This joint presentation with Kegler Brown, JPMorgan Chase and the Ohio Department of Development educated attendees regarding the legal and financial considerations to be considered when doing business in Brazil, Chile and Colombia. Topics addressed include Mercosur, labor, finance, trade, tax, culture, politics and the regulatory environment in South America.
Selling to Brazil, Chile & Colombia- Toolkit for Success
1.
2. Doing Business in Brazil, Chile
& Colombia
Presented by:
Vania Zulatto, Director of TVZ International- Brazil
Verónica Medina, COO of TradeChile S.A.- Chile & Colombia
6. Why Brazil?
• Strategic location
• Approximately 50% of South America’s GDP
• Political and economic stability
• Favorable exchange rate: U$1.00 = R$ 1,75
• Largest and most diversified industrial country in Latin
America
7. Economy
• 6th largest economy in the world
• Solid Banking System
• Inflation under control: 4.4% estimated for 2012
• GDP: US$ 2.3 trillion
• GDP per capita: US$ 8,207.00
• Growth Rate: 4% estimated for 2012
• Brazil part of a world-wide phenomenon of a swelling middle
class
• In Brazil the economy is largely domestically oriented and
consumer demand drives wage income.
8. World Cup 2014 and Olympic Games 2016
Business Opportunities
• Brazil - World Soccer Cup in 2014
• 12 cities do host the World Cup
• Investments needed in airport infrastructure
• Hotels
• Public transportation
• Stadium building / refurbishing
• Communication
• Rio de Janeiro - first-ever Olympic Games in South
America in August-September 2016
• These events will generate numerous trade and
investment opportunities in several areas
9. Market Opportunities
• State-of-the-art equipment and technologies
• Agriculture Equipment
• Aerospace and Aviation
• Airports
• Information Technologies
• Telecommunications
• Transportation
• Electrical Power
• Oil and Gas
• Safety and Security
• Environmental Technologies
• Mining
• Medical Equipment
• Architecture/ Engineering/Construction
10. Brazil Import and Export
Statistics 2011 - (US$)
Brazil Imports Statistics
Commodity: Total
World 226,243,408,907
1. United States 33,962,382,474
2. China 32,788,424,507
3. Argentina 16,906,099,483
4. Germany 15,212,859,089
5. Korea South 10,096,972,279
Brazil Exports Statistics
Commodity: Total
World 256,039,574,768
1. China 44,314,595,336
2. United States 25,804,628,156
3. Argentina 22,709,344,431
4. Netherlands 13,639,692,908
5. Japan 9,473,095,520
11. Source: Ministério do Desenvolvimento
Brazilian Imports – 2011
Imports by Use Categories - % Share
12. Market Challenges Advantages
• Growing consumer market
• Diversified/sophisticated industry
• Geographical proximity / US
• Brazilians receptive to US
culture/products
• Favorable exchange rate
• High import tariffs (0-15%)
• Informal economy
• Burdensome regulations
• Slow/bureaucratic customs
system
• European /Asian competition
13. How to Enter the Market
• Agents & Distributors
• Licensing Agreements
• Joint Ventures
• Local Office
• Government Sales
14. Strategies for Success in Brazil
• keep in touch and informed on the market, THE TIME IS NOW!
• take advantage of the favorable exchange rate.
• visit the market (Major Trade Shows/Trade Missions)
• learn local business practices
• reestablish contact with former clients
• personal relationships are important
• be flexible and innovative with your negotiations
• Meet partners face to face
• Be fast on your follow-up / give support to your rep
• Provide after sales and technical assistance
• Translate your catalogs into Portuguese
• Be patient
• Try to understand the complex tax regime
15. Contact Us!
Obrigada!
Thank You!
Ohio Department of Development
Global Markets Division
(614) 466-5017
Vania Zulatto
São Paulo, SP - Brazil
(55 11) 3384-9051
vzulatto@tvzinternational.com.br
www.tvzinternational.com.br
34. 3 Issues that can Make or Break
Your Latin America Business
Strategy
Agency, Distributorships &
Labor
-Creation
-Termination
3. Labor
Methods of Entry
-Strategic Considerations
-Available Organizational &
Entity Structures
-Features
1. Entry Method &
Organizational
Structure
Import/Export
-Process
-Taxes
-Free Trade Zones &
Treaties
2. Regulation & Tax
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
35. Entry Method & Organizational
Structure
Strategic Considerations
Available Organizational & Entity Structures
Features
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
36. Entry Method & Organizational
Structure
Political
The ability of government to respond to and NOT create political
risk
Economic
Macro trends, Currency risks
Social
The ability of stakeholders to identify vulnerabilities & apply
pressure to the company to change its behavior
Technological
Infrastructure, IP Protection, Government Incentives
P E S T
What are the Political, Economic, Social and Technological
reasons to enter Brazil, Colombia or Chile?
export, manufacture, distribute, design . . .
