tax and follow

the applicable accounting

criteria before the enactment

of Law 11,638.

The transitional tax regime

was optional for the 2008 and

2009 calendar-years but has

been mandatory since 2010

and is in force until a new law

is enacted setting forth the

tax effects (if any) stemming

from the new methods and

accounting criteria. In addition,

the option of the RTT for the

Corporate Income Tax (IRPJ)

shall imply the adoption of

the tax regime also for social

contributions purposes

(CSLL, PIS and COFINS).

Accounting PracticesAdopted in Brazil

The Accounting Practices

Adopted in Brazil (BR GAAP)

are based on the Corporate

Law, which was updated in

2008 with L aw 11.638/07.

This Law has approximated

the BR GAAP to International

Financial Reporting Standards

(IFRS), although there still are

many remaining differences.

Although the starting point for

the BR GAAP is the Corporate

Law, there were inconsistencies

in the accounting treatment

between different companies

in Brazil due to the lack of

guidance in the Law, which

is ve ry superficial on accounting

issues. The Brazilian Stock

Exchange Securities (CVM)

and oth er regulators, including

the Brazilian Federal Council

of Accountants (CFC), used

to issue accounting guidance

to the entities regulated by

them. After a round of

negotiations, from 2008 this

problem tends to disappear

in view of the creation of theBrazilian National Standard

Setter (CPC Comit de

Pronunciamentos Contbeis),

which, from now on, will be

responsible for issuing the new

Brazilian accounting standards,

which will be subject to the

endorsement from the different

regulators. Once the regulators

are part of the CPC, it is

supposed that most of the

standards, if not all,

will be approved by them as

soon as they are issued in final

form. Prior to 2010, standalone

Financial Statements could be

prepared in accordance with

BR GA AP. However, the CV M,

the Brazilian Central Bank

(BCB) and Insurance Regulator

(SUSEP) have issued regulations

determining that entities must

prepare consolidated financial

statements in accordance

with IFRS from 2010.

The format of the financial

statements in Brazil is similar

to IFRS. Disclosure in BR GA AP

is very limited if compared

with disclosure requirements

prescribed by IFRS.

The TransitionalTax Regime (RTT)

As mentioned above, Law

11,638/ 07 introduced new

accounting principles in Brazil.

In order to guarantee the tax

neutrality of such changes, the

Brazilian government issued

Law 11,491 on 27 May 2009.

The focus of this measure wasto guarantee that no adverse

tax consequences should be

triggered from the adoption

of the new accounting criteria

in connection with the

recognition of revenues, costs

and expenses computed on

the assessment of net profits.

To achieve this result, Brazilian

taxpayers will have the option

to elect for a Transitional Tax

Regime (Regime Tributrio de

Audit and accountancy

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13th Salary The employer must pay annually

to the employee, the 13th

salary, which is a Christmas

bonus due to employees,

regardless of their remuneration.

It corresponds to an additional

one month salary and includes

annual or semi-annual bonuses

and fringe benefits.

The payment occurs, most

commonly, in two instalments,

50% in November and 50%

in December. An anticipation

of the first instalment may be

requested when the employee

leaves for vacation.

Social Security Contribution

Companies are subject to

the following social charges,

due on the employees

monthly remuneration:

Social Security contributions,equal to 20% (with no ceiling),

plus:

Corporate charges:

SESI, SESC, SEST 1.5% SENAI, SENAC or SENAT 1.0% INCRA 0.2% SEBRAE 0.6% Education Salary 2.5% Work accident insurance

(from 1% to 3%) 3.0% Total (maximum rate) 8.8%

The corporate charges listed above

vary according to the nature of

the companys activities.

In addition to the companys

contribution (20%), employees

are required to pay a monthly

social security contribution

that varies from 8% to 11%

of their monthly compensation,

with a current set ceiling of

R$405.80 (approximately

US$202.50 ) per month (this

ceiling is altered from time

to time).

Working conditions/hours workedThe Brazilian Federal

Constitution determines that

regular working hours should

not exceed 8 hours per day and

44 hours per week. Specifically

for financial institutions, working

hours should not exceed

6 hours per day. A series

of constitutional and legal

provisions establish a shorter

working week for a variety of

professional categories such as

bank clerks, telephone operators

and so forth, who are subject

to different working weeks

pursuant to specific regulations.

Time worked in excess of the

above is treated as overtime.In general, compensation for

overtime work is paid at least

50% above the compensation

paid for normal working hours.

