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Transcript of Brazil legal guide
LEGAL GUIDE FORDOING BUSINESSIN BRAZILM a y 2 0 1 1
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Villela e Kraemer Advogados is a prominent boutique law firm
founded in 1986 by Gustavo Alberto Villela Filho and Tania Mara de
Morais Kraemer. The firm currently has eleven lawyers based in its
Rio de Janeiro and São Paulo offices.
Villela e Kraemer Advogados is recognized for its impressive track
record in civil and securities litigation cases, which it could only
achieve by maintaining a small close-knit group of lawyers. We take
pride in dedicated quality control of our work product, ensuring
delivery of premium service to all of our clients.
Providing business-oriented legal services, the firm is also strongly
positioned in real estate, wills and estates, securities, banking and
other litigation areas, such as torts, asset recovery, collection on
secured transactions and foreclosures.
We have recently widened our legal practice to include corporate
law, mergers and acquisitions, securities, insurance and investment
legal strategy, asset protection and succession planning.
Our client portfolio includes multinational corporations, medium
sized and small companies, asset management firms, investment
advisers, stock brokers and individuals.
Happy reading and welcome to Brazil!
LEGAL GUIDE FORDOING BUSINESSIN BRAZILM a y 2 0 1 1
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TABLE OF CONTENTS
TABLE OF CONTENTS
4 Table of Contents
1 Corporate ..............................................................................9 1.1. Limited liability company - Limitada (Ltda.) ..................9 1.2. Corporation - Sociedade Anônima (S.A.) .......................9
2 Licenses And Registrations................................................ 13 2.1. Business permit (Alvará) ............................................. 13 2.2. Taxpayer registrations ................................................ 13 2.2.1 Federal taxpayer registration (CNPJ) ....................... 13 2.2.2. State taxpayer registration ...................................... 13 2.2.3. Municipal taxpayer registration .............................. 13 2.3. Foreign investment registration ................................. 13 2.4. Customs registrations and licenses ............................ 13 2.5. Environmental licensing for activities with ................ 14 environmental impact ................................................ 14 2.5.1. Precedent license...................................................... 14 2.5.2. Installation license .................................................... 14 2.5.3. Operating license ..................................................... 14
3 Employment ....................................................................... 17 3.1. Overview of basic labor rights .................................... 17 3.2. Foreign personnel ....................................................... 18 3.3. Severance Indemnity Fund for Employees (FGTS) .... 18 3.4. Labor charges and social security .............................. 18
4 Immigration ........................................................................ 21 4.1. Brazilian visas ............................................................... 21 4.1.1. Permanent visas ........................................................ 21 4.1.2. Temporary visas – Type V ......................................... 21 4.1.3. Business trip “Temporary Visa” – Type II ................ 22
5 Taxes ...................................................................................25 5.1. Federal taxes ................................................................25 5.1.1. Corporate turnover taxes .........................................25 5.1.1.1. IRPJ ..........................................................................25 5.1.1.2. CSLL .........................................................................25 5.1.1.3. PIS ...........................................................................25 5.1.1.4. COFINS ....................................................................26 5.1.2. CIDE ...........................................................................26 5.1.3. Financial transactions tax (IOF) ...............................26 5.1.4. Import tax (II) ...........................................................26 5.1.5. Excise tax (IPI) ..........................................................26 5.1.6. Export tax .................................................................26 5.1.7. PIS on imports ...........................................................26 5.1.8. COFINS on imports ................................................... 27 5.1.9. Withholding income tax (IRRF) .............................. 27 5.2. State value-added tax (ICMS) ..................................... 27 5.3. Municipal service tax (ISS).......................................... 27
6 Foreign Trade .....................................................................29 6.1. Import transactions .....................................................29 6.2 Export transactions .....................................................29 6.3 Customs tariffs and duties ...........................................30 6.4. Marking and barcodes ................................................30 6.5. Methods of quoting and payment .............................30
7 Antitrust Merger Control ..................................................32
8 Trademark Registration .....................................................33
5
1 Make sure to obtain a “business visa” for the first
business trips that you as nonresident make to Brazil.
This visa is valid for ninety days. For more information,
please refer to Section 4.1.3.
2 Choose the location where the Brazilian entity
will have its registered head office. Logistics and
taxation usually are the factors driving this election.
The company’s registered head office in Brazil must
be specified in the corporate charter. A lawyer or
accountant may lease or sublet a part of his office space
for the new company’s registered head office.
3 Appoint an attorney in fact. The easiest way to
have the incorporation charter executed is for each
foreign shareholder to grant a power of attorney to
an individual resident in Brazil to sign the corporate
articles and represent the foreign shareholder of
the Brazilian subsidiary. Incorporation is achieved by
filing the original execution copies of the Articles of
Organization (“contrato social”) if a limited liability quota
company, or the minutes of the shareholders meeting
of incorporation if a corporation, with the Commercial
Registry of the Brazilian State where the company will
have its headquarters. Such power of attorney should
contain specific authority to receive service of process on
behalf of the foreign shareholder. Otherwise, a power of
attorney specifically authorizing receipt of legal process
must be granted to another resident of Brazil. Powers
of attorney must be notarized and, except when the
grantor is domiciled in a jurisdiction having a valid treaty
with Brazil exempting consular legalization (e.g., France,
Uruguay and Argentina), it needs to be legalized at the
relevant Brazilian Consulate, then translated in Brazil by a
“sworn translator” and registered with a local Registry of
Titles and Deeds (often referred to as “RTD”).
This guide is only an overview of certain Brazilian laws and regulations. It does not constitute legal advice in respect of any particular situation and no action should be taken solely in reliance hereon.
Key steps for incorporating a legal entity in Brazil
4 The company’s capital and the time-frame for
its payment must be stated in the organizational
documents. A Brazilian corporation (sociedade anônima)
must have at least ten percent of its initial capital paid-
in upon incorporation if the corporation is closely-held,
or thirty percent in the case of a corporation whose
shares are publicly traded.
5 The company’s name must reference the main
business activity to be carried out by the company
followed by “Limitada” or its abbreviated form “Ltda.”
in the case of a limited liability quota company. For
corporations, the name must begin with “Companhia”
or its abbreviated form “Cia.”, or end with “Sociedade
Anônima” or its abbreviated form “S.A.”, which is most
common. To ensure that such name will be available,
it is advisable to check availability with the State’s
Commercial Registry website. If available, the name
will be reserved for 72 hours. For securing intellectual
property rights, the corresponding tradename should
be registered at INPI (please refer to Chapter 8) and
its domain name recorded with the “NIC.br” (Nucleus
of Information and Coordination) for ensuring rights
over the Brazi l ian internet’s domain name and
corresponding URL.