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
37. Entry Method & Organizational
Structure P E S T
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
0
10
20
30
40
50
60
70
80
90
100
PDI IDV MAS UAI LTO
Chile
Chile
0
10
20
30
40
50
60
70
80
PDI IDV MAS UAI LTO
Brazil
Brazil
Geert Hofstede’s Cultural
Dimensions
Power Distance
Individualism
Masculinity
Uncertainty Avoidance
Long-Term Orientation
www.geert-hofstede.com
0
10
20
30
40
50
60
70
80
90
PDI IDV MAS UAI LTO
Colombia
Colombia
38. 0
10
20
30
40
50
60
70
80
90
PDI IDV MAS UAI LTO
Latin America
Latin America
Entry Method & Organizational
Structure P E S T
Geert Hofstede’s Cultural
Dimensions
Power Distance
Individualism
Masculinity
Uncertainty Avoidance
Long-Term Orientation
www.geert-hofstede.com
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
0
10
20
30
40
50
60
70
80
90
100
PDI IDV MAS UAI LTO
US
Brazil
Colombia
Chile
Latin America
0
10
20
30
40
50
60
70
80
PDI IDV MAS UAI LTO
Brazil
Brazil
39. Entry Method & Organizational
Structure
Direct sale from US using freight forwarder
Non-Equity Alliance
Distribution agreements
Licensing agreements
Franchising agreements
Supply agreements
Joint venture
Equity Alliance
Joint venture
Joint company
Wholly Owned Subsidiaries
Greenfield operations
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
May also require
a small wholly
owned subsidiary
holding company
presence in
country
40. Entry Method & Organizational
Structure
Joint Venture
May be created with or without a full joint company
Contractual joint ventures between subsidiary company and
a partner company
Low cost entry and exit to new markets, industries and
industry segments
Opportunity for learning
Provides a “contractual” framework for operations without
generating many issues associated with an agency
relationship
Enables each party to take full responsibility for its
contribution to the venture while minimizing the issues
associated with exclusivity
Enables low cost entry and exit
May later evolve into full equity alliance
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
41. Entry Method & Organizational
Structure
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
Similar to US
LLC
Similar to US
Corporation
Sociedade Limitada
(LTDA)
Sociedade Anônima
(SA)
Sociedad por Acciones
Simplificada
(SAS)
Sociedad Anónima
(SA)
Sociedades de
Responsabilidad
Limitada (SRL)
Sociedades
Anónima (SA)
42. Entry Method & Organizational
Structure
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
-No restrictions on foreign ownership*
-No minimum or maximum capital
requirements*
-Partner & parent company liability
limited to capital contributions
-Product Liability: Yes
-No restrictions on foreign ownership*
-No minimum or maximum capital
requirements*
-Partner and parent company liability is
limited to capital contributions ** In
insolvency PC is responsible for
subsidiary liabilities if PC caused the
subsidiary’s liquidation
-Product Liability: Yes
-No restrictions on foreign ownership*
-No minimum or maximum capital
requirements*
-Partner and parent company liability is
limited to capital contributions
-Product Liability: Yes
LTDA / SAS / SRL
&
SA Common Features
43. Import / Export
Import Export Process
Associated Taxes & Duties
Free Trade Zones & Treaties
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
44. Import / Export
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
17 Days
-Document Preparation (8
days)
-Customs clearance and
technical control (4 days)
-Ports and terminal handling (3
days)
-Inland transportation and
handling (2 days)
13 Days
-Document Preparation (6
days)
-Customs clearance and
technical control (2 days)
-Ports and terminal handling (2
days)
-Inland transportation and
handling (3 days)
20 Days
-Document Preparation (12
days)
-Customs clearance and
technical control (2 days)
-Ports and terminal handling (4
days)
-Inland transportation and
handling (2 days)
General Import Process
& Timeline
Source: World Bank, Doing Business
2012
Importing a container of
goods to Brazil requires 8
documents, takes 17 days
and costs $2,275
Importing a container of
goods to Colombia requires
6 documents, takes 13 days
and costs $2,830
Importing a container of goods
to Chile requires 6 documents,
takes 20 days and costs $795
Baseline:
-medium size business
-ship to economy’s
largest business city
-private, LLC
-non hazardous goods
-dry cargo, 20-foot full
container
* All US exports are also subject to US export
controls *
45. Import / Export
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
Associated Taxes &
Duties
II-Import Duty
varies based on product &
Country of origin (CNM,
HS)
0-35% Import Duty
0-5% raw materials,
20% finished consumer
goods, 35% autos and
luxury items
0-35%
12%
avg
