Despite being among the world’s 10 largest economies, Brazil’s participation at the total amount of the world’s trade budget is usually confined to 1% – in 2017, the share of Brazil in the World’s total of imports was 0.87% and 1.23% of total exports. In recent years, a more flexible foreign trade policy has taken place, which is slowly changing the situation. Additionally, it is important to consider that the country is at the moment dealing with an economic crisis, which can be noticed in the graphs by a decrease in exports and imports during the years 2014 to 2016, with a small improvement in 2017 and a more expressive recovery in 2018.
Brazilian exports account for a little less than 15% of the country’s GDP. There are many reasons for that, some of them are: complicated tax system; poor logistic infrastructure; high level of customs control; large domestic market; and culture. Moreover, there is the low internationalisation, which is a very relevant contributor to this scenario, Brazil has more than 4 million registered companies and, among them, around 24,000 export and 43,000 import.
2.b. Import Statistics
2.c. Import Statistics
International trade operations in Brazil are very bureaucratic. Paperwork is extensive; there are many controls and diverse specific rules to be followed. The non-compliance with such rules may cause problems (e.g. fines and long retaining periods in the customs area) for the importer or exporter. There are companies specialised in foreign trade consultancy that can assist its customers to proceed in the correct way, reducing costs and time for each operation.
In terms of customs formalities, export procedures are, in general, less bureaucratic than on the import side. All procedures are registered and controlled by SISCOMEX – Integrated Foreign Trade On-line System. Brazilian authorities can monitor and control activities in foreign trade by verifying SISCOMEX registers. There are several players involved in the international trade procedures, such as importer/exporter or trading company, customs brokers, cargo agents, tax authorities, regulatory bodies and the Central Bank.
2.2.b. International Trade players
2.2.b.i. The importer/exporter
To operate in foreign trade, Brazilian companies need to require an authorisation to the Federal Tax Office (Receita Federal) in advance. Once the company gets the authorisation, it is said that it has the “Radar”, which by its turn, has two main categories:
– Simplified: the company has a limitation to import USD150,000.00 CIF and to export USD150,000.00 FOB each 6 consecutive months. The amount for the 1st month is discarded when the 7th month starts; only the last 6 months are considered. In case a company exceeds this limit, further international trade operations within the period are suspended, until the company applies for an ordinary permit. The simplified radar is easier to get, it takes about one week and there is no evaluation of the company’s economic capacity. This category is recommended for companies that know beforehand that will not operate above these amounts in international trade, or companies that will not often import and export.
– Ordinary: the company can operate above the USD150,000.00 limit, but limited to its economical capacity. Such limit is established by the Federal Tax Office and it is based on a formal application, in which the company stated the estimated volumes that will import/export in accordance with its economical capacity. The company’s registered capital in this case is a key factor. This is the most comprehensive form of registration. The new limit is also revolving over a 6-month period.
2.2.b.ii. The trading company
The main role of the trading company in Brazil is typically import and export operations. Apart from the usual resaons why a company would export and import through a trading company, Brazilian regulations created grounds for very specific reasons. On the export side, for instance, if a company does not have the “Radar” (explained above), this company may look for a trading company to export its goods. This company will have the same export tax benefits as if it was exporting directly. However, on the import side, this procedure is not possible, so every company that wishes to import goods, through a trading company or directly, must have the “Radar”. The exception is when a trading company buys the merchandise abroad, keeps it in stock, adds a price margin and resells to the domestic market. This procedure is called “import to resell”. The trading companies may serve as third parties acting on behalf of the final importer or importing on-demand. In both cases, the final importer must have the “Radar” and will appear in all documents. The trading company in this case will appear as a consignee.
A very common reason for using a trading company “on behalf of” the final importer is to take advantage of the tax benefits that some States offer to trading companies. Using a trade company is highly recommended when a foregin company wishes to enter the Brazilian market and the target customers are small to medium size companies. Moreover, usually these companies usually do not have experience in dealing with international trade and customs authorities.
