EXECUTIVE SUMMARY

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the sixth largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $50 billion, an increase of 78 percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.4 billion). In recent years, Brazil has received more than half of South America’s FDI inflows, and the United States is a major foreign investor in the country.
The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global pandemic in 2020. The country experienced a recovery in 2021, with its Gross Domestic Product (GDP) growing 4.6 percent, but slowed down again in 2022, increasing only 2.9 percent. As of March 2023, analysts forecast 0.89 percent GDP growth for the year. The unemployment rate was 7.9 percent at the end of 2022, with around one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.68 percent of GDP ($89.39 billion) in 2022 and Brazil’s debt-to-GDP ratio dropped to 73.5 percent. Analysts expect the debt-to-GDP ratio to grow in 2023 with the new administration.
President Luiz Inácio ‘Lula’ da Silva (Worker’s Party/PT) assumed office on January 1, 2023. Among his campaign priorities, President Lula highlighted the need for tax reform to simplify the complicated Brazilian code, to attract investments, and to reindustrialize the Brazilian economy. The previous administration was able to advance some, but not all, reforms to reduce the cost of doing business in Brazil. Analysts foresee more favorable conditions with the Lula administration to complete tax reform, although they remain skeptical of the Government of Brazil’s (GOB) ability to pass reforms that would reduce the country’s primary deficit. The administration is also prioritizing the establishment of a new fiscal framework for controlling public debt to replace the current spending cap rule. It is expected that the new rule will be less stringent than existing rules since previous PT administrations have prioritized government spending.
Brazil’s investment promotion strategy traditionally prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property. The new administration has stated support for public-private partnerships and concessions instead of privatizations.
Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.
The impact of Russia’s war of aggression against Ukraine exposed some of Brazil’s fragilities in its production of certain commodities. Brazil’s strong dependence on imported fertilizers, particularly from Russia and Belarus, temporarily caused agricultural production concerns at the start of the war and impacted global food prices, boosting inflation. In addition, although Brazil does not rely directly on Russian energy commodities the hike in international energy prices contributed to the continuing rise in inflation locally.

 

Table 1: Key Metrics and Rankings
Measure  Year  Index/Rank  Website Address
TI Corruption Perceptions Index  2022  94 of 180  http://www.transparency.org/research/cpi/overview  
Global Innovation Index  2022  54 of 132  https://www.globalinnovationindex.org/analysis-indicator  
U.S. FDI in partner country ($M USD, historical stock positions)  2021  $67,547  https://apps.bea.gov/international/factsheet 
World Bank GNI per capita  2021  $7,740  http://data.worldbank.org/indicator/NY.GNP.PCAP.CD  

POLICIES TOWARDS FOREIGN DIRECT INVESTMENT

Brazil was the world’s sixth-largest destination for foreign direct investment (FDI) in 2021, with inflows of $50 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.
According to the Brazilian Central Bank (BCB), U.S. FDI stock was 29.1 percent ($191.6 billion) of all FDI in Brazil in 2021, the largest single-country stock by ultimate beneficial owner (UBO). The International Monetary Fund (IMF) measurements also assessed that the United States had the largest single-country stock of FDI by UBO in 2021, representing 21.7 percent of all FDI in Brazil ($112 billion) and surpassing the Netherlands’ 21.5 percent ($111 billion).
The Brazilian Trade and Investment Promotion Agency (APEX-Brasil) has a mandate to facilitate foreign investment in Brazil. Although APEX-Brasil isn’t a “one-stop shop” for foreign investors, it plays a leading role in attracting FDI by identifying business opportunities, promoting strategic events, and assisting in all steps of the investor’s decision-making process. These steps include identifying and contacting potential industry segments, performing sector and market analyses, and providing general guidelines on legal and fiscal issues. Foreign companies interested in investing in Brazil may be eligible for municipal, state, and federal level benefits and tax incentives. APEX-Brasil services are free of charge and their website is: http://www.apexbrasil.com.br/en .
The Direct Investments Ombudsman (OID, in Portuguese) assists foreign investors in handling issues related to FDI in Brazil. The OID acts as the GOB’s “single window” for FDI, receiving requests and inquiries on matters related to foreign investments to be answered by different government agencies and entities (federal, state, and municipal). OID is required to respond in a timely manner, and it supports and guides investors by recommending solutions to their complaints (Policy Advocacy) and proposing improvements to the legislation or administrative procedures to public agencies necessary. The website for the OID is: https://oid.economia.gov.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 domestic capital, ending favorable treatment (i.e., tax incentives, preference for winning bids) for companies using only domestic capital. However, constitutional law restricts foreign investment in the healthcare, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.
Brazil does not have a national security-based foreign investment screening process, and proposed legislation for one has been stalled in the Brazilian congress since 2020. Foreign investors in Brazil must electronically register their investment with the Central Bank of Brazil (BCB) and, in cases of investments involving royalties and technology transfer, may also need to register with the National Institute of Industrial Property (INPI), Brazil’s patent and trademark office. Since 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. Investment 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 a joint venture, acquire a local firm, or enter a partnership with a local company. Rules on preferential offers to local reinsurers remain despite recent flexibilizations. Foreign reinsurance firms must have an office in Brazil and they must maintain an active registration with the Superintendence of Private Insurance (SUSEP), Brazil’s insurance regulator, as well as a solvency classification equal to Standard & Poor’s or Fitch ratings of at least BBB-. Banking license applications are reviewed by the BCB. 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.
Brazil allows foreign ownership of cable TV companies, 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 (INCRA) administers the purchase and lease of Brazilian agricultural land by foreigners. Currently, foreigners can only lease or buy up to 25 percent of the overall land area in each municipal district for use as agricultural land. Also, no more than 10 percent of agricultural land in a municipal district may be owned or leased by foreign nationals from the same country. Foreigners would need prior consent before purchasing any land in areas indispensable to national security and along the border. Congressional approval is required for purchases of large plots of agricultural land by foreign nationals, foreign companies, or local companies with majority foreign shareholding. Proposed legislation to ease restrictions has been approved in the Senate but not by the Chamber of Deputies.
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 and formalized its initial offer in February 2021, followed by several revised offers throughout 2022. The GPA offers establish varying thresholds, including certain subnational entities, but exclude sensitive areas such as defense. It is unclear if the new administration will move forward with the accession process.
By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable, and foreign firms may only bid to provide technical services when there are no qualified Brazilian firms. U.S. companies need to partner with local firms or have operations in Brazil to be eligible for “margins of preference” offered to domestic firms in public sector procurements. Despite these statutes, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts. Since 2020, when the GOB announced an updated version of the country’s procurement law, 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 Mercosur Government Procurement Protocol from 2017 would entitle member nations (Brazil, Argentina, Paraguay, and Uruguay) to non-discriminatory treatment of government-procured goods, services, and public works from each other’s suppliers and providers. However, the protocol is not yet in force since only Uruguay has ratified the protocol as of March 2023.

