Attitude toward Foreign Direct Investment
Brazil was the world’s eighth largest destination for Foreign Direct Investment (FDI) in 2015, with inflows of US$ 56 billion. The GOB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GOB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and air transport sectors.
Other Investment Policy Reviews
Brazil has risen to become one of the world’s top ten economic powers, and its growth and social welfare policies have lifted millions out of poverty. The Organization for Economic Cooperation and Development (OECD) asserts that macroeconomic stability has been a crucial factor behind this success, but that fiscal performance has deteriorated recently while inflation has risen markedly. The 2015 OECD Economic Survey for Brazil noted, “As the tailwinds from high commodity prices have weakened, improving domestic policies will be more important than before. Over the last few years, bottlenecks have emerged, mostly on the supply side of the economy.” The OECD projects quarterly growth will turn positive sometime in the second half 2016 and begin to rise toward the economy’s long term growth potential in 2017. Once fiscal results improve and inflation starts to return to target, the OECD believes there will be clear growth pay-offs as recovering confidence supports stronger investment and consumption, particularly if coupled with policy and budget reforms that address growing structural deficits. The OECD report can be found at: http://www.oecd.org/eco/surveys/Brazil-2015-overview.pdf.
Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors. Constitutional amendments passed in 1995 prohibit all forms of discrimination against foreign capital not explicitly set out under law.
On March 1, 2016, the GOB passed Provisional Measure (MP) 714 to relax restrictions on foreign investment in domestic airline companies from a maximum of 20 percent to a maximum of 49 percent (Law 7565/1986, Article 181, MP 714/2016). The MP is pending Congressional approval. On March 19, 2011, the United States and Brazil signed an Air Transport Agreement as a step towards an Open Skies relationship that would eliminate numerical limits on passenger and cargo flights between the two countries. The agreement remains pending transmission from the executive branch to Brazil’s Congress for ratification.
To enter Brazil's insurance and reinsurance market, U.S. companies must establish a subsidiary, enter into a joint venture, or acquire or partner with a local company. Applications for banking licenses are reviewed by the BCB on a case-by-case basis. Of the top 50 banks in Brazil, 20 are owned or controlled by foreign interests. Citibank, the only U.S. retail banking operation in Brazil, announced in February 2016 its intent to sell its Brazilian, Argentine, and Colombian retail banking assets. Brazil’s anti-trust authorities are reviewing Bradesco bank’s August 2015 agreement to purchase HSBC’s Brazilian retail banking operation.
The Brazilian reinsurance market opened to competition in 2007. In December 2010 and March 2011, however, the Brazilian National Council on Private Insurance (CNSP) rolled back market liberalization through the issuance of Resolutions 225 and 232, which disproportionately affects foreign insurers operating in the Brazilian market. Resolution 225 requires that 40 percent of all reinsurance risk be placed with Brazilian companies. Resolution 232 allows insurance companies to place only 20 percent of risk with affiliated reinsurance companies. In December 2011, the CNSP issued Resolution 241, which walked back some of the restrictions of Resolution 225 by allowing the 40 percent requirement to be waived if local reinsurance capacity does not exist.
In September 2011, Law 12485/2011 removed a 49 percent limit on foreign ownership of cable TV companies and allowed telecom companies to offer television packages with their service. Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package have to be Brazilian.
In May 2015, lawmakers revived a 2012 bill that calls for easing restrictions on the acquisition of land by foreigners to boost investment in agriculture and forestry. A 2010 decree limiting the purchase of land by foreign companies has been challenged on economic and legal grounds, including in April 2015 in the Supreme Court. Guidelines published in 2013 set limits on the total area and the percentage of land in the overall area of any municipal district that can be purchased by a foreign firm without congressional approval.
