As the host of the 2014 World Cup and the Summer Olympics in 2016, there is no doubt Brazil is hot, hot, hot and it is getting the world’s attention. Why has Brazil been so successful? It wasn’t by accident.
Brazil is the fifth-largest country in the world with an area of 3.3 million square miles. Its population is growing with a little over 195 million people in 2012. Its government is a federal republic and its official language is Portuguese. Its capital city is Brasilia.
Brazil has a large, robust and diverse economy regardless of which measurement you may apply. Consequently, Brazil has developed into one of the fastest growing emerging markets in the world. By world standards its economy is sixth overall.
The Brazilian government, as well as its congress, has made significant strides to bring economic stability to their country. This includes changes to regulatory matters, tax issues and governance. More changes are to come as Brazil continues to become a major force in the global economy.
For example, inflation, a major issue for Brazil at one time, was capped at 6.5 percent in 2011. Also, urban unemployment was at a historic low at 6 percent in 2011. Interest rates of 8 percent were at a historic low for Brazil in July 2012 (although, high by global standards).
Recently, the U.S. exported more goods into Brazil than any other country including China, Argentina, Germany and South Korea, totaling $4.3 billion. Imports from Brazil to the U.S. totaled more than $31 billion for 2011, and growing.
Entering the Brazilian market
Many opportunities await U.S. businesses that wish to do business in Brazil. Several business sectors such as air transportation, oil and gas, mining, and telecommunications have seen enhanced growth. Other segments of growth include roads, energy, railroads and infrastructure construction. This growth is directly attributable to the 2014 World Cup and 2016 Summer Olympics. Finally, other potential area for U.S. exports include building and construction, aerospace, agricultural equipment, electrical power and transportation.
The most efficient way to enter the Brazilian market is through a qualified representative or distributor presently in Brazil.
The Brazilian business climate is based on developing solid personal relationships with business leaders inside Brazil. These opportunities are fostered by U.S. companies establishing a presence inside Brazil by opening an office or establishing a joint venture with Brazilian businesses, trade shows or working through the U.S. Commercial Gold Key Service.
The U.S. commercial service trade professionals are located through the U.S. and its embassies and consulates in nearly 80 countries including Brazil.
The business connections between Brazil and Georgia are significant and growing larger each year. There are approximately 35,000-40,000 Brazilians living in the Atlanta area, and that number is growing. Commerce between Brazil and Georgia is on the rise also.
Several Brazilian companies have made their home in Georgia. The larger ones include:
1. Politec Global IT Services: IT provider
2. Florense Design: Furniture and cabinet maker
3. Gerdau AmeriSteel: Mini-mill steel producer
4. Bematech Corporation: Commercial automation for retail stores
5. WEG Electric Motors USA: Exports electric motors to over 100 countries
6. Embraco: Makes generators for washing machines and refrigeration
7. Stephanini IT Solutions USA: Back office IT solutions for more than 12,000 employees in 27 countries.
Restrictions on foreign investments
In general, Brazil does not restrict foreign ownership of domestic enterprises. However, foreign individuals and companies are not permitted to control investments in certain sectors, including the news media, where participation of foreign investors who are allowed ownership is limited to 30 percent of a company’s capital.
Other sectors, such as transportation, are subject to specific operational restrictions. Specific laws restrict and regulate direct investment in domestic aviation services, fishing, press, television, insurance, banking and pension funds.
Tax and other incentives
The Brazilian tax system is complicated and there is a tremendous amount of filing requirements to stay in compliance. It has been said that Brazil’s tax system is most likely the most costly to navigate through in the entire world.
Another complication is that, at present, the U.S. and Brazil do not have a tax treaty that fosters complete tax harmony and cooperation. There are numerous types of corporate taxes in Brazil including federal, state and municipal taxes.
There has been an increase of incentives by the government for foreign investments as well as exporting in the past 15 years specifically for the North and Northeast regions of Brazil. The incentives can take the form of federal, state or municipal tax reductions according to the company’s specific activity. There are also incentives for developing certain regions in Brazil.
Overall, increasingly high global confidence in the continued growth and opportunity within the Brazilian economy makes Brazil a promising place for U.S. investors who are willing to work through the challenging differences in conducting business there.
Cary Rodin is shareholder emeritus in Bennett Thrasher’s tax department. He currently serves as chair of the Tax Committee of DFK International.