Brazil
1. Openness To, and Restrictions Upon, Foreign Investment
Brazil was the world’s seventh-largest destination for foreign direct investment (FDI) in 2019, with inflows of $58 billion, according to the United Nations Conference on Trade and Development (UNCTAD). The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, mining, 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 in most sectors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.
The Brazilian Trade and Investment Promotion Agency (APEX-Brasil) 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-Brasil 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-Brasil is: http://www.apexbrasil.com.br/en .
In 2016, the Ministry of Economy created the Direct Investments Ombudsman (OID) at the Board of Foreign Trade and Investments (CAMEX), to provide assistance to foreign investors through a single body for issues related to FDI in Brazil. This structure aims to help and eventually speed up foreign investments in Brazil, providing foreign and national investors with a simpler process for establishing new businesses and implementing additional investments in their current companies. Since 2019, the OID has acted as a “single window” of the Brazilian government for FDI. It supports and guides investors in their requests, recommending solutions to their complaints (Policy Advocacy) as well as proposing improvements to the legislation or administrative procedures to public agencies whenever necessary. The OID is responsible for receiving requests and inquiries on matters related to foreign investments, to be answered together with government agencies and entities (federal, state and municipal) involved in each case (Focal Points Network). This new structure provides a centralized support system to foreign investors, and must respond in a timely manner to investors’ requests.
A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (i.e. tax incentives, preference for winning bids) for companies using only local capital. However, constitutional law restricts foreign investment in healthcare (Law 8080/1990, altered by 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), and insurance (Law 11371/2006).
Brazil does not have a national security-based foreign investment screening process. Foreign investors in Brazil must electronically register their investment with the Central Bank of Brazil (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). Since the approval of the Doing Business Law in 2021, companies are no longer required to have an administrator residing in Brazil, but they must appoint a local proxy attorney to receive legal notifications. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM). Brazil does not have an investment screening mechanism based on national security interests. A bill was proposed in the Chamber of Deputies in 2020 (PL 2491) to change the parameters under which to review foreign investments could be reviewed, but the bill has not yet been analyzed by the necessary commissions.
To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter a joint venture, acquire a local firm, or enter 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, but Santander is the only major wholly foreign-owned retail bank.
Since June 2019, foreign investors may own 100 percent of capital in Brazilian airline companies.
While 2015 and 2017 legislative and regulatory changes relaxed some restrictions on insurance and reinsurance, rules on preferential offers to local reinsurers remain unchanged. Foreign reinsurance firms must have a representational 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 maintain a solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.
Foreign ownership of cable TV companies is allowed, and telecom companies may 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 must 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. In December 2020, the Senate approved a bill (PL 2963/2019; source: https://www25.senado.leg.br/web/atividade/materias/-/materia/136853 ) to ease restrictions on foreign land ownership and the Chamber of Deputies began to deliberate on the bill; however, the bill was shelved with no plans to advance it further after President Bolsonaro expressed concerns regarding the legislation.
Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020. In February 2021, Brazil formalized its initial offer to start negotiations. The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements. Such thresholds vary for different procuring entities and types of procurements. The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies. Brazil’s submission is currently under review with GPA members.
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 participating in Brazil’s public sector procurement to help these firms win government tenders. Nevertheless, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts, and since October 2020 foreign companies are allowed to participate in bids without the need for an in-country corporate presence (although establishing such a presence is mandatory if the bid is successful). A revised Government Procurement Protocol of the trade bloc Mercosul (Mercosur in Spanish) signed in 2017 would entitle member nations Brazil, Argentina, Paraguay, and Uruguay to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. However, none of the bloc’s members have ratified the protocol, so it has not entered into force. Despite the restrictions within Mercosul, in January 2022 Brazil and Chile entered into an agreement which includes government procurement.
The Organization for Economic Co-operation and Development’s (OECD) December 2021 Economic Forecast Summary of Brazil summarized that with the COVID-19 vaccination campaign accelerating throughout the year, economic activity underpinned by reduced private consumption and investment restarted as restrictions were lifted, and exports benefited from the global recovery, the robust demand for commodities, and a weak exchange rate. However, supply bottlenecks, lower purchasing power, higher interest rates, and policy uncertainty have slowed the pace of recovery. The labor market is experiencing a lag in recovering from the pandemic, and by the end of 2021 unemployment remained above pre-pandemic levels. The residual effect of the government’s significant fiscal stimulus spending in 2020 to reinvigorate the economy contributed to inflationary pressure, further compounded by constrained global supply chains pushing prices up. In response, the COPOM chose to incrementally increase its benchmark SELIC rate from 2 percent in March 2021 to 11.75 percent in March 2022. The COPOM announced that it would continue tightening its monetary policy in an effort to curb inflation and anchor expectations. Prospects for economic growth are weak for 2022 and 2023. The OECD recommended that Brazil strengthen and adhere to its fiscal rules to increase market confidence in establishing sustainable finances and exercising more efficient public spending to create fiscal space for growth-enhancing policies, along with developing a more inclusive social protection program.
