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Business Environment of Brazil. Caton Brown Hari Dhanagopal Joseph Hayes Steve Potter Ram Lakshmanan Rachel Simpson. Contents . Business Structure Capital Markets Doing Business in Brazil Taxes Labor Laws. Business Structure. Organizational structure is strictly ‘ hierarchical ’

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Business Environment of Brazil

Caton Brown

HariDhanagopal

Joseph Hayes

Steve Potter

Ram Lakshmanan

Rachel Simpson

contents
Contents
  • Business Structure
  • Capital Markets
  • Doing Business in Brazil
  • Taxes
  • Labor Laws
business structure
Business Structure
  • Organizational structure is strictly ‘hierarchical’
    • Clearly defined roles and responsibilities within organizations
    • Leaders required to be decisive, unambiguous in instructions to subordinates
    • Due respect for merit of the position in the organization
    • Reduced friction in personal relationships up the chain
    • Factors like bureaucracy play a huge role in time and nature of business decision making
business entities
Business Entities
  • SociedadeAnônima, or S.A
    • Most Similar to US Corporation
    • General and Public Shares
  • Limitada, or Ltda
    • Similar to US Limited Liability Companies
    • Equity (Quotas) Divided among orders
  • Limited Liability only goes so far
    • Creditor can pursue Managers and Directors
capital markets
Capital Markets
  • The Securities, Commodities and Futures Exchange
    • One of the largest in the world in market value
    • Second largest in the Americas
    • Leading exchange in Latin America
    • Cost-efficient trading fees makes it attractive for investors to respond to changes quickly
capital markets1
Capital Markets
  • Projected to become the fourth largest contributor to worldwide growth, behind China, the US, and India
  • Stock and private bond markets rapid growth
  • Growth greatly impacted by legal and regulation reform in a positive way
    • Comissao de ValoresMobiliarios
financial sector
Financial Sector
  • Financial Institutions – Modern Infrastructure:
      • All orders performed electronically
      • Checks issued anywhere in the country cleared and settled within 48 hours
      • Brazilian banks - leaders in the field of internet banking
doing business in brazil
Doing Business in Brazil

Managing Through the Downturn

  • Keys to minimizing impact
    • High level of equity held by financial institutions in 2008
    • High level of deposits with the Central Bank
    • Recently implemented institutional changes
    • Efficient prudential regulation
    • High level of international reserves
    • Evolution of the Brazilian financial sector's system of supervision
key stats for business in brazil
Key Stats for Business in Brazil*

- out of 183 countries:

Improving due to Eirelis and new local regulations

Largest stock exchange in terms of # of listed companies

Exorbitant taxes on income, vehicle and profits

Cost of exports and imports twice as high for the region

Fairs slightly better than rest of LATAM

factors driving brazil s growth
Factors Driving Brazil’s Growth
  • Improving political situation
    • Improved stability of currency and the economy
  • Fifth largest market by population
  • Fifth largest country by size
  • Due to newer regulations, improved Foreign Indirect Investments
  • CustoBrasil
business regulations
Business Regulations
  • Ranked last by World Economic Forum in Burden of Government Regulation
  • Starting a business
    • World bank ranks Brazil 120/183 countries in how easy it is to start a business
    • Takes average of 119 days (vs. 6 in US and 54 in Latin America/Caribbean)
  • Eirelis
    • LLC (SociedadeLimitada) used to requires at least 2 partners
  • Foreign Owners must find a permanent resident willing to hold power of attorney
  • Enforcement of contracts long and costly
    • Almost no arbitration, so always goes to court
    • On average takes 899 days and 22% of the debt to enforce a contract
corporate taxes in brazil
Corporate Taxes in Brazil
  • Some of the most complex in the world
  • Average medium-sized firms spend 10x hours paying taxes
    • 2600 hours/year compared to average firms
  • Multiple tax payments to different taxing authorities:
    • Federal Government
    • Brazilian states and District of Brasilia
    • Municipalities
labor laws
Labor Laws
  • Workers’ rights contained in 900 articles
  • Termination of employment
    • Firms pay 8% of an employee’s salary into FGTS account, which follows employee from job to job,
    • Wrongful termination
  • Vacation
    • Can only be taken once or twice per year and must be 10 days or longer
    • 30 days/year after 1st year
    • Bonus of 1/3 month’s salary due when vacation is taken
  • 13thSalary
    • Mandatory bonus of 1 month’s salary must be paid in November and December
  • Expatriates
    • Brazilian labor laws apply to all workers, even expatriates
other tax facts
Other Tax Facts
  • Brazilian-based firms are taxed on all income, even that earned outside of Brazil.
    • Considered Resident Firm if incorporated in Brazil
  • Firms choose between being taxed on actual or presumed income
    • Applies to Federal Income Tax (IPRJ) and Social Security (CSLL)
    • Actual: Lucro Real method
      • Based on actual annual or quarterly income
    • Presumed: LucroPresumido
      • Optional for firms with gross revenue < BRL 48M in previous year
      • Based on presumed profits
        • 32% of services and 8% of product sales (12% for CSLL)
  • Capital Gains treated same as ordinary profits
  • Federal Government working to simply filing by moving payments online
    • Allow one filing instead of multiple
    • “Super Simples”
      • Allow small businesses to file single monthly payments
      • In place since 2007
      • President DilmaRouseff pushing to allow larger firms to use
inflation
Inflation
  • 6.5 % in December 2011
  • Averaged 445.98 % from 1980 to 2010
  • High of 6821.31% in April 1990
  • Attempted to address inflation through currency reform in 1980s and early 1990s, ending with the Real in 1994
government corruption a play by play
Government Corruption: A Play by Play
  • June 2011 : Chief of Staff used position to drive business to a private consulting business (Resigned)
  • July 2011: Transportation minister accused of charging commissions for contracts (Resigned)
  • August 2011: Agriculture minister accused of kickbacks throughout organization (Resigned)
  • September 2011: Tourism minister accused of using public money for personal use (Resigned)
  • October 2011: Sports minister accused of kickbacks (resigned)
  • November 2011: Labor minister denies accusations that ministry officials were taking kickbacks (In Office)
  • January 2012: Head of National Mint, accused of transferring $25m received from kickbacks offshore to the British Virgin Islands (Fired)