2011 Investment Climate Statement - Brazil

2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011

Openness to, and restrictions upon, Foreign Investment




Brazil is open to and encourages foreign investment. After a decline in 2009 as a result of the global financial crisis, 2010 foreign direct investment (FDI) into Brazil was predicted to grow to approximately USD 33 billion (see final page for a historical chart of FDI inflows). Brazil is consistently the largest FDI recipient in Latin America and typically receives close to half of all South America’s incoming FDI. The United States is a major foreign investor in Brazil. FDI is prevalent across Brazil’s economy, although certain sectors -- notably media and communications, aviation, transportation and mining -- are subject to foreign ownership limitations. While Brazil is generally considered a friendly environment for foreign investment, burdensome tax and regulatory requirements exist. In most cases, these impediments apply without discrimination to both foreign and domestic firms. The Government of Brazil (GOB) generally makes no distinction between foreign and national capital.


Supported by strong domestic demand, global demand for commodity exports, a growing middle class, and prudent macroeconomic policies in recent years, Brazil weathered the global financial crisis better than most major economies. While GDP declined by 0.2 percent in 2009, the Brazilian economy was well into recovery in the latter half of the year. Growth continued to rebound in 2010, and full year growth was expected to surpass 7.5 percent. Analysts’ predictions anticipate that growth in 2011 will settle around 4.5 percent. In 2010, the Brazilian people elected a new president, Dilma Rousseff, to succeed Luiz Inacio Lula da Silva (“Lula”). Rousseff, who assumed the presidency on January 1, 2011, is of the same political party (PT) as Lula and is widely expected to continue Lula’s economic policies.


Banking: Brazil’s banking sector includes significant foreign investment and representation. While the Constitution of 1988 technically forbids new or expanded foreign investment in the banking sector, the vast majority of requests for entry or expansion have been approved on a case-by-case basis. Recent Brazilian Central Bank figures report that in September 2010 foreign banks comprised 19 of the top 50 Brazilian banks in terms of total assets, representing 18.3 percent of total financial assets less brokerage.


Insurance: Since 1996 the insurance sector has been open to foreign investors with most major U.S. firms represented via joint venture arrangements. In 2007, Complementary Law 126 was published in Brazil eliminating the previous state monopoly on reinsurance through the government-owned Brazil Reinsurance Institute (IRB), which had been in place since 1939.




Privatization: Foreign investment has played a significant role in Brazil’s privatization programs. From the early 1990s through 2009, Brazil’s completed USD 87.8 billion worth of privatizations, and another USD 18.1 billion in related debt transfer off the government accounts. Foreign investment accounted for about USD 42.1 billion of the privatizations. Of this foreign investment, U.S. investors accounted for one third or USD 14.0 billion. After a slowdown in privatization activity in the early 2000s, the Lula administration, which took office in 2003, revived the program with three important transactions: the 2004 privatization of the State Bank of Maranhao for USD 26.6 million, the 2005 privatization of the State Bank of Ceara for USD 297.9 million, and the 2006 privatization of Paulista Electric Energy Transmission Company for USD 230 million. In 2007 and 2008, large scale infrastructure projects were auctioned, including federal highways, high speed rail, and airports. Additional auctions of infrastructure concessions are expected for 2011-2015.




Ownership Restrictions: A 1995 constitutional amendment terminated the distinction between foreign and local capital in general, but there are laws that restrict foreign ownership within some sectors, notably media and communications and aviation.




Foreign investment restrictions remain in a limited number of other sectors, including highway freight (20 percent) and mining of radioactive ore. Foreign ownership of land within 150 km of national borders remains prohibited unless approved by Brazil's National Security Council. In October 2009, the Brazilian Chamber of Deputies approved legislation that would further restrict foreign ownership of land along Brazil’s borders and within the Amazon. The proposed legislation still requires passage by the Brazilian Senate, followed by presidential approval before it can become law.




On August 23, 2010, the GOB issued a revised interpretation of Brazil’s 1971 land ownership legislation (Law 5709) strengthening existing language limiting foreign ownership of agricultural lands in rural municipalities. Depending on how local municipalities enforce them, the new regulations have the potential to disrupt purchases of farmlands by foreigners.




Media: Open broadcast (non-cable) television companies are subject to a regulation requiring that 80 percent of their programming content be domestic in origin. Additionally, Law 10610 (2002) limits foreign ownership in other media, including open broadcast and print media outlets, to 30 percent. Proposed legislation introduced into the Congress in 2007 would liberalize foreign ownership in other electronic communication formats, provided the foreign entity still maintain local operations, but it has not been passed. Foreign ownership of cable companies is limited to 49 percent, and the foreign owner must have a headquarters in Brazil and have had a presence in the country for the previous ten years. National cable and satellite operators are subject to a fixed title levy on foreign content and foreign advertising on their channels. Current legislation, PLC 116, under consideration contains measures that could impose local content requirements for cable operators and pay TV programming.




Aviation: The Government of Brazil currently restricts foreign investment in domestic airline companies to a maximum of 20 percent. In May of 2009, Brazil’s Civil Aviation Regulatory Agency (ANAC) proposed increasing foreign ownership in Brazilian airlines to 49 percent, and facilitating quicker entry of new airlines into the Brazilian market. These proposals have not yet been approved by the Brazilian Congress. The Government of Brazil is considering potential privatization of commercial airport operations. The United States and Brazil liberalized cargo and passenger services in June 2008.