OTHER INVESTMENT POLICY REVIEWS

The Organization for Economic Co-operation and Development’s (OECD) November 2022 Economic Outlook Projection of Brazil summarized that household consumption, private investment, and exports will remain Brazil’s main drivers of growth, although these drivers are expected to slow down in 2023. Inflation is projected to decline, as the effects of higher energy and food prices fade, and the currency exchange rate improves in comparison to the end of 2022.
The IMF Report “Outlook for the Western Hemisphere: Navigating Tighter Global Financial Conditions” (October 2022) expects tighter financial conditions and global circumstances to weigh on Brazil’s growth going forward. Other conditions that present challenges include a high and broad-based inflation, high interest rates, large public debt (affected by increased GOB spending to improve socioeconomic conditions), and modest growth potential. The report noted potential opportunities for Brazil, including leveraging its position as a major food and energy supplier. The IMF also suggested that Brazil could become a provider of green technologies and critical minerals, though the report also mentioned that Brazil would require further investment in the critical minerals arena.
The WTO’s 2022 Trade Policy Review of Brazil noted that the Brazilian economy is projected to enter a gradual recovery, although the recovery could be impacted by certain risks such as a fiscal imbalance, a high unemployment rate, inflationary pressures, and a rapidly aging population. The report highlighted that Brazil’s relatively low external public debt, currency reserves, and strong FDI component of capital inflows remain; however, international circumstances could impact Brazil’s growth prospects.
All of the reports noted that Brazil needs to focus on structural reforms, including reviewing its tax and incentives regime and fiscal responsibility structure, to strengthen the economy and attract investment.

  1. OECD Report: https://issuu.com/oecd.publishing/docs/brazil-economic-outlook-projection-note-november-2 
  2. IMF Report: https://www.imf.org/en/Publications/REO/WH/Issues/2022/10/13/regional-economic-outlook-western-hemisphere-october-2022 
  3. WTO Report: https://www.wto.org/english/tratop_e/tpr_e/tp532_e.htm 

BUSINESS FACILITATION

In recent years, Brazil enacted legislative and regulatory changes to improve its business environment and attract investment:

  • The Economic Freedom Law (13.874/2019) provides for free market guarantees and includes several provisions to simplify regulations and establish norms for the protection of free enterprise and the free exercise of economic activity.
  • The “Doing Business” law (14.195/2021) simplified processes to open a business and to facilitate foreign trade by eliminating redundancy and automating trade processes, and by expanding the powers of minority shareholders in private companies.
  • In August 2021, the GOB expanded its Authorized Economic Operator Program (Programa OEA) to include the Foreign Trade Secretariat (SECEX), allowing GOB-designated OEA-certified operators that maintain a low level of risk to achieve benefits in their foreign trade operations related to drawback suspension and exemption regimes.

The GOB has undertaken initiatives to reduce bureaucracy and improve the business climate, a constant complaint of investors and analysts. The RedeSimples Program has been established to streamline and decrease the time period for opening a small- or medium-sized enterprise (SME), and the SIMPLES program works to reduce regulatory compliance burdens for SMEs by simplifying the collection of federal, state, and municipal-level taxes into one single payment.
Business managers often complain of not being able to understand complex and sometimes contradictory tax regulations, despite having large local tax and accounting departments in their companies. Tax regulations, while burdensome and numerous, do not generally differentiate between foreign and domestic firms; however, there are discrepancies regarding rebates of the value-added tax collected by states (ICMS) for exported goods, which may favor local companies. Taxes on commercial and financial transactions are particularly burdensome, and businesses argue that they hinder the international competitiveness of Brazilian-made products.
In October 2020, Brazil signed a Protocol on Trade Rules and Transparency with the United States, which has three annexes aimed at expediting processes involving trade: I) Customs Administration and Trade Facilitation; II) Good Regulatory Practices; and III) Anti-corruption. The protocol and annexes went into force in 2022 and they provide a foundation for reducing border bureaucracy, improving regulatory processes and stakeholder contribution opportunities, and supporting integrity in public institutions.

OUTWARD INVESTMENT

Brazil incentivizes outward investment and does not restrict domestic investors from investing abroad. APEX-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program” and 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 and cooperate extensively on trade programs. APEX-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad, including trade missions, business roundtables, promoting the participation of Brazilian companies in 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 majority of Brazilian investments abroad are concentrated in the following sectors: financial services and assets; IT; oil and gas extraction; and mineral metal extraction. Brazilian investments abroad are traditionally concentrated in the Caribbean (i.e., the Cayman Islands, British Virgin Islands and Bahamas) and Europe (primarily the Netherlands and Luxembourg).
Sales of cross-border mutual funds are only allowed to certain categories of investors, not to the general public. Regulators are in discussions to increase 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), along with potentially implementing tax deferral mechanisms to incentivize Brazilian investment abroad.

Brazil does not have a Bilateral Investment Treaty (BIT) with the United States. In the 1990s, Brazil signed BITs with 15 countries; however, none were ratified by the Brazilian congress. In 2002, the Executive branch withdrew the agreements from Congress after determining that treaty provisions on international Investor-State Dispute Settlement (ISDS) were unconstitutional.
In 2015, Brazil developed a state-to-state Cooperation and Facilitation Investment Agreement (CFIA), which unlike traditional BITs does not provide for an ISDS mechanism. CFIAs outline progressive steps for the settlement of “issue[s] of interest to an investor,” including: 1) mediation (an ombudsmen and a Joint Committee appointed by the two governments); 2) dispute brought to the Joint Committee; and 3) interstate arbitration mechanisms. Brazil has signed CFIAs with 12 countries ( https://www.gov.br/siscomex/pt-br/acordos-comerciais/acfi ). In addition, Brazil has signed other types of agreements containing investment provisions with Peru, Chile, Iran, Azerbaijan, and Armenia. However, not all of these CFIAs, nor the other types of agreements, are in force. For the status of each individual agreement, visit https://concordia.itamaraty.gov.br/ . Brazil also negotiated an intra-Mercosul Cooperation and Investment Facilitation Protocol (PCFI) similar to the CFIA in 2017, which was ratified in 2018. (See sections on responsible business conduct and dispute settlement.(See sections on responsible business conduct and dispute settlement.)
Brazil has a Social Security Agreement with the United States, which was signed in 2015 and entered into force in 2018. Brazil also signed a Tax Information Exchange Agreement (TIEA) with the United States in 2007, which entered into force in 2013. In 2014, Brazil and the United States signed an intergovernmental agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA) that went into effect in 2015.
Brazil does not have a double taxation treaty with the United States, but Brazil does maintain tax treaties to avoid double taxation with the 36 countries (full list available at https://www.gov.br/receitafederal/pt-br/acesso-a-informacao/legislacao/acordos-internacionais/acordos-para-evitar-a-dupla-tributacao/acordos-para-evitar-a-dupla-tributacao ). Brazil also negotiated a treaty with Uruguay, but it is pending congressional ratification. Brazil is a part of the OECD Inclusive Framework on Base Erosion and Profit Shifting, focusing on a two-pillar solution to global tax issues including a global minimum corporate tax.
For years, Brazilian industry representatives have suggested that a bilateral taxation treaty between Brazil and the United States would incentivize U.S. FDI. Brazil’s National Industry Confederation (CNI) and AmCham Brazil have presented the private sector’s position on a bilateral taxation treaty to the new administration for consideration.
Brazil currently has tax reform legislation pending in Congress. The proposed legislation is considered a priority by the federal government but faces stiff opposition from state governments. The legislation text proposes simplifying tax collection by unifying various taxes and would generally maintain the tax burden at its current level, which is high relative to other countries in the region. Analysts argue that the new administration could have a better chance in negotiating with states to approve the reform, but doubt that the legislation will result in a lower tax burden or decrease the level of primary public debt. Brazil currently has pending legislation on transfer pricing that would align the country with OECD guidelines and avoid double taxation issues.

