Fiscontal The accounting as a source of resistance to the economic crisis SS Tap Arq Fisco

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Investing in the Brazilian market has never been a business desired by so many foreigners. With such a crisis, Brazil, the fifth largest country in the world has become one of the great powers in Latin America, becoming the focus of investments in the international market, but starting a business in the country is an exercise in patience and caution. You need to consider a range of steps such as the registration at the Commercial Department, enrollment in the CNPJ, registration of employees in Social Security and operating licenses. Depending on the area, the process can go through fifteen steps, extending over months.

Invited by Spanish authorities and companies, in the last month, I was able to follow for thirteen days, in Barcelona, a rich discussion among entrepreneurs, executives and local authorities about the actual interest of how, when and why invest in the Brazilian market. The subject suggests many discussions not only for the people who are coming, in this case the foreigners, but also for those who are already in the country, the Brazilian businessmen.

Idealizing a scenario, we can still conclude that there is a gap of information regarding the legal context, ways of implementing business in Brazil, trade and contractual practices, tax advantages, economic subsidies, intellectual property and residence permits for expatriates, however, even with this vast range of questions, the intention is to invest, the goal is to tread a safe path that can generate profits for both.

Spanish eyes

The country was, until the last year, standing out as the third largest investor in Brazil, with a balance of US$ 79.5 billion, preceded by the Netherlands (US$ 169.5 billion) and the USA (US$ 125.4 billion), according to the Central Bank data on the 2011 census.

The investments made by Spanish companies in the country, in the first eight months of 2011, totaled US$ 5.6 billion, or 800% more than the same period in 2010. At the Spanish Chamber of Commerce, the requests for meetings and clarification went from 40 requests in 2009 to two thousand in 2010.

Basically, Brazil is in the "third wave" of investment in the country, the first of which came in the mid 90s, during the privatization process of the Fernando Henrique Cardoso government, the second occurred in the 2000s with the arrival of companies and services infrastructure, and the third is powered by the world crisis.

However, in the first quarter of this year, the investments totaled only US$ 739 million, a sharp drop compared to the US$ 4.7 billion of direct investments in the same period of 2011, which has caused some concern to our Federal Government, although Brazil has enough reserves to withstand the fall of the Spanish investment. Spanish companies have several concessions in the areas of energy (Iberdrola, controller of Neoenergia), telecommunications (Telefonica) and highways (OHL) and Santander is one of the five largest active banks in the country. But there are some obscure issues that concern businesses and investors, such as:

• the Brazilian tax burden for the feasibility of their products and services in the Brazilian market;
• the transfer of technology, machinery and equipment, importation and exportation of goods;
• corporate structure and management necessary to operate the foreign company;
• the required amount for the entry of foreign investors in Brazil;
• the records of the products in the Regulatory Agencies in Brazil;
• local competition, suppliers of reliable inputs and market potential;
• culture and customs of Brazilians, and the way of doing business;
• the new rules of reciprocity for the entry of Spanish in Brazil;
• obtaining a work and investor visa.

Profile for investors

In general, we can characterize Spanish and Catalan entrepreneurs as pragmatic, informed, careful, objective, serious, with a great educational background, and due to the crisis, they are very focused on the assessment of potential markets for foreign investments, analyzing not only Brazil, but also others countries such as China, Russia, Australia, Africa and Chile.

The desire of coming to Brazil is practically unanimous, to know all the Brazilian regions to see where they can install their industrial plants, taking advantage of the tax benefits, and identify local suppliers of confidence and that might be strategic partners in development of their business.

There are others who are more concerned about developing firstly the commercial area, distribution channels, sales representatives, networking, and the potential customers, and they need to develop a strategic plan consistent in order to do not result in failed attempts or falling into the hands of harmful or malicious partners.

Some companies are already exporting to the Brazilian and the Mercosul countries market, or they do business with distributors and local representatives, but they want to invest more to increase their market share, or effectively settle in the country.

Tax and economic differences.

Among the barriers there are some aspects to understand like the complex tax, customs and foreign investment laws. Items that make companies feel helpless due to the difficulty of finding consultants, customs brokers, accountants and law firms which are specialized to assist them in a professional manner.

It is still common to come across organizations that have import cost spreadsheets with tax calculation errors and tax classification errors, offered by Brazilian companies. Faults present in large and required global consultancies, contracted out of Brazil due to a lack of business and technical knowledge.

A large percentage of entrepreneurs and investors sees Brazil as a market with great potential for expansion and financial stability both public and population, but they know about the political, security, infrastructure and culture issues, and about the high cost of living in major cities, and legal certainty, but with a great chance to explore the sustainable growth of the country, bringing know-how, knowledge and new technologies.

Some care is needed in doing business with foreigners to the extent that foreign investment in Brazil might generate some risks to Brazilians that may represent the companies or are appointed to administer such property in Brazil.

According to article 11, section XIV, RFB Normative Instruction 748, 2008, the legal persons domiciled abroad are required to register, when they have the following assets or accomplish the following:

a) own real estate, vehicles, vessels, aircraft, equity, banking accounts, financial market investments and capital, intangible assets with payment of more than 360 (three hundred and sixty) days, and financing;
b) practice imported financing, foreign leasing (leasing), letting, renting of equipment and vessel freight, import of goods without exchange cover, for the payment of capital of Brazilian companies, financial loans granted to residents in the country, investments, other operations established and governed by Cocad.

Still, under the Article 20 of the same Instruction, and also the number 76/98, of the National Department of Commerce Registry (DNRC), a person must be appointed as responsible and resident in Brazil with a CPF for the CNPJ of the foreign investor, which in practical terms will be bound and liable for taxes on goods and transactions, as well as for the obligations of a civil, labor, social security and environmental nature

Moreover, under the Articles 119 and 146 of the Corporations Law, in the case of Board of Directors, they must be resident in Brazil, and be liable for acts performed in Brazil on behalf of foreigners.

In this step, it is very common at the behest of the partners and foreign shareholders, the managers, officers and directors of foreign companies are obliged to perform acts of management that can lead the Brazilians to answer personally for risks, fillings and illegal, and later, in the case of condemnation, it will remain only the right of return or compensation in a lawsuit that should be promoted in the country of the foreign partner or the shareholder.

The head of Brazil may suffer constriction or seizure of their personal assets to meet the social obligations to fetch only after the necessary repairs which may take many years, depending on the speed of justice in that country.

An alternative solution to this problem is hiring D & O Insurance (Directors and Officers Liability Insurance), which is a liability insurance paid by companies to repair any damages and litigation costs that the directors, officers and directors may suffer as a result some kind of civil, criminal or administrative action.

Thus, the Brazilian entrepreneur and those responsible for foreign investment need to prepare themselves for this new investment reality, also seeking more information, education, and culture so that it can facilitate the partnerships with foreign companies or to otherwise they may face many challenges with an international competition better prepared and focused on results, as well as being vulnerable in the cases that they act as responsible in Brazil for the investments and operations performed.

Text: André Iizuka
Version: Grazielle Pacini



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