In December 2010, negotiators from both countries initialed the text of a new air transport agreement that is expected to lead to an Open Skies relationship between the United States and Brazil. The agreement must be approved by Brazil’s legislature, which could take several years. In the meantime, a Memorandum of Understanding (MOU) will begin increasing the limits on the number of flights between the two countries upon signature, which is expected to take place in early 2011.




Investment Goals: In May 2008, Brazil published the Productive Development Policy which encourages technological innovations and new investment opportunities in the country. It sets targets for investment spending to reach 21 percent of GDP and private investment in R&D to reach 0.64 percent of GDP by 2010. While investment as a percent of GDP has increased in recent years, Brazil did not reach its targets set in 2008: investment and R&D as a percent of GDP reached an estimated 19 and 0.58 percent respectively in 2010. High level government officials more recently declared a 23 percent of GDP target by 2014, with leading support from the private sector.




Selected Indicators from reputable third party sources:



Brazil Rank*/Total

TI Corruption Perceptions



Heritage Economic Freedom



World Bank Ease of Doing Business



*The lower the number, the better the ranking.



Conversion and Transfer Policies




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 wherein buy-sell rates are determined by market forces. All foreign exchange transactions, including identifying data, must be reported to the Central Bank. Foreign exchange transactions on the current account have been fully liberalized.




Foreigners investing in Brazil must register their investment with the Central Bank within 30 days of the inflow of resources to Brazil. Registration is done electronically. Investments involving royalties and technology transfer must be registered with Brazil’s patent office, the National Institute of Industrial Property (INPI). Investors must also have a local representative in Brazil. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM).




All incoming foreign loans must be approved by the Central Bank. In most instances, the loans are automatically approved. Automatic approval is not issued when the costs of the loan are “not compatible with normal market conditions and practices.” In such instances, the Central Bank may request additional information regarding the transaction. Foreign loans obtained abroad do not require advance approval by the Central Bank, provided the recipient is not a government entity. Loans to government entities, however, require prior approval from the Brazilian Senate as well as from the Finance Ministry Treasury Secretariat, and must be registered with the Central Bank.




Interest and amortization payments specified in a loan contract can be made without additional approval from the Central Bank. Early payments can also be made without additional approvals, if the contract includes a provision for them. Otherwise, early payment requires notification to the Central Bank to ensure accurate records of Brazil’s stock of debt.




Foreign investors, upon registering their investment with the Central Bank, are able to remit dividends, capital (including capital gains), and, if applicable, royalties. Remittances must also be registered with the Central Bank. Dividends cannot exceed corporate profits. The remittance transaction may be carried out at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing that applicable taxes have been paid.




Capital gain remittances are subject to a 15 percent income withholding tax, with the exception of the capital gains and interest payments on tax exempt domestically issued Brazilian bonds. Repatriation of the initial investment is also exempt from income tax. 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 an extra 10 percent Contribution of Intervention in the Economic Domain (CIDE). Loans with terms of 90 days or less must pay an IOF, a tax on financial operations, of 5.38 percent, while those of longer maturity, profits and FDI remittances must pay an IOF of 0.38 percent.




Foreign cable and satellite television programmers are subject to an 11 percent remittance tax; however, the tax can be avoided if the programmer invests 3 percent of its remittances in co-production of Brazilian audio-visual services.




In October of 2009 the GOB imposed a two percent IOF tax on capital inflows by foreigners for portfolio investments, and in November of 2009 the government instituted a 1.5 percent tax when foreign investors convert American Depositary Receipts (ADRs) for Brazilian companies into receipts for shares issued locally in Brazil. In October of 2010 the GOB imposed two consecutive increases to the IOF tax on capital inflows from abroad for fixed income investments; from two percent to four percent, and then from four percent to six percent. The IOF does not apply to direct investment inflows. In October of 2010 the GOB also raised the tax foreigners must pay on margin deposits for futures market trades from 0.38 percent to six percent. The taxes on financial flows were imposed primarily to try and curb increases in the value of the Brazilian currency, and increases in the IOF or additional measures to restrict inflows are possible.


Exchange Rates


Brazil’s strong macroeconomic fundamentals and high real interest rates have driven nearly a 40 percent appreciation of Brazil’s currency (the real) against the dollar over the last two years. In addition to the taxes described in the paragraph immediately above, authorities have sought additional measures to control appreciation of the real, including through Central Bank accumulation of over 90 billion dollars in foreign exchange reserves over the last two years. In early 2011, the Real traded at approximately 1.65 Reais/USD, and many analysts predict that the real will weaken into the range of 1.8 Reais/USD during 2011.


Expropriation and Compensation


There have been no expropriation actions in Brazil against foreign interests in the recent past, nor have there been any signs that the current government is contemplating such actions. In the past, some claims regarding land expropriations by state agencies have been judged by courts in U.S. citizens' favor. However, compensation has not always been paid as states have filed appeals to these decisions, and the Brazilian judicial system moves slowly.


Dispute Settlement


The Brazilian court system, in general, is overburdened, and contract disputes can often take years to move through the system. The 2011 World Bank “Doing Business” survey found that on average it takes 45 procedures and 616 days to litigate a contract breach at an average cost of 16.5 percent of the claim. Judicial reform measures enacted in December 2004, however, have streamlined some administrative procedures, and the introduction of the concept of binding precedent should, over time, make judicial decisions more predictable.