Import Duty 6%
IPI-Industrial Product
Tax
Varies based on product
(CNM)
20%
avg
VAT 16% VAT 19%
PIS-Social Integration
Program Contribution
1.65%
COFINS-Social
Security Financing
Contribution
7.6%
ICMS-State Tax
SP 18%
7–
25%
46. Import / Export
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
-Importer must register with
Brazilian Ministry of Development,
Industry and Commerce
-No payment for the product may
be made by a Brazilian entity
-Exemption from II (Import Duty)
-No license required for samples &
promotional products outside of
prior license list
-Maximum of 10 samples
-Max value of US $50 per sample
-If over 10 samples but less than
US $1,000 value packing must
state “merchandize with no
commercial value"
-Subject to applicable custom
duties
-Under the terms of the US / Chile
FTA
-Professional equipment
necessary for carrying out
business may receive temporary
duty-free admission
-This is intended for display or
demonstration of commercial
samples
-Temporary admission of food
samples require additional
consideration
Samples / Tradeshow
exceptions
47. Import / Export
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
Additional Tax
Considerations
Corporate Tax
Plus 10% on taxable
income over R$240,000
15% Corporate Tax 33% Corporate Tax 17%
Transfer Price
Considerations
Yes Transfer Price
Considerations
Yes Transfer Price
Considerations
Yes
On average, firms make 9
tax payments per year and
spend 2600 hours per year
filing, preparing and paying
taxes and pay total taxes
amounting to 22.4% of profit
On average, firms make 9
tax payments per year and
spend 193 hours per year
filing, preparing and paying
taxes and pay total taxes
amounting to 18.9% of
profit
On average, firms make 9
tax payments per year and
spend 316 hours per year
filing, preparing and paying
taxes and pay total taxes
amounting to 18% of profit
Baseline:
-medium size business
-began operations 1/1/2009
-taxes & mandatory
contributions are measured
at all levels of government
-a range of standard
deductions & exemptions is
also factored
Source: World Bank, Doing Business
2012
48. Import / Export
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
Free Trade Agreements
and Memberships
Double Tax Treaties
US
Colombia
Chile
NO
NO
YES
Double Tax Treaties
US
Brazil
Chile
YES
NO
YES
Double Tax Treaties
US
Brazil
Colombia
YES
YES
YES
Membership
Mercosur (Argentina,
Uruguay, Paraguay,
Bolivia, Chile, Colombia,
Ecuador, Peru)
Latin American
Integration Association
LAIA (Argentina, Brazil,
Mexico, Chile, Paraguay,
Uruguay, El Salvador,
Costa Rica,
Guatemala, Nicaragua,
Honduras, Cuba)
Membership
Mercosur
Latin American
Integration Association
LAIA
Andean Community of
Nations CAN (Ecuador,
Bolivia, Venezuela – Peru
withdrew)
G-3 (Mexico, Venezuela)
Membership
Mercosur
Latin American
Integration Association
LAIA
49. Import / Export
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
-Manaus ZFM
-Areas de livre
Comercio ALC (4)
-Amazonia Ocidental
-Permanent Free
Trade Zones (23)
-Special Enterprise
Free Trade Zones
(40)
-Transitory Free
Trade Zones
-Inquique
-Punta Arenas
Free Trade Zones: The
basics
Reduced/Exempte
d
II, PIS & COFINS
Reduced/Exempt
ed
II & VAT
Reduced/Exempt
ed
II & VAT
50. Import / Export
US / Colombia Free Trade Agreement
18 to 24 months to implement
Will Reduce tariffs on 80% of US imports
Other tariffs reduced over 10 years
Colombia to implement new domestic legislation in a
number of areas:
sales agents, intellectual property, provide greater access
to several sectors in financial services and
telecommunications investments
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
52. Agency, Distributorships &
Labor
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
General Labor
Considerations
-Labor law is rooted deeply
-Written contract not required, employment relationship
may be implied
-Termination without cause will likely require provision of
wages, holiday compensation and other benefits
53. Agency, Distributorships &
Labor
Methods of
Entry
Import / Export
Agency,
Distributorships
& Labor
Creation:
-If written contract does not exist, one may be implied
-Contract should contain limitations, termination events, territory,
products or goods, commission structure and time of payment
-Exclusivity is not presumed
Termination:
Upon termination, without cause, agent entitled to:
-1/12 of the total compensation during the time of agency
-If a specific agency term , then the average monthly
compensation for half of the months remaining in the contract. If
$3,000 per month and 12 months into a 36 month contract, then
agent would receive $3,000 x 12 = $36,000
-Expenses related to promoting the brand and opening the
market
Creation:
-Written registered contract subject to Colombian law