2.2.b.iii. The customs broker
The customs broker is responsible for inputting information on SISCOMEX on behalf of the importer/exporter. The customs broker will also be in touch with the Brazilian legal authorities to cross-examine the information stated in the import/export documents, the goods involved in the transaction and the current legislation. One of the steps of the customs clearance is the “parameterization”, which is a standard procedure and there are diverse verification channels: green, yellow and red.
In more details, an import selected for the green channel is cleared automatically, with no physical verification by the legal authorities. A yellow channel means that paperwork will be checked and a red chanel involves the verification of paperwork as well as physical verification of the goods. In case the authority finds any indication of fraud, the exporter/importer is charged. The channel is randomly defined, but it is important to highlight that some factors can influence a cargo to be destined to the green or yellow channel: unusual cargo, first time importers, suspicious cargo, origin or destination, denounce etc.
In addition, there is also a fourth channel, which is applied systematically with the same effects as the red channel: the grey channel. The difference between both is that, in the case of the grey channel, this procedure is adopted in all imports of a certain company, until it is proven that it can comply with all customs rules. The red and yellow channels are merely random checks, whereas the grey channel is a consequence of suspicion of fraud.
2.2.b.iv. The cargo agent
The responsibility of the cargo consists on coordinating the freight of the goods from its origin until its final destination, the customer receives a package of services according to which the cargo agent holds full responsibility for the transport of merchandise. Main means of transport in Brazil are via ocean, air and road. The Brazilian railway system is still incipient, but with expectations of improvement for the next years.
2.2.b.v. The tax authorities
The Brazilian taxation system is complex and there are several taxes that burden the import operations. On the other hand, the national government supports export operations including by applying less taxes. In terms of taxes, exporting is much cheaper when compared with importing.
In Brazil there are the Federal taxes (such as II, IPI, PIS, Cofins) and State taxes (ICMS), the latter varies from one State to another. Additionally, there are other mandatory fees which apply to imports, such as the AFRMM, a fund to subsidise the Brazilian mercantile fleet – 25% surtax applied to the Ocean Freight, the customs broker syndicate fee, etc.
2.2.b.vi. The regulatory bodies and other Government entities
Depending on the type of good imported/exported, it will be subject to regulatory bodies approval and compliance certificates. The most relevant regulatory bodies are:
– National Agency for Sanitary Surveillance (Anvisa): responsible for the sanitary control of goods and services. All medicines, medical equipment, cosmetics, food, tobacco products and others are subject to Anvisa approval prior to shipment. ANVISA’s controls and establish rules regarding any health related products and services.
– Ministry of Agriculture, Livestock and Food Supply (MAPA): it is the entity responsible for inspecting and controlling the international transit of agricultural goods and avoiding the entrance of pests and diseases in the country. In order to be traded: food, livestock or agicultural products must have the approval of MAPA. All wooden pallets and crates, which come to and from Brazil, must have the fumigation certificate and this is subjected to MAPA’s approval.
– National Telecommunications Agency (ANATEL): the autonomous regulatory agency for telecom was created after the government decided to privatise the sector. ANATEL’s mission is to provide support for the development of the sector. Moreover, among some of its functions are: defense of customers’ rights, implement a national policy for telecom, guarantee competition in the sector and others.
– National Electricity Agency (ANEEL): ANEEL is the regulatory agency for electricity services. The entity is reponsible for preserving investments made by profitable enterprises, avoid abusive costs, impose penalties and others.
– There are other bodies and entities, depending on the products to be traded such as INMETRO (several sectors require the INMETRO certificate to be sold in Brazil), ANP (oil & gas products) and others.
2.2.b.vii. The Central Bank
The flow of foreign currency to and from Brazil must generate a currency exchange contract, which, by its turn, follows the norms set by the Central Bank of Brazil. All the operations are registered and controlled by the Central Bank.