Article 34 of Brazilian Law 9.307, the 1996 Brazilian Arbitration Act, defines a foreign arbitration judgment as any judgment rendered outside the national territory. The law established that the Brazilian Federal Supreme Court must ratify foreign arbitration awards. Law 9.307 also stipulates that the foreign arbitration award is to be recognized or executed in Brazil in conformity with the international agreements ratified by the country and, in their absence, with domestic law. (Note: A 2001 Federal Supreme Court ruling established that the 1996 Brazilian Arbitration Act, permitting international arbitration subject to Federal Supreme Court ratification of arbitration decisions, does not violate the Federal Constitution’s provision that “the law shall not exclude any injury or threat to a right from the consideration of the Judicial Power.”)

Brazil has ratified the 1975 Inter-American Convention on International Commercial Arbitration (Panama Convention), the 1979 Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitration Awards (Montevideo Convention) and the 1958 U.N. Convention on the Recognition and Enforcement of Foreign Arbitration Awards (New York Convention). Brazil, however, is not a member of the International Center for the Settlement of Investment Disputes (ICSID), also known as the Washington Convention.


Brazil has a commercial code that governs most aspects of commercial association, except for corporations formed for the provision of professional services, which are governed by the civil code. In 2005, bankruptcy legislation (Law 11101) went into effect creating a system, modeled on Chapter 11 of the U.S. bankruptcy code, which allows a company in financial trouble to negotiate a restructuring with its creditors outside of the courts. In the event a company does fail despite restructuring efforts, the reforms give creditors improved ability to recover their debts.


Brazil has both a federal and a state court system and jurisprudence is based on civil law. Federal judges hear most disputes in which one of the parties is 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.

Performance Requirements and Incentives


The Brazilian government uses a variety of tax incentives and attractive financing through the National Bank for Economic and Social Development (BNDES) to actively encourage both national and foreign investment. With 2010 lending surpassing USD 95 billion, BNDES is the largest development bank in the world. The Bank actively promotes development in traditionally underserved regions of the country and other potentially marginally profitable ventures, but the majority of lending takes place in the more developed regions of the country. In 2010, the Southeast has benefited the most from BNDES financing having received 58 percent of funds distributed, followed by the South with 18 percent, the Northeast 10, the Mid-West 7, and the North 7. The vast majority of the funding (82 percent) has gone to large companies. A 2004 Public-Private Partnership (PPP) investment law promotes joint ventures in otherwise marginally profitable infrastructure investments.


In 2010, the Brazilian government announced a major expansion to the 2007 Program to Accelerate Growth (PAC), the government’s national initiative to develop major infrastructure projects. While the implementation and efficiency of the PAC and follow-on PAC-2 have been subject to national debate, major projects have been completed and are in process throughout the country. The government that took office in January 2011 intends to cut 2011 spending from planned levels; such cuts may delay implementation of some PAC and PAC-2 projects. The government continues to indicate it is interested in attracting foreign investment to fund infrastructure projects, including via the March 2010 announced USD 900 billion PAC-2 program, designed to drive infrastructure projects through 2014 and beyond.


The Government of Brazil extends tax benefits for investment in less developed parts of the country, for example the Northeast and the Amazon regions, with equal application to foreign and domestic investors. These incentives have been successful in attracting major foreign plants to areas like the Manaus Free Trade Zone, but most foreign investment remains concentrated in the more industrialized southern part of Brazil. Individual states have sought to attract investment by offering ad hoc tax benefits and infrastructure support to specific companies, negotiated on a case by case basis. These have proven controversial, with other states challenging them as harmful fiscal competition. Tax reform legislation that would limit states’ ability to offer special tax incentives to attract investment away from other states has been awaiting congressional action since August 2009.


In 2007, Brazil restored tax breaks to exporters with the enactment of Law 11529 with the stated intention to help industries hurt by the strengthening Real. This law allows certain Brazilian industrial sectors (textiles, furniture, ornamental stones, woodworking, leatherworking, shoes, leather goods, heavy and agricultural machinery manufacturers, apparel and automotive - including automotive parts) to apply PIS-COFINS (social integration program) tax credits for the purchase of capital goods, both domestic and imported, that are used for manufacturing finished products. The law also expands the government's program to exporting companies purchasing capital goods. To be exempt from paying the 9.25 percent PIS-COFINS tax on these purchases, companies normally must prove they derive at least 70 percent of their revenues from exports. This benchmark was lowered to 60 percent for companies in the sectors covered by the legislation.


In May of 2010, the government placed state-owned communications firm Telebras at the head of a National Broadband Plan which incorporates fiscal incentives, private sector participation, and regulatory reform to build-out Brazil’s next generation communication infrastructure network. While the plan provides commercial opportunities for the private sector, including foreign investors, there is strong government support to leverage the plan to advance Brazilian technology. This includes favorable BNDES financing for acquisition of telecom equipment that utilizes Brazilian technology, tax exemptions on the purchase of IT equipment that uses Brazilian technology, as well as favoring national technology in the procurement process. Nonetheless, foreign firms have already begin to participate in the National Broadband plan.