6 The management of the Brazilian company must
also be established from inception. For a limited
liability quota company ( l imitada), at least one
administrator needs to be appointed. A natural person
resident in Brazil, whether or not a quotaholder, may
be appointed as administrator. The appointment
may be effected in the Articles of Organization or by
means of a resolution of quotaholders in a meeting.
The Articles may include limitations on the authority
of the appointed administrator, for instance, requiring
formal written approval from quotaholders for the
execution of certain acts, such as those involving
the disbursement of company funds that exceed
a certain value threshold. Most banks in Brazil are
familiar with such internal approvals enshrined in the
corporate charter and enforce them strictly. In the
6
case of a corporation (sociedade anônima), unless it has
authorized capital or is registered as a publicly traded
corporation 1, the company may opt to have only a Board
of Officers, composed of at least two officers resident
in Brazil who shall be elected by the Board of Directors
in a board meeting or, if there is no Board of Directors,
by the shareholders in a shareholder meeting. If the
corporation has a Board of Directors, such board must
have at least three members, who are not required to
be resident in Brazil if a power of attorney has been
granted to a Brazilian resident to receive service of
process in the name of the Board member for a period
not shorter than three years after the expiration of her/
his office tenure. The rules for removal and office tenure
(which cannot exceed three years) must be established
in the corporate charter. Each administrator, officer and
director must sign an affidavit (often in the corporate
charter itself) declaring that she/he was not declared
bankrupt or guilty of certain infractions, and is not a
defendant in a case which prevents the performance of
corporate acts by force of law.
7 Once the corporate charter is registered with the
relevant State’s Commercial Registry (which takes two
weeks on average), the company must enroll with the federal
taxpayers registry of the Ministry of Finance, which results in
the issuance of a CNPJ number and card (which takes three
weeks on average). Such registration will enable the Brazilian
subsidiary to enter into contracts (e.g., lease agreement),
open bank accounts and hire employees in Brazil. Any foreign
shareholders/quotaholders must also appoint a Brazilian
resident to be accountable for her/his undischarged tax
obligations in Brazil.
8 After the registrations referenced in the preceding
paragraph are accomplished, the company officially
exists and an accountant must be hired to handle the
bookkeeping and make the filings and submissions of
all tax, labor and social security forms and documents
required under federal, state and local laws, which may
result in fines if not filed in a timely fashion.
9 To begin operations, the company will also need a
business permit (alvará) issued by the local authorities
and possibly other federal, state or municipal licenses
and registrations. Such application processes are
lengthy and may take months to be completed. Please
refer to Chapter 2 for more information.
1Corporations registered with the Brazilian Securities Commission (CVM) are referred to as being “publicly traded” because most
of them have their shares traded on the Brazilian stock exchange (Bovespa) or over the counter. It is possible, however, for
corporations in Brazil to seek registration without listing their securities, thus subjecting themselves to public reporting requirements.
Such registration is not triggered by the number of shareholders, so the distinction between “open capital” and “closed capital”
corporations in Brazil is based merely on CVM registration status and not shareholder number. Nor does Brazil offer pass-through
tax benefits for corporations with shareholders below a certain number, as in the case of a U.S. so-called “close” corporation. To
avoid confusion, we refer to S.A. corporations in this paper as being either publicly traded or non-publicly traded.
7
1 CORPORATE
CORPORATE
8 Corporate
1.2 Corporation - Sociedade Anônima (“S.A.”)
The Brazilian entity similar to a US stock corporation or European
joint stock company (sociedade anônima) is governed by Law
nº 6.404/76. The organizational charter of an S.A. (“Estatuto
Social”, hereinafter referred to as “Articles of Incorporation”) 2
contains most of the company’s information, such as the data
typically contained in the Articles of Incorporation and By-laws
of US corporations and European joint stock companies. Its
capital stock is represented by shares, which may be common
or preferred (the latter representing up to 50% of the total
share capital), may be divided into different classes, and do not
need to have a par value. Transfers of title to shares are usually
made by means of book entries in the share ledgers kept at
the headquarters or recorded through electronic custody by a
share issuing agent (bank). Although certificates reflecting the
shareholding may be issued, the share ledgers are the ultimate
proof of share ownership. When the scrip form is adopted,
share agents may issue account statements indicating the
shareholding position. No bearer shares or other types of bearer
securities are allowed in Brazil since 1992. Upon incorporation,
the shareholders must deposit at least ten percent of the
subscribed capital in a bank account, for a non-publicly traded
corporation, or thirty percent for a public corporation. Five
percent or more of the corporation’s annual profits must be set
aside in a legal reserve until such reserve accrues twenty percent
of the company’s capital.
In a sociedade anônima, the Articles of Incorporation must state
the company’s corporate information (i.e. corporate name,
issued capital, registered head office and branches, profit-
sharing rules, management bodies and the rules for election
or appointment of directors and officers, etc.). Corporate
resolutions are passed in shareholders meetings and reflected
The types of company more commonly used in Brazil are the
limited liability quota company (“sociedade limitada”), and the
corporation (“sociedade anônima”). Both corporate forms require
a minimum of two equity holders, that is, two quotaholders or
two shareholders.
2The corporate charter of an S.A., called the “Estatuto Social”, consolidates into such single document most of the corporate
information (i.e., name, address, purpose, capital, governance, etc.) typically found in the Articles of Incorporation and also
the Bylaws of U.S. corporations and European joint stock companies. The term Estatuto Social of the S.A. is often translated
into English as Bylaws in order to distinguish from the Articles of Organization (“Contrato Social”) of the Limitada. Only some
corporations in Brazil adopt a separate internal document to regulate governance matters, called the “Regimento Interno”, which
is not registered, and would be more appropriately translated into English as the corporation’s Bylaws. For consistency and ease
of reference, we refer to Estatuto Social in this paper as the Articles of Incorporation because such term best corresponds with
the nature of this S.A. charter document.
1.1 Limited liability company - Limitada (“Ltda.”)
The limited liability quota company is similar to a U.S. LLC. Its
equity capital is represented by quotas, usually with par value,
which are held by at least two quotaholders without any
residency or domicile requirement, meaning that any and all of
quotaholders may be either Brazilian resident or non-resident
individuals or entities. Each quotaholder has her/his/its liability
limited to the respective amount of the quotas of the company’s
capital effectively paid-in by each one but all quotaholders remain
jointly and severally liable for any unpaid portion of the capital.
Unless the company’s business activity is regulated, there is no
minimum capital requirement.
All of a company’s characteristics, such as the number of quotas
held by each quotaholder, the amount of the issued capital, the
company’s duration (usually indefinite) and the management
structure, powers and duties, must be stated in the company’s
Articles of Organization (Contrato Social) and all amendments
to such Articles require the approval of holders of quotas
representing at least seventy-five percent of the company’s
capital. Other corporate matters not requiring an amendment to
the Articles of Organization (e.g., appointment and removal of
managers, filing for reorganization) are subject to a lower voting
requirement percentage. Limitadas are regulated mainly by the
2002 Civil Code of Brazil and, where the Civil Code is silent, by the
Corporation Law (Law nº 6.404/76) if such secondary application
was provided for in the Articles.