The IMF’s 2021 Country Report No. 2021/217 (published in September 2021) for Brazil highlighted that its economic performance for the year had been better than expected, partly due to the government’s fiscal response to the pandemic which propelled the economy back to pre-pandemic levels for most sectors. In addition, the IMF noted a favorable economic momentum supported by booming trade and robust private sector credit growth. The IMF assessed that currency depreciation and a surge in commodity prices had led to headline inflation, and that expectations remained negative. The report noted Brazil’s lagging labor market, especially among youths, women, and Afro-Brazilians. The IMF also expressed concerns that emergency cash transfers (which expired in December 2021) were only a short-term solution, and recommended addressing poverty and inequality by strengthening a more permanent social safety net. The IMF concluded that near-term fiscal risks were low, but the high level of public debt continued to pose a medium-term risk. Restoring high and sustained growth, increasing employment, raising productivity, improving living standards, and reducing vulnerabilities would require longer-term policy efforts to eliminate bottlenecks and foster private sector-led investment.
The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above). The three reports listed below, with links to the reports, highlight the uncertainty regarding reform plans as the most significant political risk to the economy.
- OECD Report:
- IMF Report:
- WTO Report:
A company must register with the National Revenue Service (Receita Federal) 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 in Brazil. 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: https://www.gov.br/pt-br/servicos/inscrever-ou-atualizar-cadastro-nacional-de-pessoas-juridicas .
Brazil enacted its “Doing Business” law, which entered into force on August 26, 2021. The law simplified the process to open a business, sought to facilitate foreign trade by eliminating redundancy as well as further automating its trade processes, and expand the powers of minority shareholders in private companies.
Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provides for free market guarantees. The law includes several provisions to simplify regulations and establish norms for the protection of free enterprise and free exercise of economic activity.
On August 20, 2021, the Brazilian government included the Foreign Trade Secretariat (SECEX) in the Brazilian Authorized Economic Operator Program (Programa OEA), run by Receita Federal (Internal Federal Revenue service), allowing Government of Brazil-designated OEA certified operators to maintain a low-level risk to achieve benefits in their foreign trade operations related to drawback suspension and exemption regimes.
Through the digital transformation initiative in Brazil, foreign companies can open branches via the internet. Since 2019, it has been easier for foreign businesspeople to request authorization from the Brazilian federal government. After filling out the registration, creating an account, and sending the necessary documentation, business entities can make the authorization request on the Brazilian government’s online portal through a legal representative. The electronic documents will then be analyzed by the Brazilian National Department of Business Registration and Integration (DREI) team. DREI will inform the applicant of any missing documentation via the portal and e-mail and give a 60-day period for the applicant to submit any additional information. The legal representative of the foreign company, or another third party who holds a power of attorney, may request registration through this link: https://acesso.gov.br/acesso/#/primeiro-acesso?clientDetails=eyJjbGllbnRVcmkiOiJodHRwczpcL1wvYWNlc3NvLmdvdi5iciIsImNsaWVudE5hbWUiOiJQb3J0YWwgZ292LmJyIiwiY2xpZW50VmVyaWZpZWRVc2VyIjp0cnVlfQ%3D%3D
The regulation of foreign companies opening businesses in Brazil is governed by article 1,134 of the Brazilian Civil Code and article 1 of DREI Normative Instruction 77/2020. English-language general guidelines to open a foreign company in Brazil are not yet available, but the Portuguese version is available at the following link: https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras .
For foreign companies that will be a partner or shareholder of a Brazilian national company, the governing regulation is DREI Normative Instruction 81/2020 (https://www.in.gov.br/en/web/dou/-/instrucao-normativa-n-81-de-10-de-junho-de-2020-261499054 ). The contact information of the DREI is drei@economia.gov.br and +55 (61) 2020-2302.
References:
- provides investment measures, laws and treaties enacted by selected countries.
- provides links to business registration sites worldwide.
Brazil does not restrict domestic investors from investing abroad. 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 a worthwhile destination for outbound investment. APEX-Brasil and SelectUSA (U.S. Department of Commerce) signed a memorandum of cooperation in February 2014 to promote bilateral investment.
Brazil incentivizes outward investment. APEX-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad. The agency´s efforts include trade missions, business round tables, promoting the participation of Brazilian companies in major international trade fairs, and arranging technical visits for foreign buyers to Brazil as well as facilitating travel for decision-makers seeking to learn about the Brazilian market and performing other commercial activities designed to strengthen the country’s branding abroad.
The main sectors of Brazilian investments abroad are financial services and assets (totaling 62.9 percent of total investments abroad); oil and gas extraction (12 percent); and mineral metal extraction (6.5 percent). Including all sectors, Brazilian investments abroad totaled $448 billion in 2020. The regions that received the largest share of Brazilian outward investments are the Caribbean (43.3 percent), concentrated in the Cayman Islands, British Virgin Islands and Bahamas, and Europe (37.9 percent), primarily the Netherlands and Luxembourg.
Regulations on investments abroad are outlined in BCB Ordinance 3,689/2013 (foreign capital in Brazil and Brazilian capital abroad): https://www.bcb.gov.br/pre/normativos/busca/downloadNormativo.asp?arquivo=/Lists/Normativos/Attachments/48812/Circ_3689_v1_O.pdf
Sales of cross-border mutual funds are only allowed to certain categories of investors, not to the general public. In 2020, international financial services companies active in Brazil submitted a proposal to Brazilian regulators to allow opening these mutual funds to the general public, and the Brazilian Securities and Exchange Commission is expected to approve their recommendation by June 2022. Discussions with regulators about increasing the share percentages that pension funds and insurers can invest abroad (currently 10 percent for pension funds, 20 percent for insurers, and 40 percent for qualified investors) are ongoing, along with discussions about tax deferral mechanisms to incentivize Brazilian investment abroad.