To promote Brazilian industry, the Special Agency for Industrial Financing (FINAME) of BNDES provides financing for Brazilian firms to purchase Brazilian-made machinery and equipment and capital goods with a high level of domestic content. The interest rates charged by BNDES are often lower than the prevailing market interest rates for domestic financing.


Government Procurement

Brazil is not a signatory to the WTO Agreement on Government Procurement (GPA), and transparency in Brazil's procurement processes is at times lacking. U.S. companies have found it difficult to participate in Brazil’s public sector procurement unless they have operations in Brazil or are associated with a local firm. Without a significant in-country presence, U.S. companies regularly face significant obstacles in winning government contracts and are often more successful in earning subcontracting arrangements with larger Brazilian firms that won the original government bid.


Law 8666 (1993) covers most government procurement other than information technology/telecommunications and requires non-discriminatory treatment for all bidders regardless of nationality or origin of the product or service. Brazilian government procurement rules apply to purchases by government entities and state-owned companies. Brazil has an open competition process for major government procurements. By law, the Brazilian government may not make a distinction between domestic and foreign-owned companies during the tendering process; however, when two equally qualified vendors are considered, the law’s implementing regulations provide for a preference to Brazilian goods and services. Under Brazilian law, price is to be the overriding factor in selecting suppliers. However, the law's implementing regulations also allow for the consideration of non-price factors, giving preferences to certain goods produced in Brazil and stipulating local content requirements for fiscal benefits eligibility. Additionally, nearly all bids require establishment of a local representative for any foreign company bidding.


A law approved in late 2010 (12,349, December 15, 2010) allows preferences of up to 25 percent in government contracts for products and services made in Brazil, whether by Brazilian or foreign companies. The GOB will establish separate preference margins for each sector of goods and services, and the new system is expected to take effect in the second half of 2011.


Decree 7174 (2010), which regulates the procurement of information technology goods and services, requires federal agencies and parastatal entities to give preferential treatment to locally produced computer products and goods or services with technology developed in Brazil based on a complicated and nontransparent price/technology matrix. However, Brazil permits foreign companies that have established legal entities in Brazil to compete for procurement-related contracts funded by multilateral development bank loans.


Right to Private Ownership and Establishment

Foreign and domestic private entities may establish, own, and dispose of business enterprises.


Protection of Property Rights


Brazil has a system in place for mortgage registration, but implementation is uneven and there is no standardized contract. Foreign individuals or foreign-owned companies can purchase real property in Brazil. These buyers frequently arrange alternative financing in their own countries, where rates may be more attractive. Law 9514 (1997) helped spur the mortgage industry by establishing a legal framework for a secondary market in mortgages and streamlining the foreclosure process, but the mortgage market in Brazil is still underdeveloped, and foreigners may have difficulty obtaining mortgage financing. Large U.S. real estate firms, nonetheless, are expanding their portfolios in Brazil.


Intellectual Property Rights

Brazil is a signatory to the GATT Uruguay Round Accords, including the Trade Related Aspects of Intellectual Property (TRIPs) Agreement, signed in April 1994. Brazil is a signatory of the Bern Convention on Artistic Property, the Patent Cooperation Treaty, the Convention on Plant Variety Protection, and the Paris Convention on Protection of Intellectual Property.

Brazil is not a party to the WIPO Copyright Treaty or the WIPO Performances and Phonograms Treaty (collectively, the "WIPO Internet Treaties"). In 2006, Brazil announced plans to join the Madrid Agreement Concerning the International Registration of Marks ("Madrid Protocol"), but the executive branch has yet to submit this proposal to the Brazilian Congress for approval.

In most respects, Brazil’s 1996 Industrial Property Law (Law 9279) meets the international standards specified in the TRIPs Agreement regarding patent and trademark protection. However, the law permits the grant of a compulsory license if a patent owner has failed to locally manufacture the patented invention in Brazil within three years of patent issuance, a form of compulsory licensing that the United States believes would be inconsistent with Articles 27.1 and 28.1 of TRIPs. On May 4, 2007, invoking TRIPS provisions for public health emergencies, Brazil issued a compulsory license for an anti-retroviral drug used in treating HIV/AIDS.

The United States continues to raise concerns regarding article 229-C of law 9279, as amended by Law 10196 (2001), which includes a requirement for National Health Surveillance Agency (ANVISA) approval prior to the issuance of a pharmaceutical patent by the National Industrial Property Institute (INPI). ANVISA’s role in reviewing pharmaceutical patent applications remains non-transparent and has contributed to an increasing backlog in the issuance of patents. In addition, conflicting opinions on patentability between INPI and ANVISA has left 145 patent applications unissued. On October 16, 2009, the Brazilian Federal Attorney General (AGU) analyzing the institutional role of ANVISA in the patent application process, presented Opinion No. 210 stating that ANVISA should examine pharmaceutical patent applications only from a public health perspective. The opinion states that INPI is the only agency with the competency to review the patentability requirements of such applications. On January 10, 2011, the AGU issued a final ruling noting ANVISA’s limited role: “ANVISA may not refuse the granting of the prior consent of art. 229-C of IP Law based on patentability requirements.”

An ongoing concern is the backlog of pending patent applications at INPI. It currently takes an average of eight years to receive a patent in Brazil. However, INPI has increased its hiring and training of new patent examiners in an effort to decrease pendency. In 2011, INPI is looking to begin rolling out an electronic filing system for new patent applications, which would enable inventors to apply for a patent via an online system.