-Contract should contain limitations, termination events &
territory
Termination:
-Upon termination agent entitled to 1/12 of the average
commission of the last three years
-Without cause termination agent entitled to damages for
opening market & promoting product
Creation:
-In Chile, agency, distribution and franchise agreements are not
specifically regulated. However, case law has provided some
useful guidance
-Their validity, binding nature and enforceability has been
recognized by the civil and anti-trust courts
-Relationship is contractual
Termination:
-Chilean civil and anti-trust courts provide precedents for
termination and have established circumstances in which they
are null and void
-Relationship is contractual
-Contract subject to anti-trust, consumer and general
commercial contract law principals
Sales Agent / Distributor
Creation & Termination
55. Additional Sources
Doing Business 2012, Doing Business in a More Transparent World, World Bank
Report, October 20, 2011
UBS Investment Research: Emerging Economic Focus, UBS, August 29, 2011
A Closer Look at Brazil’s Credit Boom, Deutsche Bank EM Special Publication, July
22, 2011
Anchoring, De-Anchoring, Re-Anchoring, Bradesco Corretora Economics BBI Equity
Research, September 6, 2011
Economic Outlook: Brazil, BBVA, Third Quarter 2011
Brazil Auctions Rights to Airport, WSJ, August 23, 2011
The Geopolitics of Brazil: An Emergent Power’s Struggle with Geography,
STRATFOR, July 14, 2011
The Aging World, Ned Davis Research Inc, July 21, 2011
Japanese Dump Real Funds at Fastest Pace Since Earthquake: Brazil Credit,
Bloomberg, September, 30, 2011
First they went for the currency, now for the land, The Economist, September 24,
2011
Gaining & Sustaining Competitive Advantage Third Edition, Jay B. Barney, 2007
Privatization and the Distribution of Assets and Income in Brazil, Economic Reform
Project: Global Policy Program, July, 2000
On this slide, explain that there are three key issues and that to best address the group (small to medium size enterprises, looking to export their products from the US to BCC) we have organized the content of our presentation into this format. First we will cover Methods of Entry . . . , 2nd we will address issues surrounding impor/export . . ., and 3rd we will discuss Agency distributorships and labor issues.
When you think of how to enter Brazil, Colombia or Chile, what do you think about? What questions jump into your mind. I generally begin with asking why? Is it because your competitor entered? Is it because an article in the WSJ said Brazil is not the 6th largest economy in the world, the largest in Latin America and the middle class is growing at an explosive rate? Is it because your organizations’ core competencies can be leveraged to do xyz? All of those could be great reasons, but the way that you approach the information we are about to discuss, and the decisions you make will vary greatly based on the answer to that question.
Simply a framework to discus macro level factors, how you evaluate the factors will differ based on your organizations industry, strategy, competencies and goals; however, I try to pose a general question that you can ask yourself to begin the analysis and help identify what additional information and factors you should research
-list of several available organizational structures, take a moment on this slide to discuss the importance of research, culture and selecting the right local partner. Mention that we will likely hear several stories related to this topic during the panel discussion later today. Provide a list of some research tools
-you may decide that you need an actual legal presence in Brazil, Colombia or Chile to execute your desired entry method. Although, each country offers several legal entities, these are the most common that are employed by foreigners when creating a subsidiary for the purpose of importation
-list of several available organizational structures
This is a very generic process, the way that you import will vary greatly based on your individual circumstances. If you decide it is best to register as an importer, then you will need to allocate time to navigate the that process. In Brazil: Siscomex registration, RADAR registration (ordinary or simple), licensing with various ministries (by product)Colombia: Chamber of Commerce registration, obtain tax registration, locate tariff sub-regime
There are several social contribution, pay roll taxes, health benefit and pension taxes also required to be paid in each country
Mention US Chile FTA, since 2004 (it is also referenced on the first free trade agreements “basics” slide noted as a YES under double tax treaty)
In Chile, managers may be terminated without cause in certain circumstances – source: PLC