9
in meeting minutes. Unless all shareholders attend the meeting
personally or are represented by a proxy holder, or otherwise
waive notice, the shareholders meeting must be convoked by an
invitation notice, published in a newspaper of broad circulation
at least three times on different days. The first notice must be
published at least eight or fifteen days before the meeting at first
call, depending on whether the company is non-publicly traded
or publicly traded. Notices of meetings at second call must be
published for the first time five or eight days before the meeting.
As a general rule, decisions in meetings are taken by approval
of the simple majority where usually each share gives the right
of one vote to their shareholders, but for corporate matters
relating to changes in the rights attributable to preferred shares
or the reduction of the mandatory dividends, the resolutions
will require approval by shareholders representing the simple
majority of the affected class of preferred shares in a meeting
convened for such purpose. If the shares are highly dispersed and
certain conditions are met, Brazil’s securities commission (CVM)
may authorize a reduced voting percentage for approval.
The quorum to hold a shareholders meeting at the first call is
two thirds if the resolution is to vote a change in the Articles of
Incorporation and one fourth for any other matters, and any
number in a second call if the first call did not have the required
quorum of attendees. Thirty days before the annual shareholders
meeting, the financial statements, the auditor’s opinion thereon,
and the management report to be approved must be published
in a newspaper for disclosure to shareholders or made available
at the company’s headquarters.
If the company has plans to issue debentures or other
securities or to have its shares listed on a stock exchange or
over the counter, or if the law so requires due to the company’s
activity (e.g., banking or insurance), it must incorporate as a
corporation. The shareholders’ names are only stated in the
share registry books. The corporation must have a minimum of
two officers. If there is a Board of Directors, it shall be elected
at the shareholders meeting. The officers (at least two) are
elected at a meeting of the Board of Directors or directly at
the shareholders meeting if there is no Board of Directors. The
officers and board members are not referenced in the Articles
of Incorporation. A Board of Directors is only required for
publicly traded corporations or those with authorized capital
Corporate
stated in the Articles of Incorporation and must have at least
three members. Up to one third of the members of the Board
of Directors may also serve as officers of the corporation.
The representation of the corporation is made by the officers
pursuant to the rules contained in the Articles of Incorporation,
always subject to the directives of the Board of Directors or
Shareholders Meeting, as the case may be, which may also
need to grant approval for the execution or implementation
of certain corporate actions by the officers. The core attributes
of the Board of Directors are listed in the Corporation Law. The
management structure and duties of all administrative bodies
shall be set forth in the Articles of Incorporation.
Publicly traded and non-publicly traded corporations with
assets exceeding R$ 240 million or whose gross revenues in
the past year exceeded R$ 300 million must have their financial
statements audited by an independent external auditor. Non-
publicly traded corporations with less than twenty shareholders
and net worth below R$ 1 million are exempt from publishing
notices of convocation of shareholders meetings and from
publishing financial statements, balance sheets, auditor’s
reports, management reports and other corporate documents
in newspapers before the shareholders’ annual meeting.
If a person does not wish to appear on the company’s records
as a shareholder but has agreed to share in the profits of the
entity, it may participate as a co-venturer in an unincorporated
joint venture with the incorporated partner. The relationship
(e.g., funding requirements, return on investments and liability
of the parties) is ruled by contract in a silent partnership called
“Sociedade em Conta de Participação”, as regulated by the 2002
Civil Code of Brazil. A consortium may also be formed according
to rules of the Civil Code to set up a “de facto company” pursuant
to a joint venture arrangement.
2LICENSES AND REGISTRATIONS
LICENSES AN
11 Licenses and Registrations
The following are the most important registrations and licenses,
but other filings, enrollments and registrations may also be
required. The company’s location and activity are important to
determine all administrative requirements for the business and
some of them are conditions precedent for others. As such,
registration with the local Fire Department will normally be
applicable for merchants and manufacturers.
2.1 Business permit (“Alvará”)
The “alvará” is a document issued by the relevant municipality
for each company operating in Brazil in order to ensure that
the company meets all legal requirements for its activities. The
application process is usually straightforward and the Alvará is
represented by a small poster that must be displayed in a visible
location on the reception wall of the company’s headquarters
in order to facilitate inspections by municipal officials.
2.2 Taxpayer registrations
2.2.1 Federal taxpayer registration (“CNPJ”)
All Brazilian companies must obtain a “CNPJ” federal taxpayer’s
registration by electronically submitting the application forms
available on the Brazilian Federal Revenue Service’s website and
presenting the required documents, such as proof of its existence,
to the competent office of the Brazilian Federal Revenue Service.
Foreign companies holding assets and rights subject to ownership
recordation in Brazil (including shareholding of Brazilian
companies) must also obtain a CNPJ number.
2.2.2 State taxpayer registration
If the Brazilian company is an “ICMS” (value-added tax)
taxpayer, it must obtain a state taxpayer’s registration from
the competent Brazilian State where it has its registered head
office. Manufacturers, merchants (wholesalers and retailers) of
goods and commodities, transportation companies and trading
companies, for instance, are required to hold a state taxpayer’s
registration. Each state’s treasury department regulates its
application procedures.
2.2.3 Municipal taxpayer registration
If the Brazilian company provides any service set out in the
list attached as an exhibit to Complementary Law nº 116/03,
it is an ISS (service tax) taxpayer and must obtain a municipal
taxpayer’s registration with the competent local authorities
where it has an office and where the services are rendered. The
treasury department of the relevant municipality regulates the
application process.
2.3 Foreign investment registration
Within thirty days after a foreign exchange transaction to
buy Brazilian currency for the purpose of making a capital
contribution to a Brazilian subsidiary is made, the investor must
effect an online declaratory registration widely referenced
as “RDE-IED” (which is an acronym for its original name in
Portuguese: “Registro Declaratório Eletrônico – Investimento
Externo Direto”) with the Central Bank of Brazil for monetary
and fiscal control purposes. As a condition for such registration,
both the foreign investor and the Brazilian recipient company
must be enrolled with the “CADEMP” roll of foreign or Brazilian
companies which is managed at the Central Bank’s electronic
system (“Sisbacen”). The RDE-IED online registration can be
made by a bank, foreign exchange dealer or by any person
authorized by the foreign investor or by the Brazilian company
having access to Sisbacen.
2.4 Customs registrations and licenses
Brazilian and foreign companies engaging in import or export
transactions in Brazil must obtain an electronic accreditation
with the Federal Revenue Service commonly referred to as
“RADAR”, which is the acronym in Portuguese for “Tracking
of Customs Agents’ Operations” (Rastreamento de Atuação
dos Intervenientes Aduaneiros). The main types of RADAR are
the “simplified” and the “ordinary”, which enable access to
the Integrated System of Foreign Trade (Sistema Integrado de
Comércio Exterior – “SISCOMEX”).