The United States has also raised concerns regarding Brazil's protection against unfair commercial use of test data generated in connection with obtaining marketing approval for human-use pharmaceutical products. Law 10603 (2002) covers data confidentiality for veterinary pharmaceuticals, fertilizers, agro-toxins, and related products, but does not cover pharmaceuticals for human use.

A government-drafted bill to provide protection for the layout design of integrated circuits (computer mask works) was enacted into law on May 31, 2007 (Law 11.484).

Patent and trademark licensing agreements must be recorded with and approved by INPI and registered with the Central Bank of Brazil (Normative Act No. 135, of April 15, 1997). Licensing contracts must contain detailed information about the terms of the agreement and royalties to be paid. In such arrangements, Brazilian law limits the amount of the royalty payment that can be taken as a tax deduction (from one percent to five percent), which consequently acts as a de facto cap on licensing fees (Act No. 436 of 1958).

Brazil's 1998 copyright law generally conform to international standards, yet piracy of copyrighted material remains a problem. The Brazilian Congress passed a law in July 2003 increasing minimum prison sentences for copyright violations and establishing procedures for making arrests and the destruction of confiscated products. However, the heftier sentences have not acted as effective deterrents due to the frequency with which judges commute many of the prison terms to fines. Draft Law 333 of 1999 would stiffen the criminal penalties for counterfeiting, but remains stalled in the Brazilian Congress. After being shelved in 2006, the draft law was re-submitted in November 2008 for urgent reconsideration, but the proposal has not come to a vote.

In August 2007, a bill (PL 1807/07) was introduced that, if approved, would amend Article 189 of Brazil’s Industrial Property Law (Law 9279 of 1996) to increase the criminal penalties for trademark violations to two to six years, up from the current three to twelve months. The bill has been under consideration in a Brazilian Chamber committee since August 2007.

In the U.S. Trade Representative's 2007 Special 301 Report, Brazil was downgraded from “Priority Watch List” to “Watch List,” in recognition of its improved anti-piracy enforcement efforts. Since then, Brazil has remained on the “Watch List” of the Special 301 Reports.


Transparency of the Regulatory System




In the 2011 World Bank “Doing Business” report, Brazil ranked 127th out of 183 countries in terms of overall ease of doing business. According to the study, it takes an average of 15 procedures and 120 days to start a new business. The study noted that the annual administrative burden to a medium-size business of tax payments in Brazil is an average of 2,600 hours versus 199 hours in the OECD high-income economies. According to this same study, the total tax rate for Brazil’s medium-sized business is 69.0 percent of profits, compared to 43.0 percent in the OECD high-income economies. Business managers often complain of not understanding tax regulations, despite best efforts including large tax and accounting departments.




Tax regulations, while burdensome and numerous, do not differentiate between foreign and domestic firms. However, there have been instances of complaints that the value-added tax collected by individual states (ICMS) favors local companies. Although the tax is designed to be refunded upon export of goods outside of the country, exporters in many states have had difficulty receiving their ICMS rebates. Taxes on commercial and financial transactions are particularly burdensome, and businesses complain that these taxes hinder the international competitiveness of Brazilian products. A government proposal to streamline the tax collection system is currently under consideration by the Brazilian Congress, but remains stalled.




ANVISA, the Brazilian FDA equivalent, has regulatory authority over the production and marketing of food, drugs and medical devices. ANATEL, the country's telecommunication agency, handles licensing and assigns bandwidth. ANP, the National Petroleum Agency, has been commended by the industry.




The civil aviation regulator (ANAC) began functioning in 2006 with a mandate to increase competition within Brazil’s civil aviation industry. Taking over responsibilities that had previously resided with the Brazilian Air Force, ANAC has begun to take steps to liberalize the Brazilian market, although court challenges have slowed some proposed initiatives such as price liberalization that was intended to be phased in over 2009.




Foreign investors have encountered obstacles when interfacing with regulatory agencies. Notable examples include companies in the electric power sector that have complained about the high level of regulatory risk, including the tariff review process. Additionally, some industries have reported challenges in obtaining licenses from IBAMA, the environmental regulator, citing unpredictability in IBAMA’s licensing requirements, though the process has reportedly become more streamlined since 2008. Brazilian private sector organizations, which often include foreign companies, are vocal and involved in industry standards setting.



A bill (PL 3937/04) to modernize Brazil’s antitrust review and to combine the antitrust functions of the Ministry of Justice and the Ministry of Finance (MoF) into those of the Administrative Council for Economic Defense (CADE) was approved by the Chamber of Deputies in December 2008. The bill, which would also revise the country’s licensing and anti-cartel system, is has been amended by the senate and currently awaits review in the chamber.


Recent Changes and Concerns in Legislation Regulating Business Operations

In 2010, Brazil’s Congress approved and then-President Lula signed a series of laws that will govern development of the promising deep water “pre-salt” oil and gas reserves found off Brazil’s coast. (President Lula vetoed, however, portions of the legislation that would address division of royalties between state and municipal governments.) The new regime replaces Brazil’s former concessions model for exploration and production of pre-salt reserves with a production sharing system. The legislation creates a new government entity to represent the government in any agreements, gives sole operator status and a minimum 30 percent stake to the parastatal oil company Petrobras for any pre-salt project, and establishes a social fund to administer the government’s proceeds. A law also enabled the government to engage in an oil-for-shares swap with Petrobras, which not only increased government ownership in the parastatal, but also facilitated Petrobras’ USD 67 billion public share offering in September 2010.


