Member Article

Brazil - Go where the growth is

The new, part-funded ERDF NECC Access Programme – launched to help North East companies develop a market presence in Russia, Brazil and India – looks at the support for companies wishing to explore opportunities specifically in Brazil.

Nynzi Maung, Access Programme manager, said: “Brazil is often referred to as a high cost country to operate within, with a complex and at times crippling taxation regime and distinct banking system – each of which can reasonably act as a deterrent to any prospective UK company seeking to invest.

“However, Brazil is a very substantial market in its own right with significant growth still expected. Despite the oil rush that may drive fast changes in the economy, manufacturing remains crucial as Brazil develops. Although operating costs are high, this is countered by a Brazilian appetite to open up more to foreign investment.

“Taxation on imports on both goods and services are considerable, but with careful structuring, investment can often be cheaper in the long-run than importing, especially after taxation is taken into account. Having suffered from hyperinflation in the 1970s and 1980s, Brazil now has a very sophisticated banking system with higher liquidity.

“The key to a successful operation in Brazil is to start slow; be prepared to invest time and effort to understand the market and all the issues that are involved; to find the right people and build trust.”

Here Ray Jones, Head of Business Consulting at RTC North, offers some market support advice for companies making steps towards investing in Brazil:

1. “Brazil operates protectionist laws and some relate to the supply of government contracts, which generally need the supplier to demonstrate the product or service being procured has a percentage of Brazilian labour/materials content. The percentage of local content can vary wildly and has been seen up to around 70% to 90% in some cases. Build your Brazilian business model incorrectly around the supply of these contracts and you could find yourself having invested heavily without being able to sell to your customers.”
2. “Brazil has Federal VAT (IPI) and State VAT (ICMS). Federal VAT can vary greatly depending on the product or service and State VAT differs from state to state. Getting this wrong on multiple transactions can lead to heavy financial penalties and cash flow problems.”
3. “Stringent banking compliance requirements in response to money laundering fines imposed on banks means opening a bank account is not guaranteed. Recently, a $1bn US company was turned down for a bank account without being given a reason after setting up their Brazilian company.”
4. “Shareholders are required when forming a company and need to have domicile Brazilian legal representation registered. Sourcing trusted representation can be difficult and costly if you get it wrong.”
5. “Brazilian Labour laws are complicated and involve extra salary payments such as bonuses and considerable employer paid social taxes. Make sure you have a solid understanding of these at the outset to avoid your employment budget escalating well beyond budget.”

Investing in Brazil – make sure you start off on the right foot

Access Brazil will be hosting a free workshop, 30 January 2014, at the Copthorne Hotel in Newcastle, aimed specifically at North East Businesses looking to find out more about establishing themselves in Brazil.

KPMG, HSBC and RTC North will all provide expert insight around the opportunities that lie there, highlighting areas of consideration when setting up a Joint Venture in Brazil, including legal frameworks, regulatory issues and taxation regimes – the challenges and pitfalls; how to overcome them and how to maximise the opportunities using the tools and resources available to them.

This expert insight will be brought to life by Newcastle-based British Engines, which has successfully set up a facility in Brazil to cater for the growing demand for its products in the oil industry. Their experiences will illustrate how, with the right ‘know-how’, North East businesses can operate smoothly, efficiently and very successfully within Brazil.

For further information regarding the ERDF funded Access Programme and its event schedule in 2014 contact Nynzi Maung on 08450 768391 or email nynzi.maung@necc.co.uk.

This was posted in Bdaily's Members' News section by Access Brazil .