As the name indicates, the simplified RADAR requires much
less documentation than the ordinary. The simplified RADAR
accreditation takes approximately two months if all documents
are in good order although, according to the applicable
regulations, the review of an application for a “simplified”
RADAR must be made within ten days. Such RADAR is limited,
however, to export transactions not exceeding US$ 300,000
(FOB value) per semester, or import transactions of up to US$
150,000 (CIF value) per semester.
12
An “ordinary” RADAR may be required for higher trade
volumes, which are usually made through international trading
companies. Its application requires more documents and is
processed by a more complex and thorough review of the
Federal Revenue Service, which has thirty days to process and
grant or deny applications.
2.5 Environmental licensing for activities with environmental
impact
Each environmental agency of the relevant Brazilian state is
in charge of regulating, reviewing and issuing permits for the
installation, expansion and operation of activities and facilities
that could potentially have an adverse impact on the natural
environmental of the relevant state. The general guidelines and
main requirements for such licensing are found in Law nº 6.938
of August 31, 1981 which delegated to the National Council of
Natural Environment (“CONAMA”) responsibility for studying
the official environmental policies, and CONAMA’s Resolution
nº 237 of December 19, 1997, but each state has a certain degree
of discretion to regulate its specific proceedings in this regard.
Each license has different time-frames for review and
adjudication, which may not exceed six months for the less
complex licenses and twelve months for those applications
requiring an environment impact survey or technical analysis.
Some Brazilian states adopt other intermediary licensing
procedures, but the following are the core licenses required for
manufacturers and other potential polluters to build a plant or
start an activity:
2.5.1 Precedent license
This license approves the environmental feasibility of the business
activity to be carried out and must be sought during the planning
phase of the installation, change or expansion of the activity.
It does not approve construction work. The validity period of
the precedent license cannot be shorter than the milestones
established for the planning, projection and blueprinting of each
phase of the project, up to a maximum of five years.
2.5.2 Installation license
The installation license approves the project itself and
authorizes the commencement of the building/construction
of plants and installation of machinery on the land. The
“installation license” can only be issued after the conditions set
forth under the precedent license are met. The validity period
of the installation license cannot be shorter than the timeline
established for the installation of the plant or activity, up to a
maximum of six years.
2.5.3 Operating license
The operating license approves the commencement of the
activities or industrial operations in the facilities and can
only be issued after fulfillment of the installation license’s
conditions. The validity period must take into consideration the
relevant environmental controls and contingency plans but, in
any event, it ranges between four and ten years. In case the
venture is predicted to last longer than the period of validity
of the operating license, a renewal must be applied for at least
one hundred and twenty days before expiration.
Licenses and Registrations
13
3EMPLOYMENT
EMPLOYMENT
14 Employment
3.1 Overview of basic labor rights
The longstanding and employee-favorable Brazilian labor
legislation regulates most aspects of labor-management and
employment contractual issues. Trade unions and employee
labor unions have an important role in the negotiation of
collective bargaining agreements for different categories
of employees based on the relevant industry sector.
Most of the fundamental employment rights, which may
not be changed even with the employee’s written consent,
are restated in the Consolidation of Labor Laws (“CLT”), a
compendium of labor laws. The more important rules are
as follows:
(i) Working schedule: The maximum duration of the work
week in Brazil is forty-four hours, unless provided otherwise
in the collective bargaining agreement entered into with
the relevant labor union. Certain professional categories,
such as bank clerks, telephone operators and call center
operators are subject to a different working schedule.
Management executives holding jobs considered to be
“trust positions” are not subject to a working schedule.
(ii) Vacation: After completion of a period of twelve months
of work, employees are entitled to thirty calendar days of
vacation (or less if the employee missed six or more days of
work in the year), receiving regular salary payments during
that period, plus one third of the monthly salary, which shall
be paid at least two days in advance. The employer has the
discretion of choosing the 30-day vacation period within
that twelve-month period. Employees may opt to exchange
one third of the vacation period for a corresponding
monetary allowance.
(iii) Wages: All work of equal nature and function must be
remunerated at the same rate, irrespective of nationality, age,
gender, marital status, place of work, or any other particularity.
A minimum wage is set by law annually by the Brazilian federal
government and each state’s government. The federal
minimum wage is currently R$ 545.00 per month and in some
cases serves as the basis for readjusting salaries.
(iv) Annual Bonus: Employees in Brazil are entitled to an
annual bonus named “13th salary”, usually paid in two
installments or in a lump sum at the end of the year, which
must be equivalent to one twelfth of the total salary and
certain selected benefits and bonuses received by the
employee throughout the referenced calendar year.
(v) Profit sharing program: Employees are entitled to
participate in the financial profits of her/his employer or
upon achieving certain benchmarks, as agreed to with a
committee of employees and/or with the relevant workers
union, in a specific program sponsored by the company
(“Participação nos lucros e resultados”, or just “PLR”).
Certain statutory standards must be observed for such a
program. PLR payments do not accrue in the calculation
basis of FGTS, social security levy and other mandatory
labor charges.
(vi) Overtime: Any actual or presumed work performed after
the employee’s work shift entitles the employee to receive
an hourly overtime pay of at least fifty percent above the
employee’s ordinary hourly wage. Employees in managerial
or similar positions considered as trust functions are not
entitled to overtime pay.
(vii) Maternity/paternity leave: Female employees in Brazil
who become mothers are entitled to a paid maternity leave
of one hundred and twenty days (payment being refundable
to the employer by INSS, the official social security entity),
and fathers to a “paternity leave” of five calendar days.
Employers who grant one hundred and eighty days of
maternity leave may enjoy a tax benefit for wages paid
during such paid leave.
(viii) Termination notice: In cases of dismissal without cause,
the dismissed employee must receive a prior written notice
of termination at least thirty calendar days in advance of
her/his last working day, during which period the employer
may require the employee to work or not. Employees
must also submit a thirty-day prior written notice upon
resignation.
(ix) Weekly holiday: All employees are entitled to a twenty-
four-hour uninterrupted rest period per week, preferably on
Sundays.
(x) Tenure: Pregnant women and members of unions or
15
safety teams (CIPA) have employment tenure and can only
be laid off under certain special circumstances.
3.2 Foreign personnel
If a company has more than two employees, at least two-
thirds of its employees must be Brazilian citizens. The
same ratio must be observed for the remuneration of
Brazilian and foreign nationals. In case a certain industry
sector lacks qualified workers of Brazilian nationality for
a specific job, Brazilian authorities may allow a lower ratio
of Brazilian nationals. That has been the case of welders
on Brazilian oil platforms, for example. For purposes of
such proportionality headcount, an expatriate married to
a Brazilian citizen or officially residing in Brazil for more
than ten years is considered to be a Brazilian citizen. Only
foreigners holding a Permanent Visa or a Temporary Visa
(Type V) may lawfully work in Brazil. For more information
on this topic, please refer to Chapter 4.
