Brazilian Law FAQ

1. How can I do business in Brazil?

As a general rule, Brazilian law does not prohibit or restrict the participation of foreign investment in business activities. Except for certain limitations, foreign investors are free to establish any business in Brazil. Those few areas in which foreign investment is either totally prohibited or limited to a certain minority interest, includes some telecommunications services and media. In these restricted areas, foreign investors are required to enter into joint ventures with Brazilian companies or individuals and organize a subsidiary company under Brazilian laws. Foreign investors sometimes adopt joint venture arrangements even in situations that are not restricted – for instance, when they seek the experience and expertise of locals in the domestic market.

A business presence in Brazil may, at least in principle, take the form of either a branch representative office or agency of a foreign business entity, or a company organized under the laws of Brazil: Branch, Representative Office or Agency of a Foreign Business Entity. Though permits to establish branches of companies organized under the Brazilian laws are freely granted, the prior authorization of the President of Brazil is required to establish a branch of a foreign company. The granting process is entirely discretionary and lengthy, lasting more than six (6) months. In addition, adverse liability and tax consequences render this choice inappropriate in most cases.

2. What is the Mercosur Trade Agreement?

Brazil is one of the members of the Southern Cone Common Market, or Mercado Comum do Sul (Mercorsur). Mercosur, the “Common Market of the South,” is the largest trade organization in South America. Mercosur’s primary interest has been eliminating obstacles to regional trade, like high tariffs, income inequalities, or conflicting technical requirements for bringing products to market. Mercosur currently functions as a free trade zone and a customs union, except for some products that are still subject to quotas (e.g., vehicles). Mercosur now allows most goods and services to circulate among its members exempt from tariff and non-tariff barriers, and provides for a common external tariff (tarifa externa comum, or TEC) for most products that the member countries import from non-MERCOSUL countries.

3. What is the role of Manaus “Free Trade Zone”?

The free trade zone of Manaus is designed to encourage manufacturing for export and local sales. Raw materials, parts and components imported into the Manaus free trade zone enjoy deferment and reduction of customs duties and exemption of federal excise tax (IPI). These benefits apply only to merchandise entering the free trade zone by the Manaus Airport or the Manaus Harbor. They do not apply to the importation of weapons and ammunition, perfumes, tobacco products, beverages or automotive vehicles.

4. What is considered foreign investments under Brazilian Law?

The Law No. 4,131/1962 which regulates foreign capital in Brazil requires that foreign investments must be registered with BACEN (Brazilian Central Bank). Foreign investments under the law includes the following: (a) items imported as capital contributions (e.g., machinery, equipment); (b) capitalization of foreign credits which are remittable by Brazilian companies abroad; and (c) the inflow of foreign funds to Brazil as capital contributions. As a general rule, a foreign investor may freely organize a subsidiary in Brazil to carry out any kind of business permitted by law, except for areas such as media, oil and gas, domestic vessel transportation, and air transportation, in which foreign ownership is limited. Certain rules also restrict foreigners as to the area and scope of rural land they may own. With the intention of stimulating foreign investment in Brazil, the Brazilian Government is eliminating restrictions to such investments in certain areas of the Brazilian economy. Some of the activities and areas of the economy that are still subject to certain restrictions with regard to foreign capital are: exploitation and use of deposits, mines and other mineral resources and of hydraulic power potentials; coastal navigation for the transport of products, with some specific exceptions; ownership and administration of journalistic, TV and radio broadcasting companies, limited to thirty percent (30%) of the voting capital.

The participation of foreigners in certain companies can only be in an indirect way through a company incorporated under Brazilian law with headquarters in Brazil. For example, investment in cable TV service is limited to forty-nine percent (49%) of the voting capital.

In other cases, foreign investment is even further restricted, such as opening of industries of interest to the national security and the practice of certain activities at the border areas, the purchase of rural real estate — if located in areas considered reserved for national security reasons — and national airline companies. This concession is only given to Brazilian entities, headquartered in Brazil, which may have up to one fifth (1/5) of its voting capital held by foreigners.

5. What is the basic rule that governs Labor Law in Brazil?

The Brazilian Labor Code (Consolidação das Leis do Trabalho) generally regulates all aspects of a labor relationship. It is supplemented by labor and social security laws, and
collective bargaining agreements. In Brazil, all claims involving labor matters are decided in labor courts. The Brazilian Labor Code defines an “employee” as an individual rendering services to a company or individual on a regular basis, under the direction of such company or individual, for compensation. Brazilian courts consistently recognize the existence of an employment relationship whenever those elements are evidenced, whether or not a written employment agreement exists. Please note that in Brazil, the hiring of an employee requires filling out certain blank spaces in the employee’s Employment Booklet (Carteira de Trabalho, which is similar to a passport held by the employee) to identify the employer and the date of hiring, salary (generally per month), and function to be discharged by the employee. Similar annotations should be made in the company’s books. The execution of a separate written employment agreement is not required by Brazilian law and is rather used as a matter of convenience to deal with certain matters. If a worker is not under the direction of the employer (for example, an independent sales representative), the relationship between such person and the company would be subject to general Brazilian civil and commercial contract rules, and not to the Labor Code or other labor regulations. Nevertheless, Brazilian labor courts are generally sympathetic toward individuals who claim an employment relationship, essentially shifting the burden of proof to the presumed employer.