Employment and labourrelations in Brazil are primarily

governed by the Brazilian Federal

Constitution, the Brazilian Labour

Code CLT and Collective

Labour Agreements. The CLT

imposes on the employer

a series of obligations that

protect employees, reflecting

the paternalistic philosophy

of the Brazilian Legal System.

Main Employees Rights

Remuneration According to the Brazilian

Labour Laws, an employment

contract (written or verbal)

must state the remuneration

of the employee. The

remuneration of an employee

includes, besides base salary,

fringe benefits and bonuses,

amongst others.

Government SeveranceIndemnity Fund forEmployees (FGTS)

For individuals considered as

employees, the company must

make a monthly deposit to

the Government SeveranceIndemnity Fund for Employees

(FGTS), at an amount equal

to 8% of an employees

remuneration. In case of a

dismissal without just cause,

incited by the company, an

employee may withdraw this

fund with an additional penalty

(to be paid by the employer)

equivalent to 40% of the

accumulated FGTS balance.

The company must contribute

an additional 10% fine to the

social fund.

Human Resourcesand Employment LawLabour Relations

Immigration law states that

a foreign individual may only

enter the country, to be

engaged in gainful activity,

under certain types of visas

(permanent and temporary,

type V), which will vary

depending on the kind of

activity performed and the

period of physical presence

in the country.

Temporary visa

Business Trip (Temporary visa)The business visa permits a

foreign individual to enter Brazil

for a short term on specific

business assignments. The

business visa is recommended

to business owners or their

representatives that come

to Brazil exclusively in the

interests of their companies,

to offer or search for products,

to learn about the Brazilian

market or to close or draw

up agreements, for example.

Temporary visa V with a labour contractA foreign national who enters

the country holding a temporary

visa type V with a labour

contract, must have an

employment relationship

with a Brazilian company.

Temporary visa V withouta labour contract (technician)A foreign national entering

the country without a labour

contract and consequently,

without an employment

relationship with a Brazilian

company, must be under a

technology transfer and/or

technical assistance contract.

Permanent visaA permanent visa is granted

to foreign individuals who intend

to settle in Brazil and that

satisfy specific requirements

established by the National

Immigration Council and/or

the Labour Ministry.

Wages and salariesAll work of equal value must

be remunerated at the same

rate, irrespective of the

nationality, age, sex, or marital

status of the employee.

A minimum wage is established

by law and is currently set

at approximately US$311 per

month (R$622). It should be

noted that the minimum wage

serves mainly as a base index

for adjusting wages and

certai n prices. In practice,

it is paid only to some rura l,

unskilled and migrant workers.

Foreign personnelLegal entities with 3 or

more employees, are obliged

to maintain a proportionality

of 2/3 of Brazilian employees

to 1/3 of foreign employees.

The proportionality must also

be observed in relation to

total employee remuneration.

Lower proportionality may

be granted by the relevant

authorities in specific

circumstances (e.g. lack

of Brazilian workforce in aspecific sector). For

proportionality purposes,

foreigners residing in Brazil

for more than ten years who

are spouse or parent to a

Brazilian national, and those

of Portuguese nationality,

are considered as Brazilians.

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Import Tax (II)

Import tax is levied on the

CIF price. The rate depends

on the degree of necessity

and is defined by the products

tax code according to the

Harmonised System. Taxes

on the importation are levied on

top of one another, as follows:

i.Import tax is applied to the CIF

price (FOB price plus insurance

and freight).

ii. IPI is levied on the total of (i)

above (CIF price plus import tax).

iii. PIS and COFINS are applied

to the total of (ii) above (CIF

price, import tax, and IPI) plus

ICMS due on imports and the

contributions are included in

their own basis.

iv. ICMS is applied to the total of

(ii) above (CIF price, import tax,

IPI) plus PIS, COFINS and ICMS

is included in its own basis.

Import tax (II) is a cost to

the company (not recoverable).ICMS, IPI, PIS and COFINS

paid on imports are generally

creditable.

Tax Treaty

Currently, Brazil has double

tax treaties with the following

jurisdictions: South Africa,

Argentine, Austria, Belgium,

Canada, Chile, China, Korea,

Denmark, Ecuador, Spain,

Philippines, Finland, France,

Netherlands, Hungary, India,

Israel, Italy, Japan, Luxembourg,

Mexico, Norway, Peru, Portugal,

Czech Republic, Slovakia,

Sweden and Ukraine.

Trade

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All banking business is closelymonitored by banks themselves

and by the Central Bank of

Brazil (Banco Central do Brasil).