3.3 Severance Indemnity Fund for Employees (“FGTS”)
The employer must deduct and deposit every month in the
employee’s FGTS blocked interest-bearing account held at
the government-controlled bank Caixa Econômica Federal
(“CEF”) an amount equal to 8.5% of each employee’s
monthly compensation (including bonuses and most fringe
benefits). Upon dismissal without cause of the employee,
she/he may withdraw the balance accrued with a penalty
payable by the employer equal to forty percent of such
balance. The employer must also pay another ten percent
of the accrued balance to the Federal Government. Other
triggering events regulated by law (e.g., buying a first home)
also allow the employee to withdraw the cash balance from
her/his FGTS account.
3.4 Labor charges and social security
Except for those companies benefiting from a special
taxation program available to lower income companies,
employers are subject to certain labor charges and social
contributions levied on each employee’s monthly pay
check.
Employers must pay twenty percent of each employee’s •
salary to the National Institute for Social Security (“INSS”)
and deduct and remit to the INSS from the employee’s
salary her/his contributions of between 8% and 11% of the
employee’s salary, subject to a maximum of R$ 3,467.40.
The actual applicable rate depends on the employee’s
salary bracket, applying the variable scaled rate schedule
issued by the INSS.
Mandatory employer’s contributions to sponsor •
governmental official programs:
(*) The application and actual rate depends on the
company’s main business activity.
Employment
Beneficiary Institutions Or Fund Maximum Rate (*)SESI, SESC and SEST 1.5%
SENAI, SENAC or SENAT 1.0%INCRA 0.2%
SEBRAE 0.6%Education Salary 2.5%
Work accident insurance fund 3.0%Total (Maximum rate) 8.8%
16
4IMMIGRATION
IMMIGRATION
17 Immigration
4.1 Brazilian Visas
Brazil maintains a rigid immigration policy to protect
Brazilian workers. As a general rule, for temporary visas, the
Ministry of Foreign Affairs issues the visa to a foreigner after
the approval of the foreign citizen’s employment contract
by the Ministry of Labor.
4.1.1 Permanent visas
Pursuant to specific rules issued by the National Immigration
Council and by the Ministry of Labor, permanent visas are
usually granted to expatriates assigned to occupy a top
management position in the Brazilian subsidiary of a foreign
company, or to a foreign person intending to invest her/his
own capital in productive activities in Brazil.
Requirements: A minimum direct investment equivalent to
US$ 200,000 in the capital of the Brazilian subsidiary for each
foreign individual appointed to a management position, or an
investment equivalent to US$ 50,000 in a Brazilian company
coupled with the creation of ten new jobs within the
following two years for each appointed foreigner. The visa
will only be valid during the foreign citizen’s tenure in office
but expiring at latest within two or five years, depending on
the basis of the visa application (i.e., five years of validity
for visas supported by investments of US$ 200,000 or two
years for investments of US$ 50,000). Individual investors
who evidence investment of her/his own funds equal to
at least R$ 150,000 as a capital contribution to a Brazilian
company with a productive purpose (i.e., generate jobs,
transfer know-how, develop a region, etc.) may also obtain
a permanent visa for five years according to a business
plan to be reviewed by the Brazilian authorities processing
the application. If such productive investment generates
employment for at least ten Brazilian citizens, the permanent
visa may be granted without expiration date even if the
individual investor fails to prove such minimum investment
threshold. Foreign investments below the threshold of R$
150,000 may still qualify as the basis for a permanent visa
application to the extent that the investor is a citizen of a
South American country or that her/his investment has a
strong welfare objective, such as to support a Brazilian non-
governmental organization.
Foreigners married to Brazilian citizens or having Brazilian
children may also be eligible for a permanent visa.
4.1.2 Temporary visa V (VITEM V)
Among other cases not mentioned herein, temporary work
visas may be granted to foreigners under certain limited
circumstances, namely:
With a labor contract:• The foreigner must have an
employment contract with a Brazilian company to perform
professional activities, which must be approved by the
Ministry of Labor. It must be evidenced that the foreign
professional has a background compatible with the
function, such as nine years of education and two years
of work experience; a college degree plus one year of
professional experience; or, a graduate degree (Masters,
PhD etc.). Her/his compensation must be equal to that of
Brazilian nationals hired for the same function. The visa
is issued for a period of up to two years, renewable for
another two years. South Americans are exempt from
most of those eligibility requirements.
Without a labor contract (Technicians):• Foreigners
without an employment contract with a Brazilian
company who come to Brazil to perform scientific or
technical functions must have a technology transfer or
technical assistance contract or cooperation agreement
registered with “INPI”, the Brazilian patent and
trademark office, entered into between her/his employer
abroad and the Brazilian entity to which the services will
be provided. It must be evidenced that the expatriate’s
previous work experience includes at least three years
of carrying out the relevant activity. Such visa is granted
for a period not longer than one year but it is subject to
renewal.
Internship program:• The foreign employee of a
multinational company who comes to Brazil as a trainee
of the Brazilian subsidiary or branch entity and whose
salary is paid completely outside Brazil may also be
eligible for such a visa.
Crew members:• Foreigners who come to Brazil to work
on a vessel, ship, cruiser, fishing boat or offshore oil rig
18
in any river, lake or sea, either with or without a Brazilian
valid labor contract, may apply for a temporary visa.
The application process must be initiated in Brazil by the
contracting company by completing and filing the proper
application form. Once the National Immigration Council
approves the visa, the approval is published in the Official
Journal of Brazil. Once the visa is granted, the foreigner
has three months to enter the Brazilian territory and thirty
days thereafter to register with the Federal Police in the city
where she/he will live.
Individual income taxation in Brazil of immigrant aliens
A foreign individual holding a permanent visa or a temporary
visa tied to an employment contract is considered to be a
Brazilian taxpayer as of the date of her/his arrival in Brazil.
Temporary visa holders without an employment contract
are deemed to be Brazilian taxpayers as of the 184th day
spent in Brazil, whether consecutive or not, within any
given twelve-month period. As a Brazilian taxpayer, the
foreign immigrant becomes subject to the income tax rules
applicable to residents of Brazil and all of her/his worldwide
income is subject to taxation in Brazil. A tax credit may be
granted for income taxes paid in other countries if certain
conditions are met. Individual employment income in Brazil
is normally withheld at the source at rates varying from 0% to
27.5%, depending on the actual income bracket. The ultimate
tax burden is assessed upon filing the annual income tax
return by the end of April of each year for the fiscal year
ending on the preceding December 31. Any difference
between the amount determined on the tax return and the
values withheld at source throughout the year (e.g., payroll
compensation) must be paid by, or refunded to, the taxpayer.
