1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Brazil was the world’s fourth largest destination for Foreign Direct Investment (FDI) in 2017, with inflows of USD 62.7 billion, according to UNCTAD. 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, insurance, and air transport sectors.
The Brazilian Trade and Investment Promotion Agency (APEX) plays a leading role in attracting FDI to Brazil by working to identify business opportunities, promoting strategic events, and lending support to foreign investors willing to allocate resources to Brazil. APEX is not a one-stop-shop for foreign investors, but the agency can assist in all steps of the investor’s decision-making process, to include identifying and contacting potential industry segments, sector and market analyses, and general guidelines on legal and fiscal issues. Their services are free of charge. The website for APEX is: http://www.apexbrasil.com.br/en .
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, constitutional law restricts foreign investment in the healthcare (Law 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), insurance (Law 11371/2006), and air transport sectors (Law 13319/2016).
Screening of FDI
Foreigners investing in Brazil must electronically register their investment with the BCB within 30 days of the inflow of resources to Brazil. In cases of investments involving royalties and technology transfer, investors must register 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).
To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter into a joint venture, acquire a local firm, or enter into a partnership with a local company. The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil. Santander is the only major wholly foreign-owned retail bank remaining in Brazil. Brazil’s anti-trust authorities (CADE) approved Itau bank’s purchase of Citibank’s Brazilian retail banking operation in August 2017. In June 2016, CADE approved Bradesco bank’s purchase of HSBC’s Brazilian retail banking operation.
Currently, foreign ownership of airlines is limited to 20 percent. Congressman Carlos Cadoca (PCdoB-PE) presented a bill to Brazilian Congress in August of 2015 to allow for 100 percent foreign ownership of Brazilian airlines (PL 2724/2015). The bill was approved by the lower house, and since March 2019, it is pending a Senate vote. In 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. Brazil’s lower house approved the agreement in December 2017, and the Senate ratified it in March 2018. The Open Skies agreement has now entered into force.
In July 2015, under National Council on Private Insurance (CNSP) Resolution 325, the Brazilian government announced a significant relaxation of some restrictions on foreign insurers’ participation in the Brazilian market, and in December 2017, the government eliminated restrictions on risk transfer operations involving companies under the same financial group. The new rules revoked the requirement to purchase a minimum percentage of reinsurance and eliminated a limitation or threshold for intra-group cession of reinsurance to companies headquartered abroad that are part of the same economic group. Rules on preferential offers to local reinsurers, which are set to decrease in increments from 40 percent in 2016 to 15 percent in 2020, remain unchanged. Foreign reinsurance firms must have a representation office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP) and maintaining a minimum solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.
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.
The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district. Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border. The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. Draft Law 4059/2012, which would lift the limits on foreign ownership of agricultural land,
has been awaiting a vote in the Brazilian Congress since 2015.
Brazil is not a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but became an observer in October 2017. By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services when there are no qualified Brazilian firms. U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms to participate in Brazil’s public sector procurement to help these firms win government tenders. Foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts. Under trade bloc Mercosul’s Government Procurement Protocol, member nations Brazil, Argentina, Paraguay, and Uruguay are entitled to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. However, only Argentina has ratified the protocol, and per the Brazilian Ministry of Economy website, this protocol has been in revision since 2010, so it has not yet entered into force.
Other Investment Policy Reviews
The Organization for Economic Co-operation and Development’s (OECD) 2018 Brazil Economic Survey of Brazil highlights Brazil as a leading global economy. However, it notes that high commodity prices and labor force growth will no longer be able to sustain Brazil’s economic growth without deep structural reforms. While praising the Temer government for its reform plans, the OECD urged Brazil to pass all needed reforms to realize their full benefit. The OECD cautions about low investment rates in Brazil, and cites a World Economic Forum survey that ranks Brazil 116 out of 138 countries on infrastructure as an area in which Brazil must improve to maintain competitiveness.
The OECD’s March 15, 2019 Enlarged Investment Committee Report BRAZIL: Position Under the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations noted several areas in which Brazil needs to improve. These observations include, but are not limited to: restrictions to FDI requiring investors to incorporate or acquire residency in order to invest; lack of generalized screening or approval mechanisms for new investments in Brazil; sectoral restrictions on foreign ownership in media, private security and surveillance, air transport, mining, telecommunication services; and, restrictions for non-residents to own Brazilian flag vessels. The report did highlight several areas of improvement and the GoB’s pledge to ameliorate several ongoing irritants as well.
The IMF’s 2018 Country Report No. 18/253 on Brazil highlights that a mild recovery supported by accommodative monetary and fiscal policies is currently underway. But the economy is underperforming relative to its potential, public debt is high and increasing, and, more importantly, medium-term growth prospects remain uninspiring, absent further reforms. The IMF advises that against the backdrop of tightening global financial conditions, placing Brazil on a path of strong, balanced, and durable growth requires a committed pursuit of fiscal consolidation, ambitious structural reforms, and a strengthening of the financial sector architecture. The WTO’s 2017 Trade Policy Review of Brazil notes the country’s open stance towards foreign investment, but also points to the many sector-specific limitations (see above). All three reports highlight the uncertainty regarding reform plans as the most significant political risk to the economy. These reports are located at the following links:
https://www.imf.org/~/media/Files/Publications/CR/2017/cr17216.ashx , and https://www.wto.org/english/tratop_e/tpr_e/tp458_e.htm .
A company must register with the National Revenue Service (Receita) to obtain a business license and be placed on 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 target specific sectors, amounts invested, and job generation. Brazil’s business registration website can be found at http://receita.economia.gov.br/orientacao/tributaria/cadastros/cadastro-nacional-de-pessoas-juridicas-cnpj .
Brazil does not restrict domestic investors from investing abroad, and APEX-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program”: http://www.apexbrasil.com.br/como-a-apex-brasil-pode-ajudar-na-internacionalizacao-de-sua-empresa . Apex-Brasil frequently highlights the United States as an excellent destination for outbound investment. Apex-Brasil and SelectUSA (the U.S. government’s investment promotion office at the U.S. Department of Commerce) signed a memorandum of cooperation to promote bilateral investment in February 2014.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($ USD)||2017||$2,053 trillion||2017||$2.056 trillion||www.worldbank.org/en/country|
|U.S. FDI in partner country ($M USD, stock positions)
BCB data, year-end.
|2017||$95,100||2017||$68,300||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
*U.S. is historical-cost basis
|Host country’s FDI in the United States ($M USD, stock positions)||2017||$16,070||2017||($2,030)||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
*U.S. is historical-cost basis
|Total inbound stock of FDI as % host GDP||2017||26.29%||2017||36.4%||UNCTAD data available at
* IBGE and BCB data, year-end.
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, billions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||635.12||100%||Total Outward||254.23||100%|
|United States||109.61||17.3%||British Virgin Islands||46.73||18.4%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (billions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||40.13||100%||All Countries||31.11||100%||All Countries||9.02||100%|
|United States||13.84||34.5%||United States||10.37||33.3%||United States||3.47||38.5%|
|Cayman Islands||4.25||10.6%||Cayman Islands||3.93||12.6%||Korea, South||0.50||5.5%|