TRANSPARENCY OF THE REGULATORY SYSTEM

In 2022, the Department of State concluded in its annual 2022 Fiscal Transparency Report that Brazil had met minimum fiscal transparency requirements. The International Budget Partnership’s Open Budget Index ranked Brazil ahead of the United States in terms of budget transparency in its most recent (2021) index. According to the report, the Brazilian government demonstrates adequate fiscal transparency in managing its federal accounts, though there is room for improvement in terms of providing more complete federal budget documentation. Brazil’s budget documents are publicly available, widely accessible, and sufficiently detailed. They provide a relatively full picture of the GOB’s planned expenditures and revenue streams. The information in publicly available budget documents is considered credible and reasonably accurate.
The Chamber of Deputies, the Federal Senate, and the Office of the Presidency maintain websites providing public access to both approved and proposed federal legislation. Brazil is seeking to improve its public comment and stakeholder input process. The GOB has an online “Transparency Portal” with data on funds transferred to and from federal, state, and city governments; to and from foreign countries; and information on civil servant salaries.
Of Brazil’s ten federal regulatory agencies, the most prominent include:

  1. ANVISA, which maintains regulatory authority over the production and marketing of food, drugs, and medical devices (the Brazilian counterpart to the U.S. Food and Drug Administration)
  2. ANATEL, the country’s telecommunications regulatory agency which also handles licensing and assigning of radio spectrum bandwidth (the Brazilian FCC counterpart)
  3. ANP, the National Petroleum Agency which regulates oil and gas contracts and oversees auctions for oil and natural gas exploration and production
  4. ANAC, Brazil’s civil aviation agency
  5. IBAMA, Brazil’s environmental licensing and enforcement agency
  6. ANEEL, Brazil’s electricity regulator that regulates Brazil’s power sector and oversees auctions for electricity transmission, generation, and distribution contracts

In addition to these federal regulatory agencies, Brazil has dozens of state- and municipal-level regulatory agencies. Regulatory agencies complete Regulatory Impact Analyses (RIAs) on a voluntary basis; however, a 2019 law makes RIAs mandatory for regulations that affect the “general interest.”
The United States and Brazil conduct regular discussions on customs and trade facilitation, good regulatory practices, standards and conformity assessment, digital issues, and intellectual property protection through regular forums such as the Commercial Dialogue and CEO Forum.
In December 2021, Brazil’s Securities and Exchange Commission (CMV) issued Resolution 59/2021, establishing the first transparency mechanism for environmental, social, and corporate governance (ESG) practices in the country to provide more comprehensive information to potential investors. The mandatory survey, set to begin in January 2023, includes questions about inclusion of ESG indicators in publicly-traded companies’ reporting, the consideration of climate recommendations by external organizations, and diversity metrics.

INTERNATIONAL REGULATORY CONSIDERATIONS

Brazil is a member of Mercosul – a South American trade bloc whose full members include Argentina, Paraguay, and Uruguay. Brazil routinely implements Mercosul common regulations.
Brazil is a member of the WTO, and the government regularly notifies draft technical regulations, such as potential agricultural trade barriers, to the WTO Committee on Technical Barriers to Trade (TBT).

LEGAL SYSTEM AND JUDICIAL INDEPENDENCE

Brazil has a civil legal system with state and federal courts. Investors can seek to enforce contracts either through the court system or via mediation, although both processes can be lengthy. The Brazilian Superior Court of Justice (STJ) must accept foreign contract enforcement rulings for them to be considered valid in Brazil and the foreign judgment must not contradict any prior decisions by a Brazilian court in the same dispute. The Brazilian Civil Code regulates commercial disputes, although commercial cases involving maritime law follow an older Commercial Code which has been otherwise largely superseded.
The judicial system is generally independent. The Supreme Federal Court (STF), charged with constitutional cases, frequently rules on politically sensitive issues. State court judges and federal level judges below the STF are career officials selected through a meritocratic examination process. Regulations and enforcement actions can be litigated in the court system, which contains mechanisms for appeal depending upon the level at which the case is filed. STF is the ultimate court of appeal on constitutional grounds and for cases not involving constitutional issues.

LAWS AND REGULATIONS ON FOREIGN DIRECT INVESTMENT

A company must register with Receita Federal to obtain a business license and be placed on the National Registry of Legal Entities (CNPJ). The registry can be found at: https://www.gov.br/pt-br/servicos/inscrever-ou-atualizar-cadastro-nacional-de-pessoas-juridicas .
After filling out the registration and submitting the necessary documentation, business entities can make the authorization request on the Brazilian government’s online portal through a legal representative or third party who holds a power of attorney. The electronic documents are analyzed by the Brazilian National Department of Business Registration and Integration (DREI). The Brazilian Civil Code regulates foreign companies opening businesses in Brazil, but there are different provisions for foreign companies that are being established in Brazil and for foreign companies that will be a partner or shareholder of a Brazilian company. English-language guidelines to open a foreign company in Brazil are not available, but the Portuguese version is available at: https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras . The contact information of the DREI is drei@economia.gov.br and +55 (61) 2020-2010 / +55 (61) 2020-2092.

COMPETITION AND ANTITRUST LAWS

The Administrative Council for Economic Defense (CADE), which falls under the purview of the Ministry of Justice and Public Security, is responsible for enforcing competition laws, consumer protection, and carrying out regulatory reviews of proposed mergers and acquisitions. CADE was reorganized in 2011, bringing Brazil in line with U.S. and European merger review practices and allowing CADE to perform pre-merger reviews in contrast to the prior legal framework that directed the government to review mergers only after they had already been completed. In 2022, CADE conducted 669 total formal investigations on concentration acts, with 640 approved without restrictions and no rejections.

EXPROPRIATION AND COMPENSATION

Article 5 of the Brazilian Constitution assures property rights of both Brazilians and foreigners that own property in Brazil, but it does not address nationalization or expropriation. Decree-Law 3365 allows the government to exercise eminent domain under certain criteria that include but are not limited to national security, public transportation, safety, health, and urbanization projects. In cases that are related to these areas, the government compensates owners at fair market value.
There are no signs that the current federal government is contemplating expropriation actions in Brazil against foreign interests. Brazilian courts have previously ruled in U.S. citizens’ favor for some claims regarding state-level land expropriations. However, due to the judicial system’s backlog, the compensation process can be lengthy and have uncertain final outcomes.

DISPUTE SETTLEMENT

ICSID Convention and New York Convention

In 2002, Brazil ratified the 1958 Convention on the Recognition and Enforcement of Foreign Arbitration Awards. Brazil is not a member of the World Bank’s International Center for the Settlement of Investment Disputes (ICSID). Brazil joined the United Nations Commission on International Trade Law (UNCITRAL) in 2010, and its membership will expire in 2028.

