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Succeeding in the Thriving Brazilian Market: A Legal & Regulatory Perspective. Tel Aviv March, 2011 Benny Spiewak KLA- Koury Lopes Advogados São Paulo, Brasil. WHY BRAZIL?. Vigorous Growth Before the Crisis Solid Economic Foundation

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Succeeding in the Thriving Brazilian Market: A Legal & Regulatory Perspective

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    1. Succeeding in the Thriving Brazilian Market: A Legal & Regulatory Perspective Tel Aviv March, 2011 Benny Spiewak KLA- Koury Lopes Advogados São Paulo, Brasil

    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

    3. 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

    4. 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

    5. 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

    6. 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 company Organization of Brazilian holding company to receive direct investment Joint Ventures: usually a limitada or a sociedade anônima regulated by jv and other agreements

    7. 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

    8. 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!