Brazil is a very big country with an infrastructure incapable to efficiently cover all its regions. Dealing with logistics in Brazil is quite a challenge due to the long distances and the lack of good infrastructure, as a consequence, the logistics coordination has a strategic role in business, which will reflect a lot on price.
2.3.b. Air Transportation
Brazil has a good level of flight security, the country ranks as 5th safest for flying, just after South Korea, USA, Canada and Germany. The entity responsible for controlling the majority of the airports in Brazil is INFRAERO, the main airports are located in São Paulo, Rio de Janeiro and Brasília. In 2017, the number of passengers transported was around 90,6 millions. For international passengers, the customs clearance must be done in the first landing airport, which causes the São Paulo airport to be very full with long queues for immigration and customs clearance.
When it comes to import and export cargo, it can be cleared in many airports throughout the country, it is also important to highlight that international carriers are not allowed to make domestic flights. Domestic connections must be done by the Brazilian airlines such as: TAM, GOL, AZUL and others.
2.3.b.ii. Main Airports in Brazil
- Aeroporto de Londrina – PR
• Aeroporto Internacional Afonso Pena – Curitiba – PR
• Aeroporto Internacional de Foz do Iguaçu – PR
• Aeroporto Internacional Comandante Gustavo Kraemer – Bagé – RS
• Aeroporto Internacional de Pelotas – RS
• Aeroporto Internacional Salgado Filho – Porto Alegre – RS
• Aeroporto Internacional Rubem Berta – Uruguaiana – RS
• Aeroporto Internacional de Florianópolis – SC
• Aeroporto de Joinville – SC
• Aeroporto Internacional de Navegantes – SC
• Aeroporto de Vitória – ES
• Aeroporto de Uberaba – MG
• Aeroporto Internacional Tancredo Neves – Belo Horizonte – MG
• Aeroporto de Belo Horizonte/Pampulha-MG
• Aeroporto de Montes Claros – MG
• Aeroporto de Uberlândia – MG
• Aeroporto de Macaé – RJ
• Aeroporto Internacional do Rio de Janeiro – RJ
• Aeroporto Santos-Dumont – Rio de Janeiro – RJ
• Aeroporto Internacional de Viracopos/Campinas – SP
• Aeroporto Internacional de São Paulo/Guarulhos – SP
• Aeroporto de São Paulo/Congonhas – São Paulo – SP
• Aeroporto Internacional de Brasília
• Aeroporto de Goiânia – GO
• Aeroporto Internacional Marechal Rondon – Varzea Grande – MT
• Aeroporto Internacional de Campo Grande – MS
• Aeroporto Internacional de Corumbá – MS
• Aeroporto Internacional de Ponta-Porã – MS
• Aeroporto Internacional de Cruzeiro do Sul – AC
• Aeroporto Internacional de Rio Branco – AC
• Aeroporto Internacional de Macapá – AP
• Aeroporto Internacional de Manaus – AM
• Aeroporto Internacional de Tabatinga – AM
• Aeroporto de Altamira – PA
• Aeroporto Internacional de Belém – PA
• Aeroporto Internacional Porto Velho – RO
• Aeroporto Internacional de Boa Vista – RR
• Aeroporto de Palmas – TO
• Aeroporto Internacional de Maceió – AL
• Aeroporto de Paulo Afonso – BA
• Aeroporto Internacional de Salvador – BA
• Aeroporto de Ilhéus – BA
• Aeroporto Internacional de Fortaleza – CE
• Aeroporto de Juazeiro do Norte – CE
• Aeroporto Internacional de São Luís – MA
• Aeroporto Presidente Campina Grande – PB
• Aeroporto Internacional de João Pessoa – PB
• Aeroporto Internacional do Recife – PE
• Aeroporto Internacional de Parnaíba – PI
• Aeroporto de Teresina – PI
• Aeroporto Internacional – Parnamirim – RN
• Aeroporto Internacional de Natal – RN
• Aeroporto de Aracaju – SE
2.3.c. Water Transportation
Brazil has a considerable amount of ocean ports and, even though it could be a good alternative, cabotage shipping (intra-Brazilian) shipping is not common. In addition, berge transportation in rivers or lakes are not used in Brazil, unless a few exceptions. Most international shipping lines serve Brazil on a regular basis. The transit time for the majority of European ports takes about 14 to 21 days.