Investor-State Dispute Settlement

Brazil does not adhere to international Investor-State Dispute Settlement (ISDS) commitments and has interpreted the commitments to be unconstitutional in the past. Brazil has a Cooperation and Facilitation Investment Agreement (CFIA) model but it does not include ISDS mechanisms. (See the sections on bilateral investment agreements and responsible business conduct for additional information.)
The 1996 Brazilian Arbitration Act (Law 9307) defines a foreign arbitration judgment as any judgment rendered outside of the national territory. The law established that the Superior Court of Justice (STJ) must ratify foreign arbitration awards and it stipulates that a foreign arbitration award will be recognized or executed in Brazil in conformity with the international agreements ratified by the country and, in their absence, with domestic law. A 2001 Brazilian Supreme Federal Court (STF) ruling established that the Brazilian Arbitration Act does not violate the federal constitution.
Contract disputes in Brazil can be lengthy and complex. Brazil has both a federal and a state court system, and jurisprudence is based on civil code and contract law. Federal judges hear most disputes in which one of the parties represents the State and rule on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil. Five regional federal courts hear appeals of federal judges’ decisions.

International Commercial Arbitration and Foreign Courts

Brazil ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention) and the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention).

BANKRUPTCY REGULATIONS

Brazil’s commercial code governs most aspects of commercial association, while the civil code governs professional services corporations. In 2020, Brazil approved a new bankruptcy law (Law 14.112), largely modeling the UNCITRAL Model Law on International Commercial Arbitration and addressing criticisms that its previous bankruptcy legislation favored holders of equity over holders of debt. The new law facilitates the judicial and extrajudicial resolution process between debtors and creditors, accelerates reorganization and liquidation processes, and establishes a framework for cross-border insolvencies that recognizes legal proceedings outside of Brazil.

INVESTMENT INCENTIVES

The GOB extends tax benefits for investments in less-developed parts of the country, including the Northeast and the Amazon regions, with equal application to foreign and domestic investors. These incentives were successful in attracting major foreign manufacturing plants to areas like the Manaus Free Trade Zone in Amazonas State, but most foreign investment remains concentrated in the more industrialized southeastern states in Brazil. Individual states seek to attract private investment by offering tax benefits and infrastructure support to companies, negotiated on a case-by-case basis. Competition among states to attract employment-generating investment leads some states to challenge such tax benefits as beggar-thy-neighbor fiscal competition.
In addition to tax reform, the current administration is focused on the reindustrialization of the Brazilian economy, with a focus on the bioeconomy and green technologies. According to Brazil’s National Confederation of Industries (CNI), the manufacturing industry’s share of Brazil’s GDP was 12.9 percent in 2022. The tax burden and heavy bureaucracy weigh on the industry’s competitiveness.
Although local private sector banks are beginning to offer longer credit terms, the state-owned National Economic and Social Development Bank (BNDES) is the traditional Brazilian source of long-term credit as well as export credits. BNDES provides funding to foreign- and domestically-owned companies operating in Brazil for use in primary infrastructure projects and for manufacturing and marketing capital goods. Until 2017, BNDES provided much of its financing at subsidized interest rates, which began to be phased out in 2018 in lieu of a Long-Term Lending Rate (TLP) which would float with the market after five years. The GOB’s original plan was to reduce BNDES’s role even further as it continues to promote the development of long-term private capital markets. However, the new administration has stated the need for BNDES to play a larger role in promoting economic development, particularly in concession financing.
Brazil has several sector-specific incentives and programs:

  • Finame low carbon program: a program established by BNDES to provide financing for green technology acquisition such as energy generation systems and energy-efficient vehicles, machines, and equipment. The program allows for up to 100 percent financing, with payment terms of up to ten years and a two-year grace period; however, the products must be new, manufactured in Brazil, and accredited by the program. Currently, seven commercial banks are partners of Finame.
  • Rota 2030: an auto sector incentive package that provides exemptions from Industrial Product Tax (IPI) for research and development (R&D) spending. Rota 2030 replaced the Inovar-Auto program, which was found to violate WTO rules. To qualify for the tax incentives, businesses must meet conditions including demonstrating profit, investing a minimum amount of funds in R&D, and not having any outstanding tax liabilities.
  • Reintegra Program: Special Regime for the Reinstatement of Taxes for Exporters, which provides a tax subsidy of two percent of the value of the exported goods.
  • Basic Production Process (PPB): Brazil provides tax reductions and exemptions on many qualified, domestically produced information and communication technology products (ICT). The PPB is product-specific and stipulates which stages of the manufacturing process must be carried out in Brazil for an ICT product to be considered domestic.
  • Brazil’s Internet for All program: launched in 2018, aims to ensure broadband internet to all municipalities by offering tax incentives to operators in rural municipalities.
  • Special Tax Regime for the Defense Industry (RETID): offers tax incentives to firms in the defense sector. The regime includes special rules for the acquisition, contract, and development of defense products and systems, and access to financing programs, projects, and actions related to Strategic Defense Products (PED). A RETID beneficiary (EED) provides goods or services to be used in the production or development of defense assets.

FOREIGN TRADE ZONES/FREE PORTS/TRADE FACILITATION

The federal government grants tax benefits to certain free trade zones. Most of these free trade zones aim to attract investment to the country’s relatively underdeveloped North and Northeast regions. The most prominent of these is the Manaus Free Trade Zone in Amazonas State, which has attracted significant foreign investment including from U.S. companies. Constitutional amendment 83/2014 extended the status of Manaus Free Trade Zone until the year 2073.

PERFORMANCE AND DATA LOCALIZATION REQUIREMENTS

The GOB maintains a variety of localization barriers to trade in response to the weak competitiveness of its domestic tech industry, such as: tax incentives for locally-sourced information and communication technology (ICT) goods and equipment; government procurement preferences for local ICT hardware and software; regulations to certify that software programs are the result of development and technological innovation in Brazil; preferential treatment to domestically produced ICT by federal agencies and parastatal entities.
In 2019, Brazil adopted the New Informatic Law, which revised the tax and incentives regime for the ICT sector to comply with WTO rules. The law provides tax incentives to ICT goods manufacturers that invest in research, development, and innovation (RD&I) in Brazil. There are minimum nationalization requirements for production, which is reduced proportionally to local RD&I investment, and at least 60 percent of the production is required to take place in Brazil.
Brazil’s Marco Civil, the framework law governing internet user rights and company responsibilities, states that data collected or processed in Brazil must respect Brazilian law even if the data is stored outside of the country. Penalties for non-compliance could include fines and/or the suspension or prohibition of related operations. Brazil’s General Law for Protection of Personal Data (LGPD) went into effect in August 2020 and governs the processing and transfer of personal data of subjects in Brazil by people or entities regardless of the processing type, the country where the data is located, or the location of the entity’s headquarters. The law also established the National Data Protection Authority (ANPD) to administer its provisions and be in charge of oversight. The authority can also impose sanctions of up to R$50 million (approximately $10 million) per violation.
The Institutional Security Cabinet (GSI), an executive branch body that advises the presidency on security affairs, mandated the localization of all government data stored in the cloud in Ordinance No. 9 (previously NC 14) issued in March 2018. While the ordinance does allow the use of cloud computing for non-classified information, it imposes a data localization requirement on all cloud computing usage by the Brazilian government.
Investors in certain sectors in Brazil must adhere to the country’s price regulation procedures. There are two categories of price regulation: prices regulated at the federal level by a federal company or agency, i.e., telephone services, certain refined oil and gas products, electricity, and healthcare; and prices set at the sub-national level (states or municipalities), i.e., water and sewage fees, and public transportation.