Reinsurance industry representatives have expressed concern over December 2010 regulatory changes that are scheduled to take effect in early 2011. The changes prohibit insurers from placing business with reinsurers with which they are affiliated and require 40 percent of reinsurance business to be placed with Brazilian reinsurers.

In October 2010, the Brazilian tax and customs authority, Receita Federal, launched a new automated system for express delivery customs processing. The new Sistema Remessa will allow for paper-free electronic clearance for express delivery goods. This is an important first step, but companies continue to express concern over remaining regulatory challenges that they face, including high import taxes, low maximum value limits for express export and import shipments and the possible approval of a damaging postal reform law that could undermine current levels of market access for private express delivery service companies.


All proposed federal legislation is available to the general public via the internet.

Chamber of Deputies:


Federal Senate:


Records of approved legislation are available via:



Efficient Capital Markets and Portfolio Investment

The Brazilian financial sector is large and sophisticated. Banks lend at the Brazilian market rate which remains extremely high. Reasons cited by industry observers include high taxation, repayment risk, concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead.


The financial sector is concentrated, with 2010 Central Bank data indicating that the 10 largest commercial banking institutions account for approximately 72.9 percent of financial sector assets, less brokerages (approx. USD 1.69 trillion). Two of the five largest banks (in assets) in the country, Banco do Brasil and Caixa Economica Federal, are federally owned. Lending by the large banking institutions is focused on the largest companies, while small and medium banks primarily serve small and medium-sized companies, but with a much smaller capital base.


The Central Bank has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to better reflect risk. It also established loan classification and provisioning requirements. These measures are applied to private and publicly owned banks alike. The Brazilian Securities Exchange Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies with penalties against insider trading.


Credit Market

Brazil’s credit market has grown significantly over the past several years. Real interest rates, however, remain among the highest in the world, leading large enterprises operating in Brazil to access financing on international markets. While local private sector banks are beginning to offer longer credit terms, BNDES, the government national development bank, is the traditional Brazilian source of longer-term credit, and also provides export credits. FINAME (the Special Agency for Industrial Financing) provides foreign and domestically owned companies operating in Brazil financing for the manufacturing and marketing of capital goods. FINAMEX (Export Financing), which finances capital good exports for both foreign and domestic companies, is a part of FINAME. One of the goals of these financing options is to support the purchase of domestic over imported equipment and machinery.


PROEX, an export credit program financed by the National Treasury offers assistance in the areas of interest rate equalization, capital and other goods exports, and service exports. (See OPIC and Other Investment Insurance Programs section for more information on credit availability).

Equity Market

All stock trading is performed on the Sao Paulo Stock Exchange (BOVESPA), while trading of public securities is conducted on the Rio de Janeiro market. In 2008, the Brazilian Mercantile & Futures Exchange (BM&F) merged with the BOVESPA to form what is now the fourth largest exchange in the Western Hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges. BOVESPA has launched a "New Market," in which the listed companies comply with stricter corporate governance requirements. In June 2004, BOVESPA’s new market had 18 listed companies; by 2010 there were 112. (Note: A majority of the Initial Public Offerings are listed on the New Market). In 2010, there were twenty-two new IPOs and follow-ons representing R$ 39.4 billion in raised capital; approximately 27 percent of this amount was foreign capital.

After a decline in 2009, the total number of companies listed on the BOVESPA resumed its course of growth in 2010. There were 394 companies in 2006, 424 in 2008, 386 in 2009, and 471 in 2010. Total daily trading average volume has risen from R$ 2.4 billion in 2006 to R$ 6.5 billion in 2010.

Trading is highly concentrated, with the top ten stocks accounting for nearly half of the 2010 trading volume. A total of 80 Brazilian firms are also listed on the NYSE via American Depository Receipts (ADR's). Conversely, the Brazilian subsidiaries of some U.S. companies have issued shares on the BOVESPA.

Foreign investors, both institutions and individuals, can directly invest in equities, securities and derivatives. Foreign investors are required to trade derivatives and stocks of publicly held companies on established markets. At year-end 2010, foreign investors accounted for 29.6 percent of the total turnover on the BOVESPA. Domestic institutional investors were the most active market participants, accounting for 33.3 percent of activity. Individual investors comprised 26.4 of activity, financial institutions 8.4, and other companies 2.3 percent. Since 2001, Law 10303 has limited preferred shares for new issuances to 50 percent.

Brazilian law recognizes mergers and consolidations. Although the stock market is growing in popularity, sales of Brazilian companies usually result from private negotiations, rather than stock exchange activities. Acquisitions resulting in market concentration in excess of 20 percent are subject to review by the Administrative Council for Economic Defense (CADE) under Brazil's 1994 Anti-trust Law.

Wholly owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil. As of 1996, auditors are personally liable for the accuracy of accounting statements prepared for banks.

In recent years the government has sought to control appreciation of the Brazilian currency with the introduction of new taxes on capital inflows (see “Conversion and Transfer Policies” section above).