Banking rules are strictly

enforced.

In addition to the extensive

branch network of the major

retail banks, many of which

have self-service ATM halls,

most services available at the

bank itself are also available

via internet banking.

Types of bank accounts :

Brazilian banks offer current

accounts, savings and

investment accounts, credit

and debit card services,

personal loans and overdrafts,

and in some cases, foreign

exchange services. Following

are the details of each one:

Current accounts(conta- corrente). Usually

entitle the account holder to a

chequebook and/or debit card.

These accounts are normally

non-interest-bearing.

Savings accounts(conta poupana). Pay monthly

interest on average daily

balances for the month. This rate

is currently 0.5% over the basic

reference rate, (Taxa Referencial

TR). Interest earn ed on these

accounts is tax-free.

Due to a new local regulation,

deposits made on May 4th

2012 and onwards, have new

interest basis. Whenever

the Brazilians benchmark

interest rate (SELIC Special

Settlement and Custody

System) is equal or under 8.5%

per year, the interest paid to

customer is 70% over SELIC,

plus the reference rate (TR)

variation.

Currently, many banks

combine these two accounts

into an investment account

(conta investimento). Deposits

are automatically routed to the

savings account, and transferred

to the current account to cover

checks, debit card payments

and cash withdrawals. These

accounts are also used for

investments in funds, with all

investments and redemptions

transiting through the account.

Salary payment account(conta salrio). A simple type

of checking account which was

launched by Brazilian Central

Bank in 2006 (Res. 3402/06)

with the following objectives:

i.Allow low income customers

to withdraw their salaries

through Branches or ATM'swithout the need to keep a

normal fee chargeable

checking account in the Pay

roll processor Bank chosen

by its Employer Company;

ii. Allow individual customers

to readily transfer their salaries

to a checking account held in a

Bank which is not the same as

the Pay Roll processor chosen

by its Employer company. The

idea is to stimulate competition

among Banks for better quality

services and lower fees.

Personal loan(emprstimo pessoal). It is

repayable in up to 24 or 36

instalments, depending on the

bank. Competition is strong and

rates vary from bank to bank.

Overdraft (cheque especial). It is normally

done by arrangement and

subject to the proper credit

analysis by the bank. Usually,on opening an account, the

bank may make such a credit

line available. Interest rates

on such facilities are very high.

Setting up a bank account (individual account)

The following documents

are required to open a retail

bank account, such as:

A v alid identity document.

In the case of a foreigner

resident in Brazil, this will

mean their foreigners identity

card (Cdula de Identidade

para Estrangeiro CIE)

which contains the foreign

register (Registro National

De Estrangeiro RNE).

Individual Taxpayers number

(Cadastro de Pessoa Fsica

CPF).

Proof of residency, such as a

utility bill in the name of the

person opening the account.

To obtain the CPF, it is

necessary to fill out the

application form at any Post

Office, branch of Banco do

Brasil or branch of the CaixaEconmica Federal and

present the documentation

required (usually the original

or a certified copy of the RNE).

The applicant will receive

a counterfoil with a code

number and there is a small

fee. Thereafter, the applicant

will be notified to appear at

a unit of the Federal Revenue

Service and present their

documents and the

counterfoil in order to obtain

their definitive CPF.

Banking in Brazil

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HSBC Bank Brazil represents

one of the main financial groups

worldwide in our country.

Based on four pillars Stability,

Proximity, Relationships and

Know-how, the institution

follows Principles and Values

that ensure an ethical, fair and

responsible standard when

doing business, always focusing

on the client.

Services offered by HSBC

Bank Brazil include Retail,

Commercial Banking,

Corporate, and Private Banking.

Head Office

HSBC Bank Brazil has its

headquarters in Curitiba (PR).

An International Brand

In March 1997, HSBC

Bamerindus S.A. was born,

which in 1999 became HSBC

Bank Internacional Brasil

S.A. Banco Multipo. The

HSBC logo and hexagon

are used in order to adhere

to the worldwide brand.

Network in Brazil

HSBC Bank Brazil is now

present in 56 4 Brazilian cities,

with 867 agencies, 390

bank service offices, 1,059

electronic service stations

and 5,284 ATMs. The clients

also have over 39 thousand

ATMs in the network shared

with other banks in Brazil and

24hr Bank.

Clients

Over 5.2m individual clients

and 368,932 legal

entity clients.

National Ranking

4th largest non-s

Country Guide Br March 2013

Documents

Transcript of Country Guide Br March 2013