Certain income, such as dividends or interest on equity, is
not considered taxable income and several deductions may
also apply.
4.1.3 Business trip “Temporary Visa” II (VITEM II)
The business visa permits a foreign individual to enter
Brazil for a short term (ninety days or less) on specific
business assignments. The business visa is recommended
to business owners or their representatives that come to
Immigration
Brazil exclusively for a business purpose, such as to attend a
meeting, conduct market surveys or negotiate agreements.
It is valid for up to five years from date of issuance and it is
valid for multiple trips.
19
5TAXES
TAXES
20
Brazil has a vast and complex tax system which
encompasses several federal, state and municipal taxes. The
Brazilian federal government taxes most types of income;
manufacturing activity, financial, credit and securities
transactions, and foreign trade (imports and exports). It
imposes taxes and contributions on certain taxable events
and revenues generated by specific economic activities. Each
Brazilian state taxes the sales and transportation of goods
and services, telecommunication, motor vehicle ownership,
transfer of title over assets by gifts and inheritance. Each
Brazilian municipality taxes service fees, transfers of title and
interests over real properties and real estate ownership.
We comment below only on the most important taxes
applicable to corporate activities and business transactions.
5.1 Federal Taxes
5.1.1 Corporate income taxes
Certain qualified Brazilian companies whose gross annual
income in the preceding fiscal year did not exceed R$
48,000,000 or, in case of new companies, R$ 4,000,000
times the number of months that it carried out operational
activities during the preceding fiscal year3 may choose
between two tax computation methods, namely the
“estimated or presumed profit” (lucro presumido) or the
“actual profit” or “taxable income” taxation method (lucro
real) on annual or quarterly taxable income. Taxable income
is equal to the excess of gross turnover over the sum of costs
of goods sold, administrative and operational expenses and
other reserves and accruals permitted by law. Net operating
losses generated in a given period can offset taxable income
of the subsequent period up to 30% of taxable income and
be carried forward.
Small and mid-size companies with an annual gross income
not exceeding R$ 2.4 million may elect to be taxed under a
simplified regime at a lump sum rate that encompasses most
taxes that would otherwise be levied separately. Such rate
will depend on the company’s annual income and it is called
Simples.
Taxes
5.1.1.1 Corporate income tax (“IRPJ”)
The IRPJ corporate income tax is ascertained based on the
calendar year’s taxable income with monthly estimated tax
payments required, and is generally computed on the basis of
annual or quarterly taxable income at the taxpayer’s choice.
In the actual profit taxable method (lucro real), the IRPJ is
levied at 15% on adjusted net income plus a surtax of 10% on
annual taxable net income in excess of R$ 240,000. Under the
estimated profits computation method (lucro presumido), if
eligible and actually opted for, the company applies a rate
that varies from 1.6% to 32%, according to its activity sector
classification set forth in the applicable legislation (for most
service companies, it is 32%), on its gross quarterly income
to assess the taxable base (estimated profit margin). IRPJ
of 4.8%, plus a surtax of 8% on the amount of the taxable
base exceeding R$ 20,000.00, are imposed on the estimated
profit margin amount so calculated.
5.1.1.2 Social contribution on net income (“CSLL”)
Brazilian tax legislation provides for a social contribution
tax on profits, which also has the nature of corporate
income tax, being in practice another surcharge. Its taxable
base is similar to that of the IRPJ, with certain adjustments.
For companies taxed under the actual profit taxation
income method, the CSLL is levied at a flat 9% rate on net
income. However, under the estimated profits taxation for
companies which qualify for such method and actually opts
in, the company applies a rate that varies from 1.6% to 32%
according to its activity (for most service companies, the
applicable rate is 32%), on its gross income to assess the
taxable base. From the taxable base amount yielded, the
CSLL is levied at a 2.88% rate.
5.1.1.3 Contribution for the social integration program (“PIS”)
The PIS is a federal welfare contribution on most gross
revenues, generally levied at 1.65%. Higher rates are imposed
on companies in some industry sectors. A “credit system”
granted to the company on acquisition of inputs and certain
expenses ensures that it applies only once to the final value of
the transaction in a chain of transactions. Certain companies
3Please note that some entities such as banks are required to be taxed under the “actual profit” method.
21
may pay the PIS cumulatively (i.e. without recording PIS
credits) at a lower rate (0.65%). The PIS applies also to the
import of goods and to the payment of services to non-
residents. Export revenues are exempt.
5.1.1.4 Contribution for social security financing
(“COFINS”)
COFINS is also a federal welfare contribution on most gross
revenues, levied on a monthly basis generally at 7.6%. Higher
rates are imposed on companies in certain industry sectors.
A “credit system” granted to the company on acquisition of
inputs and certain expenses ensures that it applies only once
to the final value of the transaction in a chain of transactions.
Certain companies may also pay the COFINS cumulatively
(i.e. without recording credits on purchases) at a lower rate
of 3%. The COFINS applies also to the importation of goods
and to the payment of services to non-residents. Export
revenues are exempt.
5.1.2 Contribution for the intervention in the economic
domain (“CIDE”)
Brazilian companies paying royalties, fees or other amounts
pursuant to licensing or assignment of technology,
tradenames, patents and other rights, or service agreements
not involving transfer of technology, with foreign entities
are subject to a 10% CIDE, assessed on the value of payments
made to a foreign recipient.
5.1.3 Financial transactions tax (“IOF”)
IOF is a tax levied on monetary, currency, credit, insurance,
securities and gold-backed transactions whose rate varies
from 0% to 25%. Its taxable base and rates vary according
to the type of transaction and the federal government’s
monetary policy at the relevant time and it is often used
as a tool for making certain investments or flows of funds
more or less attractive. Funds remitted to Brazil for capital
markets investments may be taxed with IOF.
As a general rule, foreign currency exchange transactions
in connection with offshore payments of royalties, loans or
technical assistance/administrative services, for instance,
are subject to IOF. The current IOF rate for foreign
exchange transactions (payment in a currency other than
the Brazilian Real - R$) is 0.38%. The IOF is imposed at a
rate of 5.38% on foreign loans with an average maturity of
ninety days or less. Loans with longer average maturities
are subject to IOF at a 0.38% rate.
5.1.4 Import tax (“II”)
The II (import tax) is levied on the CIF price (“ad valorem”
basis) at a rate defined by the product’s tax code in
accordance with the tariff classification schedule of the
Mercosur’s Common Nomenclature (“NCM”) upon clearance
of imported products.
Unlike the ICMS, IPI, PIS and COFINS taxes, for which the
taxpayer may obtain a tax credit to be offset against sales of
products, the II (import tax) is not recoverable.