Competition from State Owned Enterprises

Since the early 1990’s, the Brazilian government has aggressively privatized state enterprises across a broad spectrum of industries, including mining, steel, aeronautics, banking, energy, and electricity generation and distribution. While the government has divested itself from many of its state-owned companies, it maintains partial control (at both the federal and state level) of previously wholly state-owned enterprises. Notable examples of partially federally-controlled firms include energy giant Petrobras and power utility Eletrobras. Both Petrobras and Eletrobras include non-government shareholders, are listed on both the Brazilian and NYSE stock exchanges, and are subject to the same accounting and audit regulations as all publicly traded Brazilian companies.

In addition to major players like Petrobras and Eletrobras, the Brazilian government, at both the federal and state levels, maintains ownership interests in a variety of other smaller enterprises. Typically, corporate governance is led by a board comprised of directors elected by the state or federal government with additional directors elected by the other non-government shareholders. Brazilian enterprises with state ownership are concentrated in the energy, electricity generation and distribution, transportation, and banking sectors. Many of these firms are also publically traded companies on the Brazilian and other stock exchanges.

The 2010 pre-salt legislation, described above in “Recent Changes and Concerns in Legislation Regulating Business Operations” gives the parastatal oil company Petrobras sole operator status for the development of the new oil discoveries. The terms and conditions of the new regime may favor Petrobras as the sole operator, although foreign firms are still anticipated to play a role in the pre-salt oil fields.

In December of 2008, the Brazilian Ministry of Finance established a sovereign wealth fund (SWF) with initial capital of R$14.2 billion financed through a government bond issuance. Brazil’s SWF is managed by the Fiscal Investment and Stabilization Fund (FFIE), a vehicle established for the sole purpose of managing the fund. The FFIE is structured similarly to any other financial fund manager in Brazil and subject to the same regulatory and transparency guidelines, including external and independent auditing. The SWF was designed to be an anti-cyclical tool to help absorb the impacts of financial downturns. There are no material restrictions on how the SWF can be used, apart from the fact that it must maintain a tolerable risk profile. Currently the SWF is entirely domestically focused, but it is authorized to invest outside of Brazil. In 2010, the government confirmed that the SWF was authorized to buy U.S. dollars, including in the futures market, creating a new tool for the government to intervene in foreign exchange markets to curb the appreciation of the Brazilian currency. Detailed public information relating to the SWF is available on a Ministry of Finance website, and the Brazilian Congress receives regular performance reports.

Corporate Social Responsibility

Most state-owned and private sector corporations of any significant size in Brazil pursue corporate social responsibility (CSR) activities. Many corporations support local education, health and other programs in the communities where they have a presence. Brazilian consumers, especially the local citizenry where a corporation has or is planning a local presence, expect CSR activity. It is not uncommon that corporate officials will meet with community members prior to building a new plant or factory to review what types of local services the corporation will commit to providing. Foreign and local enterprises in Brazil often advance United Nations Development Program (UNDP) Millennium Development Goals (MDGs) as part of their CSR activity, and will cite their local contributions to MDGs such as universal primary education and environmental sustainability.

The U.S. Diplomatic Mission in Brazil supports American business CSR activities through the +Unidos Group (Mais Unidos), a group of more than 100 American companies established in Brazilian territory. Additional information on how the partnership supports public and private alliances in Brazil can be found on their website: www.maisunidos.org.


Political Violence

Political and labor strikes and demonstrations occur occasionally in urban areas and may cause temporary disruption to public transportation. In addition, criminal organizations in Sao Paulo have in the past staged campaigns against public institutions. While U.S. citizens have not been 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.

Colombian terrorist groups have been known to operate in the border areas of neighboring countries. Colombian groups have perpetrated kidnappings of residents and tourists in border areas of Colombia's neighbors. The U.S. Government knows of no specific threat directed against U.S. citizens across the border in Brazil at this time. U.S. citizens traveling or residing in areas of Brazil near the Colombian border are urged to exercise caution. U.S. citizens are urged to take care when visiting remote parts of the Amazon basin and respect local laws and customs. For the latest U.S. State Department guidance on travel in Brazil, please consult www.travel.state.gov.



Corruption can be a challenge to investment in Brazil. In 2010, Brazil ranked 69th (among 178 countries) in Transparency International's Corruption Perception Index. In South America, Brazil ranked below Chile and Uruguay, and ranked above Colombia, Peru, Argentina and Venezuela. With regard to major emerging economies, Brazil ranked above India, China, Russia, Egypt, and Indonesia, and below South Africa and Turkey. In general terms, businesses find corruption a challenge in government procurement and at some levels of the judiciary.

Corruption scandals are a regular feature of Brazilian political life. Corruption investigations, involving politicians from both opposition and government coalition parties, were conducted over the course of the last several years. In 2010, in two separate cases, the governor of the Federal District and the governor of the state of Amapa were arrested and placed in prison on corruption charges. Brazil's anti-money laundering mechanisms and relatively independent prosecutorial and oversight institutions have played useful roles in the investigation of such cases. In June of 2010, the President signed into law Complementary Law 135, known as the “Ficha Limpa” law, which prohibits candidates convicted of crimes, including abuse of public office, from running for office. The Brazilian Supreme Court subsequently implemented the Ficha Limpa with respect to the 2010 federal, state, and local elections.