REAL PROPERTY

Brazil has a mortgage registration system, but the system implementation is uneven and there is no standardized mortgage contract. Foreign individuals or foreign-owned companies can purchase real estate property in Brazil, and foreign buyers frequently arrange alternative financing in their own countries where interest rates may be more attractive. Although there is a legal framework to establish a secondary market in mortgages and streamline the foreclosure process, the mortgage market in Brazil is underdeveloped, and foreigners may have difficulty obtaining local financing. Large U.S. real estate firms are, nonetheless, expanding their portfolios in Brazil.

INTELLECTUAL PROPERTY RIGHTS

Foreign applicants for and holders of intellectual property (IP) rights can expect fair treatment from INPI and from Brazilian courts. Even so, IP rightsholders in Brazil continue to face challenges. Brazil has remained on the Watch List of the U.S. Trade Representative’s (USTR) Special 301 Report since 2017. The U.S. Government has long-standing concerns about Brazil’s IP enforcement regime and specific problems like the high rates of online piracy. Brazil has one physical market located in São Paulo that is listed on USTR’s 2022 Review of Notorious Markets for Counterfeiting and Piracy, the Rua 25 de Março area, which is identified as a distribution center for counterfeit and pirated goods.
Brazil’s National Institute of Industrial Property (INPI) grants patents and registers trademarks, industrial designs, and geographical indications (GIs). Patent applications may be filed directly or using the Patent Cooperation Treaty (PCT); trademark applications may be filed directly or using the Madrid Protocol; and industrial designs may be registered directly or, as of August 1, 2023, using the Hague Agreement. The patent backlog at INPI averages about seven years, with some sectors (including the telecommunications and pharmaceutical industries) averaging closer to 10 years. Multiple available fast-track programs can significantly shorten this period.
Copyrights in Brazil are overseen by the National Secretariat for Copyright and Intellectual Property, which introduced an online copyright registration system in 2022.
In 2008, the Ministry of Health initiated the use of Production Development Partnerships (PDPs) to reduce the dependence of Brazil’s healthcare sector on external production and control costs in the public healthcare system. PDP agreements provide a framework for technology transfer and the development of local production. U.S. companies have both competed for these procurements and raised concerns about the potential for PDPs to be used to subvert IP protections under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization (WIPO)’s country profiles: http://www.wipo.int/directory/en . Additional information is also available from the USPTO IP Attaché in Brazil: https://www.uspto.gov/ip-policy/ip-attache-program/regions/brazil  .

CAPITAL MARKETS AND PORTFOLIO INVESTMENT

At the end of 2022, the Special Settlement and Custody System (Selic) baseline reference interest rate was set at 13.75 percent by Brazil’s Central Bank (BCB). Although analysts expect the interest rate to be reduced throughout 2023, Brazil’s fiscal and public debt conditions weigh against the possibility of sharp reductions. According to the BCB, in 2022 the ratio of public debt to GDP dropped to 73.5 percent, compared to a record 89.4 percent in 2020. Analysts project that the debt/GDP ratio will rise to around 77 percent by the end of 2023.
The role of the state in credit markets began to contract in 2020 due to the COVID-19 pandemic. Directed lending (to meet mandated sectoral targets) rose, and accounts for almost half of total lending. Brazil is paring back public bank lending and trying to expand the market for long-term private capital. While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional source of long-term credit in Brazil. BNDES also offers export financing. Approvals of new financing by BNDES increased 55 percent in 2022 over 2021, with the infrastructure sector receiving the majority of the new capital.
The sole stock market in Brazil is B3 (Brasil, Bolsa, Balcão), created through the 2008 merger of the São Paulo Stock Exchange (Bovespa) with the Brazilian Mercantile & Futures Exchange (BM&F), forming the fourth-largest exchange in the hemisphere after the NYSE, NASDAQ, and Canadian TSX Group. In 2022, there were 475 companies traded on the B3 exchange. The B3’s broadest index, the Ibovespa, increased 4.68 percent in valuation during 2022. Foreign investors, both institutional and individuals, can directly invest in equities, securities, and derivatives; however, they are limited to trading those investments only on established markets.
Wholly owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil. Auditors are personally liable for the accuracy of accounting statements for banks.

MONEY AND BANKING SYSTEM

The Brazilian financial sector is large and sophisticated. Banks lend at market rates that remain relatively high compared to other emerging economies. The reasons cited by industry observers for the higher market rates include: high taxation; repayment risk; concern over inconsistent judicial enforcement of contracts; high mandatory reserve requirements; administrative overhead; and persistently high real (net of inflation) interest rates.
The banking sector in Brazil is highly concentrated, with BCB data indicating that the five largest commercial banks (excluding brokerages) account for more than 80 percent of the commercial banking credit market. Three of the five largest banks by assets in the country, Banco do Brasil, Caixa Econômica Federal, and BNDES, are partially or completely federally owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies. Citibank sold its consumer business to Itaú Bank in 2016 but maintains commercial banking interests in Brazil. It is currently the only U.S. bank operating in the country. Increasing competitiveness in the financial sector, including in the emerging fintech space, is a vital part of the Brazilian government’s strategy to improve access to and the affordability of financial services.
The Brazilian Central Bank has focused on innovation initiatives to modernize the banking system and promote inclusion. In 2020, the BCB launched its instant payment system called “PIX”, a 24/7 system that offers transfers for people to people (P2P), people to businesses (P2B), businesses to people (B2P), businesses to businesses (B2B), and government-government (G2G). Brazilian customers overwhelmingly embraced PIX, particularly for P2P transfers (which are free), replacing both cash payments and legacy bank electronic transfers which charged relatively high fees and could only take place during business hours.
In 2021, the BCB started implementing its Open Banking Initiative, an effort to open Brazil’s insulated banking system dominated by only a few players. The BCB has already implemented three phases of the initiative, including the digitalization of customers’ profiles, sharing of banking products and services, and exchanging information on customer transactions (subject to consent). The fourth phase includes investment information and is expected to be implemented in 2023. The BCB expects that increased access to customer information will allow other financial institutions, including competitor banks and fintechs, to offer better and cheaper banking services thereby reducing the concentration on only a few banks in the sector. According to a study by Open Banking Excellence (OBE), Brazil’s implementation has been faster and more comprehensive than in most other countries, placing Brazil as a global leader in this area.
In recent years the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately. It also established loan classification and provisioning requirements. These measures apply to both private- and publicly-owned banks. Since early 2017, Moody’s has rated the Brazilian banks at Ba2 (two levels below investment grade), and since 2021 the outlook has remained stable. Moody’s rating is higher than S&P Global’s Fitch rating, which classified Brazil three levels below investment grade. The Brazilian Securities Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies, and assesses penalties in instances of insider trading.
To open an account with a Brazilian bank, foreign account holders must present a permanent or temporary resident visa, a national tax identification number (CPF) issued by the Brazilian government, either a valid passport or identity card for foreigners (CIE), proof of domicile, and proof of income. On average, the process from initially submitting the application to opening the account can take more than three months.