2.3.c.ii. Main Brazilian ports
• Porto de Angra dos Reis – RJ
• Porto de Antonina – PR
• Porto de Aratu – BA
• Porto de Areia Branca – RN
• Porto de Belém – PA
• Porto de Cabedelo – PB
• Porto de Estrela – RS
• Porto de Forno – RJ
• Porto de Fortaleza – CE
• Porto de Ilhéus – BA
• Porto de Imbituba – SC
• Porto de Itaguaí – RJ
• Porto de Itajaí – SC
• Porto de Itaqui – MA
• Porto de Maceió – AL
• Porto de Manaus – AM
• Porto de Natal – RN
• Porto de Niterói – RJ
• Porto de Paranaguá – PR
• Porto de Pelotas – RS
• Porto de Porto Alegre – RS
• Porto de Porto Velho – RO
• Porto de Recife – PE
• Porto do Rio de Janeiro – RJ
• Porto do Rio Grande – RS
• Porto de Salvador – BA
• Porto de Santana – AP
• Porto de Santarém – PA
• Porto de Santos – SP
• Porto de São Francisco do Sul – SC
• Porto de São Sebastião – SP
• Porto de Suape – PE
• Porto de Vila do Conde – PA
• Porto de Vitória – ES
Source: National Agency for Waterway Transportation (ANTAQ)
2.3.d. Road Transportation
Brazil has more than 107.000 km of roads, of which 19.500km are under private administration (toll roads) and the other 87,500 are under public administration (free). It is also important to mention that 43% is in good or excellent state, while 57% present problems. The roads in the regions South and Southeast are usually better when compared with the rest of the country. Finally, this is the main transportation used in Brazil.
2.3.e. Rail Transportation
The Brazilian railway system is old and outdated, the focus was more on road transportation due to economic policies followed by previous governments. There is a recognised and urgent need for investments in the railway system. Since 1950’s, when road transport became the priority, the amount of investment in railways is very poor, specially when compared with the amount actually needed. However, the private sector is taking a few steps for changing this scenario and there are some investments predictions for the next coming years. It is important to mention that the railway systems are for cargo transportation, and not for public transportation.
2.4. Import cost structure
2.4.a. The tax system
As it was mentioned above, the Brazilian taxation system is quite complex and requires a lot of attention, the good side is that within this complexity there are legal ways to reduce taxation. Here is a brief explanation of the existing taxes:
2.4.a.i. Import Tax (II)
The Import Tax (II) is a federal tax and has protection purposes, the rate varies according to the goods’ country of origin and their classification, which follows the custom tariff used.
|II = II rate (%) X Customs Value (CV)||CV= goods value + international freight+ insurance value|
There is a formula to calculate the II, which is:
2.4.a.ii. Industrialised Products Tax (IPI)
The Industrialised Products Tax (IPI) is a federal tax like II, but it varies according to the classification of the product (custom tariff used). The formula used for calculating the IPI is:
Depending on the tax situation of the importing company, this tax can be credited as follows: the amount paid on a purchase or import can be credited against the amount due when the company makes a sale.
2.4.a.iii. PIS and COFINS – Social Taxes
PIS (Social Integration Program) and COFINS (Social Security Financing Contribution) are social contributions used for funding social security. The rates applied are: PIS = 1.65% and COFINS = 7.6%.