5.1.5 Excise tax (“IPI”)
The IPI is a federal value-added tax imposed on manufacturers
and assemblers at the time of sale of an output good
to another manufacturer for further industrialization or
improvement, or to a wholesaler or retailer, or similarly on
the importation of products. But IPI is a non-cumulative tax
because the subsequent manufacturer down the chain may
take a credit for the prior IPI paid. The IPI must be stated
conspicuously in the sales invoice and shall be levied as the
products leave the plant where they are manufactured.
The IPI tax rate is defined by the product’s tax code in the
NCM’s tariff schedule. The IPI applies also on the import of
manufactured goods upon importation and resale by the
importer.
5.1.6 Export tax
Only a few products are subject to the export tax: (i) raw
hides and skins of bovines, including buffalo, horses, sheep
and lambs; (ii) cigarettes containing tobacco exported to
the Caribbean, Central and South America countries; and
(iii) weapons and ammunition exported to Central American
and South American countries except for Argentina, Chile
and Ecuador. The export tax is calculated on the ad valorem
export price of exported goods.
Taxes
22
5.1.7 PIS on imports
The PIS on imports is a federal welfare contribution on the
import of goods and payment of services to non-residents,
generally levied at a 1.65% rate.
5.1.8 COFINS on imports
The COFINS on imports is a federal welfare contribution
on the import of goods and payment of services to non-
residents, generally levied at a 7.6% rate.
5.1.9 Withholding income tax (“IRRF”)
The current withholding income tax rates applicable to
offshore remittances to nonresidents are as follows:
(1) The royalty agreement must be registered with
the National Institute of Intellectual Property (“INPI”)
and the Central Bank of Brazil.
(2) The specified IRRF rates do not apply to payments
to jurisdictions with whom Brazil has a treaty to avoid
double taxation (South Africa, Argentina, Austria,
Belgium, Canada, Chile, China, Czech Republic, Denmark,
Ecuador, Finland, France, Hungary, India, Israel, Italy,
Japan, Korea, Luxembourg, Mexico, Netherlands,
Norway, Phil ippines, Portugal, Slovakia, Spain, Sweden
and Ukraine), in which cases the respective treaty
should be reviewed in order to assess the applicable
taxation.
(3) Payments to low tax jurisdictions, understood
as those which tax income at a rate of 20% or less,
l isted in Brazil’s Federal Revenue Service’s Normative
Instruction nº 1.037 of June 4, 2010, are subject to a
25% IRRF.
(4) Such remittances are also subject to CIDE at a
10% rate.
Taxes
Nature of payment Taxation rate
Dividends 0%(2)
Interest on loans 15%(2)(3)
Royalties(1) 15%(2)(3)(4)
Technical and administrative services
15%(2)(3)(4)
Other service payments 25%(2)(3)
5.2 State value-added tax (“ICMS”)
Each of the Brazil ian states collects a value-added tax
(ICMS) on the sale and/or on the supply or transportation
of goods and on certain services not otherwise subject
to the ISS tax, and also on import transactions. The ICMS
is levied on imported and domestic products when the
goods exit an establishment at each stage of business.
The ICMS is levied based on the price of products sold
and a tax credit is granted for all ICMS paid on the
purchase or importation of a product, similarly to the
IPI tax-credit system. As a non-cumulative tax, the
ICMS taxable basis is ascertained on the increased
value of the product’s price in each subsequent
phase of trade. The calculation process provides for
a check of credits and debits by the relevant taxpayer
on each sale phase to ascertain the actual ICMS due.
The specific rate will depend on the relevant taxable
event (sale or transportation) and the taxing state
but most states levy the ICMS at rates varying from
12% to 18%. Some products are subject to a higher or
lower rate. Intrastate transactions are usual ly subject
to lower rates. The rates may also vary depending on
the specif ic product, service or state in which the
transaction occurs, and for interstate transactions.
The ICMS is also imposed on interstate and inter-
municipal transportation and communication services.
Communication services are ICMS taxed usual ly at a
25% rate.
5.3 Municipal service tax (“ISS”)
The ISS is a municipal tax imposed on certain services
which are listed in the schedule attached as exhibit to
Complementary Law nº 116/2003. The applicable rates for
each taxable event or service are determined by each
municipality but may not exceed 5%. As a general rule,
the ISS is collected by the city where the service provider
has its registered head office but companies rendering
assembly, construction, seismic, demolition, energy
transmission, oil drilling and distribution services, inter
alia, are taxed under special rules that look at the place
of provision of the service.
23
6FOREIGN TRADE
FOREIGN TRADE
24 Foreign Trade
An extensive list of items is subject to non-automatic
licensing, such as imports subject to restrictions or
tax benefits; items similar to products which are also
manufactured in Brazil; after-market materials; imports
made under financial or operating lease transactions;
and imports made without “exchange cover” or foreign
exchange payment clearance (e.g., donation). These
are subject to prior examination and special control by
governmental agencies either prior to shipment abroad or
prior to customs clearance, depending on the case.
As a general rule, all imports are subject to II (import tax),
IPI, ICMS, PIS and COFINS (import duties), irrespective of
foreign exchange currency transactions. The II (import tax)
rate for machinery and equipment not produced locally
may be reduced to 2% upon request by the importer to the
competent authorities.
Used goods can only be imported if not manufactured in
Brazil and whose age is lower than the limits of its useful
life attested by a technical report prepared by an entity of
reputable knowledge.
6.2 Export transactions
Any company organized in Brazil and accredited with the
Federal Revenue Service’s RADAR (please refer to section
2.4) may carry out export operations upon registration as
an exporting company with SECEX. Industrial companies,
commercial exporting companies and trading companies are
among the types of companies eligible for registration with
SECEX. Registration of industrial companies and commercial
exporting companies is very simple, and no prior export
experience is required. Registration of a trading company is
complex, requiring the fulfillment of several conditions.
As a general rule, exportation of goods is free of taxes, subject
only to the necessary export registration with the SISCOMEX.
The exportation of certain products, however, is prohibited
(e.g., native animals, skins of native animals and works of
art older than one hundred years and antique books). The
SISCOMEX registration of exports is the mechanism through
which all exports are regulated so as to ensure acceptable sales
price, collection of export taxes and compliance with export
Foreign trade is under the direct control and jurisdiction
of the federal government. The agency responsible for
regulation, supervision and control of foreign trade
transactions in Brazil is the foreign trade secretariat
(Secretaria de Comércio Exterior - “SECEX”) subordinated to
the Ministry of Development, Industry and Foreign Trade of
Brazil which, together with the Central Bank of Brazil and the
Federal Revenue Service, holds a tight control over transfer
of funds in connection with foreign trade transactions to
prevent tax avoidance and money laundering practices
and to ensure compliance with applicable transfer pricing
rules.