FOREIGN EXCHANGE AND REMITTANCES

Foreign Exchange

Brazil’s foreign exchange market remains small. The latest Triennial Survey by the Bank for International Settlements (2022) showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps, and currency options) was $21 billion, up 11.8 percent from 2019 ($18.8 billion). This was equivalent to around 0.27 percent of the global market, up from 0.22 percent in 2019.
In 2021 Brazil approved a new Foreign Exchange Regulatory framework, replacing over 40 separate regulations and facilitating investments flows. The new law modernized the forex market, streamlined currency exchange operations, and expanded authorizations to include fintechs and small businesses, increasing sectorial competitiveness. The law also expanded the list of qualifying activities transacted in foreign-currency denominated accounts (previously restricted to import/export firms and for loans with debtor or creditor based outside Brazil). The law went into effect in December 2022.
Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rate spreads and fees. According to BCB’s November 2022 Financial Stability Report, the banking system remains solid, with capitalization indices well above minimum requirements. 98.5 percent of the banking institutions are able to meet the minimum prudential requirements, and solvency does not pose a risk to Brazil’s financial stability. Stress testing demonstrated that the banking system has adequate loss-absorption capacity in all simulated scenarios.
There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil. Foreign investors may freely convert Brazilian currency in the unified foreign exchange market, with the exchange rates determined by market forces. All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized.
The BCB must approve all incoming foreign loans. In most cases, loans are automatically approved unless loan costs are determined to be “incompatible with normal market conditions.” In these cases, the BCB may request additional information. Loans obtained abroad do not require advance approval unless the recipient is a government entity, in which case the loan would require prior approval from the Brazilian senate and the Finance Ministry’s National Treasury Secretariat, and must be registered with the BCB.
Interest and amortization payments specified in a loan contract can be made without the BCB’s additional approval. Early payments can also be made without additional approvals if this provision is included in the contract. If the provision is not included, the entity would need to notify the BCB of the early payments, so that the BCB can maintain accurate records of Brazil’s stock of debt.

Remittance Policies

The Brazilian Federal Revenue Service regulates withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities residing in or domiciled outside Brazil. Upon registering investments with the BCB, foreign investors can remit dividends, capital (including capital gains), and, if applicable, royalties. Investors must register remittances with the BCB, with the exception of royalties due to the implementation of Law 14.268/2021. Dividends cannot exceed corporate profits. Investors may carry out remittance transactions at any bank by documenting the transaction source (evidence of profit or sale of assets) and showing payment of any applicable taxes.
Under Law 13.259 from 2016, capital gains remittances are subject to a 15 to 22.5 percent income withholding tax except for capital gains and interest payments on tax-exempt domestically issued Brazilian bonds. The capital gains marginal tax rates are 15 percent for up to $1,000,000 in gains; 17.5 percent for $1,000,000 to $10,000,000 in gains; 20 percent for $10,000,000 to $60,000,000 in gains; and 22.5 percent for more than $60,000,000 in gains.
The repatriation of a foreign investor’s initial investment is exempt from income tax under Law 4131/1962. Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance although they are subject to a 15 percent withholding tax and fines of up to 135% of the owned tax.

SOVEREIGN WEALTH FUNDS

Brazil had a sovereign fund from 2008 – 2018; when it was abolished, and the money was used to repay foreign debt.

The GOB maintains ownership in a variety of enterprises at both the federal and state levels. Typically, boards responsible for state-owned enterprise (SOE) corporate governance are comprised of directors appointed by the state or federal government, with additional directors elected by any non-government shareholders. Brazil does not follow the OECD Guidelines on Corporate Governance of SOEs and has its own SOE Governance Law. Brazilian SOEs are prominent in the oil and gas, electricity generation and distribution, transportation, and banking sectors. A number of these firms also have a portion of their shares publicly traded on the Brazilian and other stock exchanges.
According to GOB data, Brazil has 127 state-owned companies, 44 directly controlled by the GOB and 83 indirectly controlled. Notable examples of majority government-owned and controlled firms include national oil and gas giant Petrobras and banking company Banco do Brasil (BB). Both companies include non-government shareholders, are listed on both the Brazilian and American stock exchanges, and are subject to the same accounting and audit regulations as all publicly-traded Brazilian companies.
According to the Brazilian Constitution, SOEs cannot enjoy tax privileges not extended to private sector companies. However, since the constitution grants exclusive rights to certain economic sectors it is possible for SOEs to restrict private sector participation.

PRIVATIZATION PROGRAM

One of the most prominent changes expected with the new Lula administration is the shift from promoting privatizations to prioritizing public-private partnerships (PPPs) and concessions. According to GOB statements, a focus of the new administration will be strengthening the role of the federal and local governments in conducting infrastructure works and not actively promoting the sale of state-owned assets as was identified as a priority by the previous Administration. Additionally, the GOB is expected to rely on subsidized financing through BNDES for concessions and PPPs, although there are no details on the new financing model. All federal and state-level infrastructure concessions are open to foreign companies, with no requirement to work with Brazilian partners.
Brazil’s Investment Partnerships Program (PPI) was created in 2016 to accelerate the concession of strategic public works projects to private enterprise and the privatization of some state entities. PPI focuses on concessions in road, rail, seaports, airports, municipal water treatment, electricity transmission and distribution, and oil and gas exploration and production, among other assets. Since 2016, PPI has concluded over 200 projects, collecting more than $45 billion in auction bonuses and securing private investment commitments of $230 billion. The full list of PPI projects is located at: https://www.ppi.gov.br/schedule-of-projects .
Prior to the change in administration, the GOB had made privatization efforts to reduce the presence and dominance of SOEs in certain economic sectors:

  • In June 2022, the GOB successfully privatized Eletrobras, Latin America’s largest utility company, through issuance of new shares, diluting the government’s majority stake, and transforming the company into a corporation.
  • In March 2021, Brazil approved legislation to reform Brazil’s natural gas markets to increase competitiveness by unbundling production, transportation, and distribution. The creation of a truly competitive market, however, will still require lengthy state-level regulatory reform to liberalize intrastate gas distribution, which in large part is operated by state-owned distribution monopolies. As an effort to open the natural gas market and divest assets, Petrobras privatized its two major gas transportation pipelines, NTS in 2019 and TAG in 2021.
  • Petrobras, Brazil’s oil and gas giant, began a divestment plan in 2016 that led to the sale of natural gas distribution pipeline network and routes, and the reduction of its participation in refineries and retail gas station chain. Additional divestments have been halted.

Most state-owned and private sector corporations of any significant size in Brazil pursue corporate social responsibility (CSR) activities. Brazil’s new CFIAs (see sections on bilateral investment agreements and dispute settlement) contain CSR provisions. Some corporations use CSR programs to meet local content requirements, particularly in information technology manufacturing. Many corporations support local education, health, and other programs in the communities where they have a presence. Brazilian consumers, especially the local residents where a corporation has or is planning to establish a local presence, generally expect CSR activity. Corporate officials frequently meet with community members prior to building a new facility to review the types of local services the corporation will commit to providing and receive feedback. Foreign and local enterprises in Brazil often advance United Nations Development Program (UNDP) Sustainable Development Goals (SDGs) as part of their CSR activity, and will cite their local contributions to SDGs such as universal primary education and environmental sustainability. Brazilian prosecutors and civil society can be very proactive in bringing cases against companies for failure to implement the requirements of the environmental licenses for their investments and operations. National and international nongovernmental organizations monitor corporate activities for perceived threats to Brazil’s biodiversity and tropical forests and can mount strong campaigns against alleged misdeeds. A common challenge for foreign businesses, especially as it relates to child and forced labor, is a lack of transparency in supply chains.
The U.S. diplomatic mission in Brazil supports U.S. business CSR activities through the +Unidos Group (Mais Unidos), a group of multinational companies established in Brazil that supports public and private CSR alliances in Brazil. Additional information regarding this group can be found at: www.maisunidos.org .