The formulas for calculating PIS and COFINS are:
PIS = PIS rate(%) X (CV + ICMS + PIS+ COFINS)
COFINS = COFINS rate (%) X (CV + ICMS + PIS + COFINS)
Depending on the tax situation of the importing company, this tax can be credited, which means that the amount paid in a purchase or import can be credited against the amount due when the company sells something.
2.4.a.iv. ICMS – Sales Tax
The ICMS is a State tax. Due to the fact that Brazil is a Federative Republic, there are
|ICMS = ICMS rate (%) X (CV+II+IPI +ICMS+ PIS+ COFINS)|
different laws for this tax. Each state has its own law and ICMS system, the tax is calculated by the following formula:
Depending on the tax situation of the importing company, this tax can be credited, which means that the amount paid for a purchase or import can be credited against the amount due when the company sells something.
2.5. Incentives on International Trade
2.5.a. Export incentives
Exports in Brazil are free of ICMS and IPI. Moreover, depending on the company’s tax situation, the exports are also exempt of PIS and COFINS. Exports made through a trading company are eligible for the same benefits. Additionally, domestic sales for Free Trade Zone, e.g. Manaus, are also tax free.
2.5.b. Import Incentives
There are some States which provide incentives for importing activities, such as Espírito Santo and Santa Catarina, they have specific international trade policies and grant special tax levels on the ICMS (State tax). When a company is considering entering the Brazilian market, it is important to take into consideration these particular incentives, which may low considerably the landed costs of the merchandise.
Corruption is an antique issue for Brazilian society, in 2018 the country ranked 105th in the Corruption Perception Index, corruption scandals are undermining the country’s economic and political stability. However, corruption used to be much worse in past decades and things are slowly changing. Several recent scandals involving politicians and businessmen are being severely punished. Even when not sufficiently punished (according to most Brazilians’ perception), the negative exposure of the facts is sometimes sufficiently relevant as example, so that the feeling of impunity is becoming weaker and people will start reconsidering before being corrupt. When it comes to international trade operations, the use of on-line systems such as SISCOMEX and RADAR makes corrupts lives more difficult.
2.6.b. Recommendations on handling corruption
In Brazil, corruption in imports and exports usually happens when there is something wrong in your procedure. The usual is that no tax authority will ask you for a bribe if all your documentation is correct, your cargo is legal, if you delivered all the relevant information correctly and timely. Of course, this does not mean that if there is any missing information you will be confronted to corrupton, the majority of tax authorities in Brazil are correct people.
Being careful when preparing your paperwork and respect the bureaucracy is crucial to avoid corruption. However, if you took all the precautions and still you’ve found a bad tax officer in front of you, the best thing to do is to remain calm and look for a legal solution. Once you accept to pay a bribe, you will always have to pay a bribe, it is better not to even start.
2.7. Common mistakes on a foreign look on Brazil
2.7.a. Brazil is a cheap Country
After spending vacations on a nice Brazilian beach and paying less than USD10 for a nice portion of shrimps, or USD1 for a cocounut, you may create the false impression that Brazil is a creap country. In spite of the salaries being lower when compared with Europe or North America, the social tax burden on salaries can be higher than 100%. Raw materials, components, machinery, everything required to manufacture something in Brazil may have a reasonable price if made in Brazil. Moreover, if it needs to be imported, the price will be considerably higher. The same happens for products which, despite being manufactured internally, the domestic production cannot meet demans. For instance, even though Brazil is one of the largest steel producers in the world, with the largest iron ores, steel prices in the country are much higher when compared with the rest of the world.
2.7.b. It is easy to move around
Wrong, it is actually pretty complicated to move around in Brazil, specially for a foreigner. The roads can sometimes be very bad (specially at the North of São Paulo and Rio), and road signs are not precise. GPS cover is good in larger cities, but the problem is that sometimes the GPS can guide you towards a slum, which can be dangerous.
In addition, the rail system is barely inexistent for passenger transportation and, when it exists, the trains are quite old. The Brazilian airway system is good in terms of security, but the number of passengers grew very fast. There can be delays, but some airports and systems are improving, for instance, the Guarulhos Airport (in São Paulo) and the Viracopos Airport (Campinas SP) opened new terminals and modernised their instalations.
