succeeding in the thriving brazilian market: a legal & regulatory perspective tel aviv march,...
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Succeeding in the Thriving Brazilian Market:
A Legal & Regulatory Perspective
Tel AvivMarch, 2011
Benny SpiewakKLA- Koury Lopes Advogados
São Paulo, Brasil
INFORMATION (2010) BRAZIL ISRAEL
Land 8,459,417 sq km (5th) 20,770 sq km (153rd)
Water 55,460 sq km 440 sq km
Borders Argentina, Bolivia, Colombia, French Guiana, Guyana, Paraguay, Peru, Suriname, Uruguay, Venezuela. All but Chile and Equador
Egypt, Gaza Strip, Jordan, Lebanon, Syria, West Bank
Natural Resources Bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, rare earth elements, uranium, petroleum, hydropower, timber
Timber, potash, copper ore, natural gas, phosphate rock, magnesium bromide, clays, sand
Population 203,429,773 million people - 15-64 years: 67% 7,473,052 - 15-64 years: 62.2%
Economy $2.194 trillion – 7th largest economy $217.1 billion – 51st largest economy
Revenue/capita $10,900 $29,500
Workforce/revenue Services: 67.5% Services: 82%
Exports Textiles, shoes, oil, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, other machinery and equipment
High-technology products (aviation, communications, computer-aided manufactures, medical electronics, fiber optics)
Trade Partners: Imports China 23%/25%, US 21%/22%, Mercosur Countries and West Europe
US 12.35%, China 7.43%, Germany 7.1%, Switzerland 6.94%, Belgium 5.42%, Italy 4.49%, UK 4.03%, Netherlands 3.98%
Trade Partners: Exports China 13% (Asian Continent – 30%), US 11.3 & Israel 0.1/1%
US 35.05%, Hong Kong 6.02%, Belgium 4.95%, Brazil 1/2%
WHY BRAZIL?• Vigorous Growth Before the Crisis• Solid Economic Foundation• Macroeconomic fundamentals of inflation targeting, fiscal responsibility, exchange rate
flexibility and adequate prudential policy and solid bank supervision• Capacity to absorb internal and external shocks; macroeconomic and financial stability;
sustainable growth; and capital market development• From 2003-2009 35.7 million people entered the middle class and 20.5 million crossed the
poverty line upwards • From 2010-2014 (forecast) 36 million more will enter the middle class and 14.5 million
more will come out of poverty• Quality of Public Expenditures• Investment Grade• Infra-Structure Overhaul• Review and Simplification of the Tax System• Legal Environment more favorable to Business• Incentive to Long Term Investment
WHY NOW?• The Economist: “hot market for private-equity firms and hedge-fund managers - 2011• JP Morgan: “Most attractive emerging market right now”• Decline in interest rates - Selic rate stands at 11.25% (compared to the 26.5% in 2003)• OECD countries GDP declined by 2.7% 2008/2009. Brazilian GDP grew by 4.9% and 7.5% in
2010• Consumer spending is vibrant• World’s second-largest market for cosmetics and third-largest for mobile phones• 2014 FIFA World Cup & 2016 Olympics: At least US$50 billion in infrastructure investments• Health Care Market – US$127bi: US$62.2bi/2009 in Public Investment – SUS• Ag Business: Exported US$61bi /2010 and Imported 53US$bi• Overhaul of the Brazilian Innovation Park and Start-Up model• Booming natural resources deals – Mining, Oil, Wind and other green tech• Mercosur deal with Israel – Open Doors to Latin America and Brazil• Good image of Israel as a technology-oriented country
WHERE?
• Capital Market: Real Estate, Tech Companies• Venture Capital: Start-Up Nation should add to the Waken-
Up Nation”• Knowledge-based Economy: Creative & Innovative
Industries• Infrastructure-related Economy: ICT & Security• Sports-related technology: Internet, Broad/web Casting
Tech• Life Sciences: APIs, Medical Devices, Drugs, Know How• Green Tech: Water and Field-Enhancement Tech, Seeds
REALLY?• Stability of the foreign investment legislation - Country’s desire to attract overseas
investors• Remittances of funds in and out of Brazil flow through one single exchange market• Restrictions on Foreign Ownership of Companies: Property of Rural Land; Press and
Broadcasting; and Banking and Insurance• Brazil, to a much greater extent than in the U.S., regulates the details of labor-
management • Concept of collective bargaining is also very strong in Brazil• Permanent visas are usually granted to foreigners transferred to Brazil from foreign
companies to work in their subsidiaries or affiliates as managers• Taxation in Brazil comprises numerous Federal, State and Municipal taxes, such as
Corporate Income Tax, Social Contribution on Profits, Import Duty, Export tax, ICMS (vat)
• Profits paid to a foreign investor are not subject to any withholding tax and foreign capital invested in Brazil may be repatriated at any time, without minimum period of investment
HOW?Limitada ( similar to a U.S. LLC)• At least two partners; all with limited liability; at least one manager (Brazilian resident)• Relevant decisions generally taken by a 75% vote• Dividends may be distributed to partners regardless of equity holding• Simpler corporate structure, reduced maintenance costs and less legal formalities
Sociedade Anônima ( similar to a U.S. corporation)• At least two managers (Brazilian residents) and may also have a Board of Directors• Relevant decisions generally taken by majority vote• Generally preferable for a larger number or different groups of investors• Dividends may only be distributed to partners in proportion to equity holding• More legal formalities (such as publication of balance sheets and corporate documents)
Direct Acquisition of existing Brazilian companyOrganization of Brazilian holding company to receive direct investmentJoint Ventures: usually a limitada or a sociedade anônima regulated by jv and other agreements
HOW (2)?• July 10, Brazil has enacted MP495, i.e., new legislation creating "buy national" preferences• Government investments foreseen for FIFA 2014 World Cup and the 2016 Olympics• MP 495 provides that any advantage to Brazilian will be extended to the Mercosur treaty,
since Brazil is not a signatory to WTO's GPA• Bidding procedure: “ensures compliance with the principle of equality, selects the most
advantageous for the Administration and to advance the national development”• Preference in case of a tie: (i) made in Brazil, (ii) made or provided by Brazilian companies, or
(iii) made or provided by companies that invest in R&D in Brazil• Margin of preference for nationals that comply with Brazilian technical standards• Brazilian firms could be offering their services max 25% more expensively than Intl bidders• Exports to Brazil do not require the exporter to charge VAT. Brazilian pay ICMS (State-levied
VAT)• Investment: Carry out or obtain, in favor of the government or (…), measures of trade,
industrial or technological offset or access to advantageous conditions of financing• Certain biddings in which the competition “may be restricted to goods and services using
technology developed in Brazil and produced according to the basic productive process• JVs will be allowed, but limits are still to be measured
CHECK LIST• Technology? How’s your IP?• Going alone? Think again…• Going “business as usual”? Think again, once again…• Do you know it all? Well, maybe not…• Plan ahead. Remember: new permits, registrations and business certifications
require time• Technology 2? Check for Brazilian Industrial Standards or ISO-related: The plugs
case• Investing only? Keep in mind the Central Bank regulation and the flux: The
software case• General Culture: Keep in mind the changes and allow some room to adapt• Corporate Culture: The Onion approach: be patient!• Keep your connections alive and have your preferred local team close at heart!• Brazil is (more than ever) a changing country: Rapid amendments!
• GOOD LUCK!
