Foreign Direct Investments in Brazil

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Brazil

How are foreign investments regulated in Brazil?

Brazil is very attractive for foreign investments as it offers a business-friendly environment with big opportunities and growth potential. Its more than 200 million population provides for a fast-growing consumer market. Even though Brazil has huge resources in minerals, agriculture, energy, and raw materials, it still has a lot of infrastructure needs.

In principle, there are no restrictions on foreign investments in Brazil, except for a few sectors, as follows:

Prohibitions: projects involving nuclear energy, mail services, and aerospace industry.

Sectors with restrictions: coastal navigation, fishing; broadcasting, news media and telecommunications. The restrictions are mostly regarding participation in the company’s capital and corporate control. Foreign investments in health-care services are also prohibited, except when authorized by law. Private health plan operation, research, general hospitals, clinics, among others are currently authorized.

In some sectors the restrictions are to foreign direct participation, so the incorporation of a holding company in Brazil may solve the issue.

The acquisition, operation or lease of rural lands by a Brazilian company under foreign control, a foreigner resident in Brazil or by a foreign -based legal entity authorized to operate in Brazil is subject to certain conditions, and, in some cases, to authorization of the Brazilian Congress.

Moreover, registration of direct foreign investment (cash, capitalization of credits, reinvestments, or goods) at the Central Bank of Brazil is mandatory, and allow the repatriation of the investment, the distribution of dividends, and the repayment of loans. The registration is made through a self-declaring electronic system (SISBACEN) within 30 days the capital enters the country.

Also, foreign shareholders must appoint an attorney-in-fact resident in Brazil with mandatory powers to receive service of process and must obtain a taxpayer number for controlling purposes only.

Which foreign investments are subject to clearance in Brazil?

Investment in some sectors require prior authorization of the Brazilian government, as licensing, concession or permit of the government: financial institutions, oil and piped gas services.

Financial institutions holdings are subject to restrictions, but they may be lifted in case of national interest by a Presidential decree.

Acquisition of property in border zones (150km-wide-strip) by foreign entities and individuals, as well as by Brazilian companies with any participation of foreign capital, is also restricted for national security reasons, and depend on authorization of the General Office of the National Security Council.

What is the foreign investment clearance process in Brazil?

The legislation is varied on the subject and there are different clearing authorities, depending on the sector, with different procedures.

Are there specific conditions that can be imposed on the foreign investment by Brazilian authorities?

Some conditions regarding percentage of participation in the company’s capital or on corporate control may be imposed when already foreseen in the legislation.

What other main challenges do foreign investors face in Brazil?

Antitrust Clearances: Brazilian Competition Authority (CADE) clearance is required if one of the parties to the transaction had in Brazil, in the year prior to the transaction, revenues over BRL750 million, and at least one other party involved has revenues in Brazil over BRL75 million. Revenues are considered as those of the parties’ economic group.

UBO Declarations: Companies must disclose and keep updated the identity of their ultimate beneficial owners (i.e. all individuals directly or indirectly holding 25% or more of a company or exercising preponderance in the corporate resolutions and the power to elect the majority of the managers of the entity, even if not controlling it).

Regulatory: Some sectors are regulated, and development of activities depend on prior authorization and/or require post communication. Among them, banking, insurance and reinsurance, life sciences, etc.

Labour: Labour in Brazil is highly regulated and protective of employees not granting too much room for negotiations. The total cost of an employee may be twice the remuneration paid. Companies must be under a single Labour Union according to its main activity and must comply with Collective Agreements and additional rights established therein.

Tax Issues: Brazil has a very complex and regulated tax system with different Federal, State and City taxes. Foreign investors are eligible for most available fiscal incentives, including tax deductibility of goodwill under certain conditions. Distribution of profits is not subject to taxation, even when remitted to foreign shareholders.

Technology and IP Licensing: Technology transfer agreements and IP licensing agreements must be approved by and registered with the National Institute of Industrial Property (INPI), and certain requirements must be met. In case of royalties, registration of an agreement also requires proof that the related patent or trademark has been duly registered in Brazil and is still valid.