Climate Issues

Brazil is the world’s 12th largest greenhouse gas emitter, which is caused by deforestation, agriculture, and other types of land use. At COP 26 in November 2021, Brazil committed to achieving net zero emissions by 2050, ten years ahead of its previous commitment. Brazil also committed to end illegal deforestation by 2028, and announced a plan to establish a carbon market in 2022. However, rates of illegal deforestation in 2022 continued to rise from a 2012 low, with total deforestation for the year only slightly lower than in 2021. Private sector operators, especially in agribusiness, expressed concerns about reputational damage and consumer reaction to environmental issues in Brazil, especially deforestation in the Amazon Basin, which could result in the boycott of Brazilian exports and a loss of market share. Such boycotts have already occurred in some supermarket chains in Europe.
When President Luiz Inácio Lula da Silva (Lula) assumed office in January 2023, he explicitly prioritized countering the climate crisis. On his first day in office, he signed various environmental decrees, chief among them the reestablishment of the Amazon Fund which raises donations to prevent, monitor and combat deforestation as well as to promote the preservation and sustainable use in the Amazon. Managed by the Brazilian National Bank for Economic and Social Development (BNDES), the Fund is viewed by the Lula government as a robust, transparent payment-for-results mechanism, with solid governance and technical-scientific rigor that directs donors toward a proven financing instrument to achieve climate objectives. Lula appointed Marina Silva to head the Ministry of Environment, and a new National Climate Security Authority will be established in April 2023. According to Silva, climate policy will be “transversal,” demanding engagement across various ministries.
Brazil established a National Policy on Climate Change in 2009 for climate change mitigation, adaptation, and consolidation of a low carbon economy. During COP 26 in Glasgow in 2021 under the Bolsonaro government, Brazil published guidelines to update its national climate strategy, focusing on consolidating various initiatives to develop a low carbon economy. The strategy included goals such as eliminating illegal deforestation, restoring forests, a “National Green Growth Plan,” and financing directed at developing a green economy; other highly publicized programs under the Bolsonaro government included the “Methane Zero” plan and the “Adopt-a-Park” program. Under President Lula the status of these programs is unclear. A recipient of the Global Fertilizer Challenge, Brazil is a member of the Agricultural Innovation Mission for Climate (AIM4C) and Global Methane Pledge.
In 2019, Brazil launched the National Biofuels Policy (RenovaBio) to comply with its Paris Agreement commitments by promoting the expansion of biofuels in the energy matrix and the reduction of greenhouse gas emissions. The policy established annual national decarbonization targets for the fuel sector, divided into mandatory individual targets for fuel distributors. To comply with the targets, fuel distributors purchase Decarbonization Credits (CBIO), a financial asset tradable on the stock exchange since 2020 derived from the certification of the biofuel production process and that corresponds to one ton of carbon dioxide. According to the Brazilian government, the program reached 85 percent of its targets in 2021, preventing the emission of 24 million tons of greenhouse gases and trading $212 million worth of CBIOs in the stock market.

Brazil has laws, regulations, and penalties to combat corruption, but enforcement activities against corruption are inconsistent, particularly at the state level. Several bills to revise regulation of the lobbying and government relations industry have been pending before Congress for years. Bribery is illegal, and a bribe by a Brazilian-based company to a foreign government official can result in criminal penalties for individuals and administrative penalties, fines, and potential barring from government contracts for companies. A company cannot deduct a bribe to a foreign official from its taxes. U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).
Brazil is a signatory to the UN Convention against Corruption. Brazil is also a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery. Brazil was one of the founders, along with the United States, of the intergovernmental Open Government Partnership which seeks to help governments increase transparency. In 1996, Brazil signed the Inter-American Convention Against Corruption (IACAC), which was developed at the Organization of American States (OAS) and went into force in 2002.
In 2021, Brazil ranked 94th out of 180 countries on Transparency International’s Corruption Perceptions Index. The full report can be found at: https://www.transparency.org/en/cpi/2021 
In December 2019, the GOB enacted anti-crime legislation measures, which included several anti-corruption aspects such as the regulation of immunity agreements, information provided in exchange for a reduced sentence. Immunity agreements were widely used during Operação Lava Jato (Operation Carwash), a federal criminal probe that investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from overcharging for government contracts The legislation also strengthened Brazil’s whistleblower mechanisms. Operation Carwash was dissolved in February 2021, and in March 2021 the OECD established a working group to monitor anticorruption efforts in Brazil. Operation Carwash had ramifications in the U.S. judicial system, including the largest FCPA penalty in U.S. history ( https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve  and one of the largest securities class action settlements in U.S. history ( https://www.justice.gov/opa/pr/petr-leo-brasileiro-sa-petrobras-agrees-pay-more-850-million-fcpa-violations ).

Resources to Report Corruption

Secretaria de Cooperação Internacional – Ministério Público Federal
SAF Sul Quadra 04 Conjunto C Bloco “B” Sala 509/512
pgr-internacional@mpf.mp.br
stpc.dpc@cgu.gov.br
https://www.gov.br/cgu/pt-br/anticorrupcao 

Transparência Internacional
Rua Dr. Virgílio de Carvalho Pinto, 445
Pinheiros, São Paulo
+55 (11) 4130-9709

Transparência Brasil
R. Bela Cintra, 409; São Paulo, Brasil
+55 (11) 3259-6986
http://www.transparencia.org.br/contato 

Strikes and demonstrations occasionally occur in urban areas and may cause temporary disruption to public transportation. Brazil has over 40,000 murders annually, with low rates of murder investigation case completions and convictions.
Non-violent pro- and anti-government demonstrations have occurred periodically in recent years. After the highly polarized 2022 presidential elections, hundreds of rioters invaded Brazil’s Congress, Supreme Court, and Presidential office building (Planalto) on January 8, 2023, while a protest of approximately 20,000 anti-government demonstrators occurred on Brasilia’s central esplanade. Institutional response to the invasions was swift and comprehensive, with numerous arrests occurring in the following days and suppressing additional protest attempts.
Although U.S. citizens usually are not targeted during such events, U.S. citizens traveling or residing in Brazil are advised to take common-sense precautions and avoid any large gatherings or any other event where crowds have congregated to demonstrate or protest. For the latest U.S. State Department guidance on travel in Brazil, please consult www.travel.state.gov.