2.7.c. Brazil is merely a commodity exporter
Although Brazil actually exports commodities, being the first worldwide for meat, poultry, soy, coffee and sugarcane ethanol , the country also exports: airplanes – the Brazilian company Embraer is world leader in the production of 70-100 seats jets; cars; machinery; cell phones; and electronics in general.
2.7.d. Pricing of products
The Brazilian tax system is so complex that it makes almost impossible for a foreigner to understand the pricing structure. One may think that the importer is having an absurd margin, which is often wrong. The many tax situation possibilities that a certain company may have can play a decisive role in pricing. For instance, two companies selling the same product for the same price can have different profit margins, depending not only on their own performance, but also on their tax situation. In conclusion, if you have studied your entry in Brazil and concluded that your price is not competitive enough, maybe you are not dealing with the best tax situation and it is worth it to talk to specialist on the subject.
The idea that business is in São Paulo and other cities, such as Rio, Recife and Salvador, are for tourism is just partially correct. These are the most famous locations, but after taking a closer look it is possible to find other better options. There are top industrial locations spread in the South region of Brazil and some others in the Northeast of the country. It may be correct to think of São Paulo as the economic heart of Brazil, but it is important to consider other issues like security, life quality, structure, costs and salaries and you may end up with a different choice.
2.7.f. Size of the country
Brazil is a very big country, it has an area of approximately 8.5 million square kilometers, 200 times the size of Switzerland and almost twice as big as the European Union. It is the 5th largest country in the world. When someone leaves for instance from São Paulo, by plane, to Europe, it will take around 4 hours of flight just to leave the Brazilian territory. Another example is that if from São Paulo you drive south to Uruguay, you will be about 1,500 km from the border, which will certainly take at least two days of driving. It is very relevant to take the distance factor into consideration when ellaborating the strategy for logistics and distribution in Brazil, and also for selecting partners.
The Brazilian culture is very diverse, due to its size and a history of immigrants, the country has a multiplicity of races, religions, and diverse origins, Brazil is a melting pot of culture. Sometimes this mixture reflects even on the Brazilians’ religion, there are many people who follows more than one religion for instance.
When you travel to different regions, you may think you are in a different country. Bahia for instance, has more elements of African culture, while if you go to the extreme South, you may think you are in Argentina. In addition, in many cities of the South it is possible to find very Germany-like or Italian-like places. In São Paulo, there is the largest concentration of Japanese people out of Japan, something like over 1 million Nisseis or Sanseis (2nd and 3rd generation Japanese). In general, the South region is more similar in terms of culture to Europe than it is to the North part of Brazil.
Brazil is the only country in continental South America that speaks Portuguese. English is not widely spoken and Spanish, although similar to Portuguese, is hardly understandable for most people. Moreover, the Portuguese spoken in Brazil has a different accent and different words from the Portuguese from Portugal. So if you have to translate a company catalog to sell in Brazil, you must look for a Brazilian translator. A Portuguese translator may translate it differently and the result may be very funny in some cases.
A recent study regarding the use of the English language was carried out and the results showed that only 8% of Brazilian business people could communicate perfectly in English. About 17% can speak fluently, but with some mistakes and 24% has a basic knowledge of the language. When talking about consumers in general, the situation is much worse, only 13% of the population can communicate or at least understand English.
2.7.i. Brazilian domestic market is poor
Brazil has 190 million inhabitants. About 10% of this population has the same purchase power as the average European, which is around 19 million people or almost 3 times the Swiss population. The remaining 90% is quickly ascending class in the past few years. Poor people (living on less than USD100 per month) account for about 10% of the population and 80% belongs to the middle classes.
Auhor: Ana Carolina B. Jacinto e Victor Albert Batista da Silva
Forvm Project Management