Business Environment of

BrazilCaton Brown

Hari Dhanagopal

Joseph Hayes

Steve Potter

Ram Lakshmanan

Rachel Simpson

Contents

Business Structure Capital Markets Doing Business in Brazil Taxes Labor Laws

Business Structure Organizational structure is strictly ‘hierarchical’

Clearly defined roles and responsibilities within organizations Leaders required to be decisive, unambiguous in instructions to

subordinates Due respect for merit of the position in the organization Reduced friction in personal relationships up the chain Factors like bureaucracy play a huge role in time and nature of

business decision making

Business Entities Sociedade Anônima, or S.A

Most Similar to US Corporation General and Public Shares

Limitada, or Ltda Similar to US Limited Liability Companies Equity (Quotas) Divided among orders

Limited Liability only goes so far Creditor can pursue Managers and Directors

Capital Markets The Securities, Commodities and Futures Exchange

One of the largest in the world in market value Second largest in the Americas Leading exchange in Latin America Cost-efficient trading fees makes it attractive for investors to

respond to changes quickly

Capital Markets Projected to become the fourth largest contributor to

worldwide growth, behind China, the US, and India Stock and private bond markets rapid growth Growth greatly impacted by legal and regulation reform

in a positive way Comissao de Valores Mobiliarios

Financial Sector Financial Institutions – Modern

Infrastructure:All orders performed electronicallyChecks issued anywhere in the country cleared and

settled within 48 hoursBrazilian banks - leaders in the field of internet

banking

Doing Business in BrazilManaging Through the Downturn Keys to minimizing impact

• High level of equity held by financial institutions in 2008

• High level of deposits with the Central Bank• Recently implemented institutional changes• Efficient prudential regulation• High level of international reserves• Evolution of the Brazilian financial sector's system of supervision

Key Stats for Business in Brazil*

Category Ranking

Starting a business 120

Getting Credit 98

Protecting Investors 79

Paying Taxes 150

International Trade 121

Resolving Insolvency 136

Improving due to Eirelis and new local regulations

Largest stock exchange in terms of # of listed companies

Exorbitant taxes on income, vehicle and profits

Cost of exports and imports twice as high for the region

Fairs slightly better than rest of LATAM

- out of 183 countries:

Factors Driving Brazil’s Growth Improving political situation

Improved stability of currency and the economy

Fifth largest market by population

Fifth largest country by size

Due to newer regulations, improved Foreign Indirect Investments

Custo Brasil

Business Regulations Ranked last by World Economic Forum in Burden of

Government Regulation

Starting a business World bank ranks Brazil 120/183 countries in how easy it is to start a business Takes average of 119 days (vs. 6 in US and 54 in Latin America/Caribbean)

Eirelis LLC (Sociedade Limitada) used to requires at least 2 partners

Foreign Owners must find a permanent resident willing to hold power of attorney

Enforcement of contracts long and costly Almost no arbitration, so always goes to court On average takes 899 days and 22% of the debt to enforce a contract

Corporate Taxes in Brazil Some of the most complex in the world

Average medium-sized firms spend 10x hours paying taxes 2600 hours/year compared to average firms

Multiple tax payments to different taxing authorities: Federal Government Brazilian states and District of Brasilia Municipalities

Labor Laws Workers’ rights contained in 900 articles Termination of employment

Firms pay 8% of an employee’s salary into FGTS account, which follows employee from job to job, Wrongful termination

Vacation Can only be taken once or twice per year and must be 10 days or longer 30 days/year after 1st year Bonus of 1/3 month’s salary due when vacation is taken

13th Salary Mandatory bonus of 1 month’s salary must be paid in November and December

Expatriates Brazilian labor laws apply to all workers, even expatriates

Other Tax Facts Brazilian-based firms are taxed on all income, even

that earned outside of Brazil. Considered Resident Firm if incorporated in Brazil

Firms choose between being taxed on actual or presumed income Applies to Federal Income Tax (IPRJ) and Social Security (CSLL) Actual: Lucro Real method

Based on actual annual or quarterly income

Presumed: Lucro Presumido Optional for firms with gross revenue < BRL 48M in previous year Based on presumed profits

32% of services and 8% of product sales (12% for CSLL)

Capital Gains treated same as ordinary profits Federal Government working to simply filing by

moving payments online Allow one filing instead of multiple “Super Simples”

Allow small businesses to file single monthly payments In place since 2007 President Dilma Rouseff pushing to allow larger firms to use

BRIC Comparison

Category Brazil Russia India China

Overall Ranking 126 120 132 91

Starting a business 120^ 111 166 151

Getting Credit 98 98 40 67

Protecting Investors 79 111 46 97

Taxes 150 105 147 122

International Trade 121 160 109 60*

Resolving Insolvency 136# 60 128# 75

Inflation

6.5 % in December 2011 Averaged 445.98 % from 1980 to 2010 High of 6821.31% in April 1990 Attempted to address inflation through currency reform in 1980s

and early 1990s, ending with the Real in 1994

Government Corruption: A Play by Play June 2011 : Chief of Staff used position to drive business to a private

consulting business (Resigned)

July 2011: Transportation minister accused of charging commissions for contracts (Resigned)

August 2011: Agriculture minister accused of kickbacks throughout organization (Resigned)

September 2011: Tourism minister accused of using public money for personal use (Resigned)

October 2011: Sports minister accused of kickbacks (resigned)

November 2011: Labor minister denies accusations that ministry officials were taking kickbacks (In Office)

January 2012: Head of National Mint, accused of transferring $25m received from kickbacks offshore to the British Virgin Islands (Fired)

Organizational traits based on position

Organization

Power Concentration

Paternalism

Personal Loyalty

Impunity

Conflict Avoidance

FormalLeaders

Followers