Brazil is a signatory to the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention. Brazil has laws, regulations and penalties to combat corruption, but their effectiveness is inconsistent. Bribery is illegal, and a bribe by a local company to a foreign official is a criminal act. A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption remains problematic in business dealings with some parts of the Brazilian government, particularly on the local level. U.S. companies operating in Brazil continue to be subject to the U.S. Foreign Corrupt Practices Act.


Bilateral Investment Agreements

Brazil does not have a Bilateral Investment Treaty with the United States. While in the 1990’s Brazil signed BITs with Belgium and Luxembourg, Chile, Cuba, Denmark, Finland, France, Germany, Italy, Republic of Korea, Netherlands, Portugal, Switzerland, United Kingdom and Venezuela, none of these have been approved by the Brazilian Congress. Brazil also has not approved the Mercosul investment protocol.

Brazil has no double taxation treaty with the United States, but it does have such treaties with 24 other countries, including, among others, Japan, France, Italy, the Netherlands, Canada and Argentina. Brazil signed a Tax Information Exchange Agreement with the United States in March 2007 that passed the Brazilian chamber in December 2009 and currently awaits action in the Brazilian senate.


OPIC and Other Investment Insurance Programs

Programs of the Overseas Private Investment Corporation (OPIC) are fully available, and activity has increased in recent years. The size of OPIC's exposure in Brazil may occasionally limit its capacity for new coverage. Brazil became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1992.


The 92.7 million strong Brazilian labor force comprises a wide range of skills covering a broad array of occupations and industries. Slightly more than three fifths, or 61 percent, of the labor force is employed in the service sector, 17 percent in the agriculture sector, and the civil construction and manufacturing sectors combined employ the remaining 22 percent.

Brazil has signed on to a large number of International Labor Organization (ILO) conventions. Brazil is party to the U.N. Convention on the Rights of the Child and major ILO conventions concerning the prohibition of child labor, forced labor and discrimination.

The labor code is highly detailed and relatively generous to workers. Formal sector workers are guaranteed 30 days of annual leave, an annual bonus equal to one month's salary, and severance pay in the case of dismissal without cause. Brazil also has a 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. As a result, labor courts routinely are called upon to determine wages and working conditions in industries across the country. The system is tantamount to compulsory arbitration and does not encourage collective bargaining. In recent years, however, both labor and management have become more flexible and collective bargaining has assumed greater relevance.

The Ministry of Labor estimates that there are over 16,000 labor unions in Brazil, but Ministry officials note that these figures are inexact. Labor unions, especially in sectors such as metalworking and banking, tend to be well-organized and aggressive in defending wages and working conditions and account for approximately 19 percent of the official workforce according to the last Brazilian Institute of Geography and Statistics (IBGE) release (2005). Strikes occur periodically, particularly among public sector unions. Unions in various sectors engage in industry-wide collective bargaining negotiations mandated by federal regulation. While some labor organizations and their leadership operate independently of the government and of political parties, others are viewed as closely associated with political parties.

In firms employing three or more persons, Brazilian nationals must constitute at least two-thirds of all employees and receive at least two-thirds of total payroll. Foreign specialists in fields where Brazilians are unavailable are not counted in calculating the one-third permitted for non-Brazilians.

The IBGE estimated unemployment in the major metropolitan areas as of November 2010 at 6.1 percent (versus 7.4 percent in November 2009). With low unemployment, there is currently a shortage of highly-skilled workers. Unemployment levels range significantly across regions.

IBGE reports show that real wages have trended higher in recent years. The average monthly wage in Brazil's six largest cities was around 1,516 Reais in November 2010 (approximately USD 892 based on average exchange rates for that month). The minimum monthly wage has regularly been increased in recent years from 380 Reais in 2007 to the 545 Reais that the government announced in January 2011. Earnings vary significantly by region and industry, and there is significant income inequality between Brazil’s poor and wealthy.

Employer federations, supported by mandatory fees based on payroll, play a significant role in both public policy and labor relations. Each state has its own federation, which reports to CNI (National Confederation of Industries), headquartered in Brasilia.


Foreign Trade Zones/Free Trade Zones

The federal government has granted tax benefits for certain free trade zones. 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. The GOB estimated 2010 revenues generated in the Manaus industrial area to have reached approximately USD 30 billion. Most of these free trade zones aim to attract investment to the country’s relatively underdeveloped North and Northeast regions.


Foreign Direct Investment Statistics

According to the Central Bank's most recent foreign-capital census (2005), the United States and the Netherlands had the largest share of accumulated foreign-capital stock in Brazil, each with 16.6 percent of the total. Spain had 10.8 percent, Mexico 10.7 percent, and France 7.5 percent. Investment inflows between the years 2006 to 2009 have amounted to about USD 130 billion, exclusive of depreciation and capital repatriation. The Central Bank expects to publish an updated foreign capital stock report in 2011.

According to a Brazilian Central Bank market survey report, FDI inflows to Brazil are anticipated to have reached USD 33.0 billion in 2010. According to the U.S. Bureau of Economic Analysis, FDI inflows from the United States to Brazil were USD 2.7 billion in 2009 and the stock of FDI from the United States to Brazil was USD 56.7 billion as of the end of 2009.


Total FDI into Brazil as a Percentage of Brazilian GDP:


FDI (USD Billions)

Percentage of GDP



1.6 (estimate)






















Source: Central Bank of Brazil

For more information on investing in Brazil, contact the National Investment Information Network, Brazilian Ministry of Development, Industry and Foreign Trade (MDIC):