Peter Raymond – P.F. Raymond Inc.
Brazil at a Glance
Brazil is one of the major markets in the 21st century. It is the sixth largest economy by nominal GDP and the fifth largest country in the world. In the past twenty-five years Brazil has transformed itself from an agrarian economy to an industrial economy because of its abundance of agriculture, minerals, and energy resources. The country has the largest economy in South America with both a diversified economy and infrastructure, along with a strong currency. The past ten years has seen the country lower its inflation rate and maintain a strong currency within the marketplace.
Brazil has a democratic republic form of government and it is officially called The Federative Republic of Brazil. The government is composed of 26 separate states and one Federal District along with 5570 municipalities. The states have autonomous administrative powers and share in the taxes collected by the Federal District. Essentially the government is a confederation of states acting autonomously, even empowered to establish and collect taxes locally, but subject to laws established by the Federal District.
Like many countries, Brazil has very, specific requirements which must be met in-order to operate a business in the country, whether it is in manufacturing, distribution, or in a trade industry. Much of the regulations have been enacted due to the 1988 federal constitution. Their constitution allowed existing laws to be enforced governing taxation, labor, and legal entities, which have made the rules of doing business in Brazil quite clear and specific.
Brazil has a very skilled and educated workforce. In recent years Brazil’s universities have developed many programs related to science, technology, engineering, and mathematics, (STEM) which continue to support Brazil’s growth in the industrial sector of their economy. The country is a leader in South America in diverse fields such as Health and Safety, Aerospace, and Environmental industries, to name a few. The country has professional skilled and unskilled workforces in all fields. Thus, new business entrants to the country are guaranteed a stable workforce. There are many institutions teaching skills in fields from automotive and electronics to healthcare and hospitality, and the government will assist in identifying, and locating labor for most industries as an incentive to investment in their country.
Labor is a major factor in doing business in Brazil. Thus, it is important to note that the country has minimum wage levels for each category of workers; skilled, unskilled and professionals. Along with minimum wage laws, there are also healthcare and holiday benefits that are mandatory. Overtime is regulated, not to exceed two hours per day, at fifty percent more than one’s base hourly rate, one hundred percent during Sundays and holidays. The typical workweek is set at forty hours per week. In addition to normal pay, there is also a bonus salary requirement, known as the “thirteenth salary”. Each worker in all categories is entitled to a bonus, which is to be paid during February and November, with the balance to be paid on December 20th of each year. This amount is predicated on the category or worker and their base pay, excluding overtime. It is highly recommended that a labor lawyer be consulted all labor law requirements such as termination, resignations, employment contracts, social security, and the unemployment guarantee fund (FGTS). Trade Unions are also considered a legal entity in Brazil. They are empowered to enter into bargaining agreements by the constitution. The constitution also adopts the “single union” concept which prohibits the existence of more than one union for each professional category, in a given geographical area.
In focusing on the security industry in Brazil, its much the same as any country with specialties such as Access Control, CCTV, Intrusion, Monitoring, and Asset Tracking. The industry has approximately 4159 active companies in the security space, which includes dealers, distributors, manufacturers, and integrators, related to security in one form or another, right down to cable providers. The country has product availability in a market that is growing and has not experienced down turns in the economy. The market is very, active in seeking new and innovative products, and capital is available for major projects. In addition to general security, fire and CCTV are growing at a substantial rate, outpacing other sectors because of mandatory new construction requirements and legislation. The economy is expanding, and the country is concentrating on infrastructure replacement and renewal, thereby reaching greater sections of the population which is stimulating construction and growth.
Under the Federal Constitution and local legislation, taxes can be established by the government. Its important to note that new companies planning to do business in Brazil should be aware of the tax laws or structure. In addition to understanding the tax structure, new entrants must have capital, in country banking relationships, and for non-Brazilian labor either a temporary visa or a resident visa must be in place.
The tax structure is formulated as follows:
Tax Tax-base and triggers Rate
Corporate income Actual or estimated profits 15%
(IRPJ) Surcharge Actual or estimated profits 10% on income over
Determined by tax authorities. $240,000 per annum.
Social contribution (CSL) Adjusted Net Profits 9%
Profit Participation (PIS) Gross Revenues 1.65%
Social Security Financing
Contribution (COFIND) Gross Revenue 7.6%
Tax on Industrial Goods Point of Sale, or when goods
leave the industrial establishment Varies by product.
Sales Tax (IICMS) Transaction Value 7% to 25%
Service Tax (ISS) Service Price 2% to 5%
Import Duty (II) Product Value 0% to 35%
Income Tax withholding Income / Capital Gains 15% down to 2%
Tax (financial) Transaction Credit/Foreign and Securities Variable by transaction
Export Duty Products made in Brazil with domestic
Content leaving the country per CAMEX Tax 30% up to150%
The list of taxes noted above are the major tax contributions under the law, however, when establishing a business in Brazil, it is prudent to review your corporate structure with your legal council and banking institution. The taxes (Tributos) are divided into six categories and your company may not be subject to certain taxes depending on how their government views your products and services. While the tax legislation seems over complicated and ominous, the tax code offers many opportunities for deductions and incentives such as accelerated depreciation on domestically produced equipment, for certain intangible assets, and reduced withholding income taxed up to thirty percent for royalties, and technical service fees, to name a few. Again, engage professional assistance through a bank and legal counsel to take advantage of tax incentives.
The official language in Brazil is Portuguese, stemming from the occupancy by Portugal in the 1800’s. However, Spanish, English, Italian and German are also prominent in the country. Brazil is the only country in South America that has Portuguese as its official language. Many of Brazil’s citizens are multilingual and fluent in several languages. Additionally, Brazil has the largest Jewish Community in South America (0.06%) with Hebrew being spoken within the community in addition to Portuguese. The most prominent religion is Roman Catholic (64.53 %) followed by the Protestant religion (22.2%) and all others comprising the rest.
For anyone starting a business in Brazil who will relocate to the country, a consideration of the quality of life afforded to residents must be considered. Brazil has a good infrastructure for roads, public transportation, and more than a good supply of housing and real estate. The country has all the amenities that are offered in all major cities throughout the world. From opera to rock concerts, beaches, professional sports teams, museums, and fine dining. The culture is vibrant, tolerant and helpful and exciting with many opportunities to explore the country and to participate in activities. In addition, there are many private schools through the high school level, with excellent worldwide reputations. Brazil is also one of the top nations in the world with good medical and dental care. Anyone relocating can have a seamless transition to a local lifestyle.
Peter Raymond has been doing business in South America for the last twenty-five years. He is an expert in fire systems, business strategy, business marketing, private investigations, and consulting. To reach Peter Raymond you may contact him at – email@example.com
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Notations and Sources:
Squires and Sanders – Doing Business in Brazil
Brazil Country Guide 9/2020
Apex Brazil – (The Brazilian Trade and Investment Agency 2020)
Amcham Brazil – (Trade Bureau)
Economy Profile, Brazil 2020 – The World Bank
Brazilian Chamber of Commerce, San Paulo: S. Roumieh, Director