A company must register with the Board of Trade to obtain the National Registry of Legal Entities (CNPJ). Brazil’s Export Promotion and Investment Agency (APEX) has a mandate to facilitate foreign investment. The agency’s services are available to all investors, foreign and domestic. Foreign companies interested in investing in Brazil have access to many benefits and tax incentives granted by the Brazilian government at the municipal, state, and federal levels. Most incentives are granted based on project sector, amount to be invested, and potential job generation. Brazil’s business registration website can be found at: http://idg.receita.fazenda.gov.br/orientacao/tributaria/cadastros/cadastro-nacional-de-pessoas-juridicas-cnpj.
In October 2012, the GOB approved via Decree 7819/2012 Inovar-Auto, a program that offers a variety of incentives to encourage vehicle manufacturers to expand investment and production in Brazil. The European Union (EU) and Japan filed separate World Trade Organization (WTO) complaints in 2013 and 2015 that argue that some Inovar-auto tax benefits discriminate against foreign product imports and restricts trade. Meanwhile, the InovAtiva Brasil and Startup Brasil programs support start-ups in the country. The GOB also uses free trade zones to incentivize industrial production. A complete description of the scope and scale of Brazil’s investment promotion programs and regimes can be found at: http://www.apexbrasil.com.br/en/home.
Limits on Foreign Control and Right to Private Ownership and Establishment
A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (e.g. tax incentives, preference for winning bids) for companies using only local capital. However, foreign investment is restricted by Constitutional law in the health (Law 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986, updated by MP 714), rural property (Law 5709/1971), maritime (Law 9432/1997 and Decree 2256/1997), insurance (Law 11371/2006), and air transport sectors (MP 714/2016).
Since 2012, the GOB has announced its intent to transfer billions in state assets to private investors through long term infrastructure concession (public-private partnership) agreements that give winning bidders the right to improve and operate airports, roads, railways, and ports for around 30 years.
In June 2015, Brazil launched the second stage of its transportation infrastructure-focused Logistics Investment Program (PIL), estimated at US$ 60 billion, which will mostly be used to provide subsidized financing for projects through the Brazilian National Development Bank (BNDES). All federal and state-level infrastructure concessions are open to foreign companies. In airport concessions, foreign companies have not only been encouraged to bid, but auction criteria have been defined in a way that effectively requires participation of foreign airport operators. In addition to the PIL, the GOB launched the next phase of the Program to Accelerate Growth (PAC) in 2015 to include annual US$ 75 billion in funds for transportation, energy, housing, and sanitation projects through 2018.
In April 2012, the U.S. Trade and Development Agency (USTDA), the U.S. Department of State, the Federal Aviation Administration (FAA), and the Transportation Security Administration (TSA) joined with Brazil's Ministry of External Relations to launch the U.S.–Brazil Aviation Partnership. This public-private partnership supports Brazil's aviation infrastructure development priorities while connecting U.S. companies to airport expansion, airspace management, safety, and security projects.
In May 2014, the U.S. Department of Transportation and Brazil’s Ministry of Transportation launched the U.S.-Brazil Transportation Partnership. Four working groups meet on a continuous basis to share best practices and promote participation by U.S. firms in ports and waterways, highways, railways, and disaster response projects.
In March 2016, USTDA and the U.S. Department of Commerce signed a Memorandum of Cooperation with Brazil on Bilateral Infrastructure Development to streamline information presented to U.S. firms on Brazil’s infrastructure concessions.
Screening of FDI
Foreigners investing in Brazil must register their investment with the BCB within 30 days of the inflow of resources to Brazil. Registration is done electronically. Investments involving royalties and technology transfer must be registered with Brazil’s patent office, the National Institute of Industrial Property (INPI). Investors must also have a local representative in Brazil. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM).
Regulatory review of mergers and acquisitions are carried out by the Administrative Council for Economic Defense (CADE). In October 2012, Brazil performed its first review of a pending merger, bringing Brazil in line with U.S. and European practices. This shift to pre-merger review was a result of 2011 legislation (Law 12529) adopted to modernize Brazil’s antitrust review process and to combine the antitrust functions of the Ministry of Justice and the Ministry of Finance into CADE. This government body is responsible for enforcement of competition laws and consumer defense.