The Brazilian labor market is composed of approximately 107.9 million workers, including employed (99.4 million) and unemployed (8.5 million). Low-skilled employment dominates Brazil’s labor market. Among employed workers, 39.6 percent work in the informal sector, and do not receive the full benefits that formal workers enjoy under Brazil’s labor and social welfare system. The informal market represents approximately 17.8 percent of Brazil’s GDP. In 2022, employees’ average monthly income totaled R$ 2,715 ($527).
Brazil’s unemployment rate in the last quarter of 2022 was 7.9 percent. For workers ages 18-24, the unemployment rate was more than double (16.4 percent). Traditionally, women have had higher unemployment rates than men. After a peak in 2021 (5.8 percentage points), the gender gap returned to pre-pandemic levels at the end of 2022 (3.3 percentage points). This discrepancy in employment rates is also observed for people of color: the unemployment rate for blacks and mixed-race (10.2 percent) is higher than the national average.
Foreign workers make up less than one percent of the overall labor force, but the arrival of approximately 400,000 economic migrants and refugees from Venezuela since 2016 has led to large local foreign worker concentrations in the northern region of Brazil. Since April 2018, Operation Welcome’s voluntary interiorization strategy has relocated more than 89,900 Venezuelans to cities with more economic opportunities. Migrant workers play a significant role in the agricultural sector.
According to labor laws, firms employing three or more people must ensure that Brazilian nationals constitute at least two-thirds of all employees and that they receive at least two-thirds of the company’s total payroll. This calculation excludes foreign specialists in fields where Brazilians are unavailable. There is pending legislation to remove the mandatory two-thirds requirement for national employment; however, it would maintain preferential treatment for companies with a majority of Brazilian nationals.
Workers in the formal sector contribute the amount of one month’s salary over the course of a year to the Time-of-Service Guarantee Fund (FGTS), which can be accessed if an employee is fired (full amount) or voluntarily leaves (20 percent of the amount). Brazil’s labor code guarantees formal sector workers 30 days of annual leave and severance pay in the case of dismissal without cause, as well as paid maternity leave (120 days). Unemployment insurance also exists for laid-off workers, equal to the country’s minimum salary (or more depending on the employee’s income level) for six months. The government does not waive any labor laws to attract investment.
Collective bargaining is common, and there were 17,630 labor unions operating in Brazil in 2022. Labor unions, especially in sectors such as metalworking and banking, are well organized in advocating for wages and working conditions. In some sectors, federal regulations mandate collective bargaining negotiations across the entire industry. A 2017 labor law ended mandatory union contributions, which has reduced union finances by as much as 90 percent according to independent studies. According to IBGE, the share of unionized workers dropped to 11.2 percent of the workforce in 2019 (most recent data). Strikes occur periodically, particularly among public sector unions. A strike organized by trucker’s unions protesting fuel prices paralyzed the Brazilian economy in May 2018 and led to billions of dollars in economic losses. More recent trucker strikes have had more limited impact.
Employer federations also play a significant role in public policy and labor relations. Each state has its own federations of industry and commerce, which report respectively to the National Confederation of Industry (CNI) in Brasilia and the National Confederation of Commerce (CNC) in Rio de Janeiro.
Brazil has a dedicated system of labor courts that are charged with resolving routine cases involving unfair dismissal, working conditions, salary disputes, and other grievances. Labor courts have the power to impose an agreement on employers and unions if negotiations break down and either side appeals to the court system, so they are routinely called upon to determine wages and working conditions. The labor courts system has millions of pending legal cases on its docket, although the number of new filings has decreased since the 2017 labor law reforms.
Brazil has ratified 98 International Labor Organization (ILO) conventions and is party to the UN Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor, and discrimination. From 2018 to 2021, the Department of Labor in its annual publication “Findings on the Worst forms of Child Labor” has recognized Brazil for its moderate advancement in efforts to eliminate the worst forms of child labor. In 2022, the GOB inspected 462 properties, resulting in the rescue of 2,575 victims of forced labor, including 35 underaged workers.

Programs of the U.S. International Development Finance Corporation (DFC) are available, although the DFC reports that certain authorities established by the BUILD Act of 2018 including equity investments, technical assistance, grants, and feasibility studies, may require a new bilateral Investment Incentive Agreement with the Government of Brazil. In 2019, DFC stated its intent to invest in infrastructure and women entrepreneurship projects as its primary focus in Brazil and had since funded projects close to $800 million through the end of 2022. Brazil has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1992. In 2022, DFC announced the following projects in Brazil:

  • A $31 million loan to expand of affordable women’s healthcare diagnostic centers
  • A second round of equity investment ($30 million) in Techmet Limited, a UK-domiciled firm executing the Piaui Nickel Project to develop and operationalize a nickel and cobalt mine in northeast Brazil.

 

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
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2022 $1.92 trillion 2021 $1.61 trillion https://data.worldbank.org/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2021 $191.6 billion 2021 $67.547 billion BEA data available at https://apps.bea.gov/international/
factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2021 $28.6 billion 2021 $8.017 billion BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2021 40% 2021 36.9% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx

*Source for Host Country Data: https://www.bcb.gov.br; https://www.ipea.gov.br/portal/ and https://www.ibge.gov.br 

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 517,420 100% Total Outward 295,905 100%
United States 112,039 21.65% British Virgin Islands 69,424 23.46%
The Netherlands 111,304 21.51% The Bahamas 60,898 20.58%
Luxembourg 52,358 10.12% Cayman Islands 59,387 20.06%
Spain 45,369 8.77% Luxembourg 19,356 6.54%
France 28,539 5.51% United States 18,863 6.37%
“0” reflects amounts rounded to +/- USD 500,000.

Source: IMF Coordinated Direct Investment Survey (CDIS)

Economic Section
U.S. Embassy Brasilia
BrasiliaECON2@State.gov
+55-61-3312-7000

On This Page

  1. EXECUTIVE SUMMARY
  2. Openness To, and Restrictions Upon, Foreign Investment
    1. POLICIES TOWARDS FOREIGN DIRECT INVESTMENT
    2. LIMITS ON FOREIGN CONTROL AND RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
    3. OTHER INVESTMENT POLICY REVIEWS
    4. BUSINESS FACILITATION
    5. OUTWARD INVESTMENT
  3. 2. Bilateral Investment and Taxation Treaties
  4. 3. Legal Regime
    1. TRANSPARENCY OF THE REGULATORY SYSTEM
    2. INTERNATIONAL REGULATORY CONSIDERATIONS
    3. LEGAL SYSTEM AND JUDICIAL INDEPENDENCE
    4. LAWS AND REGULATIONS ON FOREIGN DIRECT INVESTMENT
    5. COMPETITION AND ANTITRUST LAWS
    6. EXPROPRIATION AND COMPENSATION
    7. DISPUTE SETTLEMENT
      1. ICSID Convention and New York Convention
      2. Investor-State Dispute Settlement
      3. International Commercial Arbitration and Foreign Courts
    8. BANKRUPTCY REGULATIONS
  5. 4. Industrial Policies
    1. INVESTMENT INCENTIVES
    2. FOREIGN TRADE ZONES/FREE PORTS/TRADE FACILITATION
    3. PERFORMANCE AND DATA LOCALIZATION REQUIREMENTS
  6. 5. Protection of Property Rights
    1. REAL PROPERTY
    2. INTELLECTUAL PROPERTY RIGHTS
  7. 6. Financial Sector
    1. CAPITAL MARKETS AND PORTFOLIO INVESTMENT
    2. MONEY AND BANKING SYSTEM
    3. FOREIGN EXCHANGE AND REMITTANCES
      1. Foreign Exchange
      2. Remittance Policies
    4. SOVEREIGN WEALTH FUNDS
  8. 7. State-Owned Enterprises (SOEs)
    1. PRIVATIZATION PROGRAM
  9. 8. Responsible Business Conduct
    1. Climate Issues
  10. 9. Corruption
    1. Resources to Report Corruption
  11. 10. Political and Security Environment
  12. 11. Labor Policies and Practices
  13. 12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs
  14. 13. FOREIGN DIRECT INVESTMENT AND FOREIGN PORTFOLIO INVESTMENT STATISTICS 
  15. 14. CONTACT FOR MORE INFORMATION
2023 Investment Climate Statements: Brazil
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U.S. Department of State

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