Brazil is a member of the Latin American Integration
Association and of the World Trade Organization and
signatory of the Treaty of Asuncion that created Mercosur
with Argentina, Paraguay and Uruguay, and which more
recently added Venezuela as a new member, with the goal of
uniting the economies of the acceding countries by fostering
trade and foreign investments among its members. Bolivia,
Chile, Colombia, Peru and Ecuador are Mercosur’s associated
nations.
6.1 Import transactions
Import operations are carried out in Brazil by industrial
companies, commercial import/export companies and trading
companies accredited with the Federal Revenue Service’s
RADAR. Each foreign trade transaction requires an electronic
registration with SISCOMEX (refer to section 2.4), which is
jointly managed by SECEX, the Federal Revenue Service
and the Central Bank of Brazil, which are the authorities
responsible for monitoring and enforcing tax, customs and
foreign exchange laws and regulations regarding cross-border
transactions. The licensing for import transactions may be
either automatic (compulsory), with the registration of the
transaction with SISCOMEX being made upon the arrival of
the goods in Brazil, or non-automatic when the registration
of the transaction depends on an import licensing made
prior to the shipment of the goods from outside of Brazil.
Imports carried out under the “temporary admission regime”
(e.g., leases and products coming to Brazil to be displayed in
exhibitions or competitions) are not subject to any licensing.
25
programs.
Commissions to foreign agents are permitted and may
be deducted from the export invoices registered with
SISCOMEX. Nevertheless, except for very specific cases and
at SECEX’s discretion, the payment of commissions to legal
entities affiliated with the Brazilian exporter will not be
permitted.
6.3 Customs tariffs and duties
Tariffs, in general, are the primary instrument in Brazil
for regulating imports. Brazil and its Mercosur partners
implemented the Mercosur common external tariff schedule
(“TEC”). Products manufactured in or exported to Brazil are
classified under Mercosur NCM’s classification, which was
adapted to the IV Amendment to the Harmonized System
of Designation and Codification of Goods approved by the
Customs Cooperation Council known as “SH-2007”. Mercosur
members have also unilaterally adjusted their tariffs in
response to economic crises and, given these developments,
the TEC is currently full of exceptions. Automobiles, luxury
items and other goods are subject to higher rates.
As mentioned above, the import duties (II, IPI for
manufactured goods, PIS on imports, COFINS on imports
and the ICMS), apply to imported goods.
6.4 Marking and barcodes
The essential identifying marks, such as shipping marks, port
of destination and package number, when required, must be
prominently shown on shipping cases and situated so that
they will not be covered by any subsequent strapping. Any
other markings should be placed in a less prominent place
and should be limited to essential data. Identifying marks
used in the bill of lading should be shown on shipping cases.
A number may be used as an identification mark, provided
that it is placed within a geometric figure (e.g. triangle or
square).
6.5 Methods of quoting and payment
Quotations for foreign trade transactions in Brazil are usually
made on an FOB (free on board) or C&F (Cost and freight)
basis in US dollars. Payment maturity terms for exports and
imports are freely negotiable, averaging 360 days, whether
or not backed by an irrevocable letter of credit. The more
usual modalities of foreign trade transactions in Brazil are
the CAD (Cash against documents), ADD (Acceptance against
documents) and other modalities upheld by documentary
credit (UCP-600 – ICC 2007)
Foreign Trade
7ANTITRUST MERGER CONTROL ANTITRUST /MERGER CONTROL
ANTITRUST | MERGER CONTROL 26
Brazilian laws confer on governmental agencies overseeing
certain regulated business sectors, such as banking,
insurance and telecommunications, authority to pre-approve
transactions of change of control or amalgamation, mergers
and joint ventures which may be harmful to competition in
the relevant economic sector.
In addition to the required merger controls by such
industry regulatory agencies, any M&A transaction or joint
venture which may harm competition by creating a market
concentration in a specific segment in Brazil must be
submitted for prior approval by CADE (acronym in Portuguese
for “administrative council of economic defense”), even
if the triggering event occurs outside Brazil, within fifteen
days after execution of any binding agreement. Letters of
intent and conditional transactions may also trigger CADE’s
review.
According to CADE’s rules, any take-over, merger or
association among companies or economic groups which
yields a market-share of twenty percent or greater is subject
to CADE review. Additionally, if any of the transaction’s
participants had gross revenues in the financial year
preceding the deal of R$ 400 million or more in or from the
Brazilian territory, the transaction shall require a filing with
CADE. A participant’s gross revenues for such purposes are
calculated by aggregating all gross revenues of its economic
group worldwide, i.e. the participant and all of its affiliates.
Failure to submit the transaction to CADE may subject the
parties to penalties, fines and even to an order to unwind
the transaction.
As a result of CADE’s analysis and in order to protect the
Brazilian market from a market concentration or harmful
competition, CADE may impose a series of conditions on the
deal, such as the divestment of certain divisions or brands,
the restriction on operations in certain Brazilian states or
areas and the change of a tradename, among others. CADE
may even require the parties to unwind the deal.
TRADEMARK REGISTRATION 27
8TRADEMARKREGISTRATION TRADEMARK
REGISTRATION
The holder of foreign trademark rights may apply for the same
trademark in Brazil at the Brazilian Patent and Trademark
Office (“INPI”) under the rules of the Paris Convention which
secures preference for a period of six months from the date
of application in the country of origin. The applicant must
submit: (i) a certified copy of the trademark application or
certificate of registration; and (ii) declare that it is in good
standing in its country of origin and actually operates in such
field of business.
The INPI trademark registration in Brazil affords a protection
over the registered rights for ten years, which may be
renewed and extended, for successive ten-year periods,
indefinitely. If the trademark holder fails to use the same
for a period longer than five years, the registration becomes
subject to a forfeiture proceeding. Well-known trademarks
may be afforded special protection.
In addition to entitling exclusive use of the registered
trademark, registration with INPI allows for payments of
royalties offshore with tax deductibility. Any agreement
providing for licensing or transfer of trademark rights
must therefore be filed for registration with INPI and
subsequently with the Central Bank of Brazil to comply with
foreign exchange controls. Outbound remittance of royalty
payments may be supported by the filing for registration of
the trademark licensing agreement but tax deductibility may
require the actual registration by INPI.
Trademark registrations may be applied for and granted for
each class (nature) of business activity and business sector,
thus enabling the same tradename to be registered for
entrepreneurs in completely different industries if there is
no chance of confusion. The registration may be for a word
mark, for a word and an associated logo mark, which is
known as a ‘composite mark’, or for a device mark.
The examination process is very lengthy due to a lack of staff
and it may take several years for INPI to publish final approval
of registration in its official magazine. Any aggrieved party
may file an administrative opposition with INPI requesting
the rejection of an application for a tradename or mark
already registered, or annulment thereof if the trademark
registration was already completed.
28
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