Doing Business in Brazil

Doing Business in Brazil 5

TABLE OF CONTENTS

1 Introduction 7

2 Foreign investment 9

3 Capital & financial markets and corporate entities 12

4 Investment funds 18

5 Mergers and acquisitions 24

6 Tax 26

7 IP and IT law 37

8 Data protection 43

9 Competition law 46

10 Labor and employment 51

11 Civil litigation 58

12 Environmental law 65

13 Succession of estate 70

14 Insurance, reinsurance and pensions 73

15 Public tenders 77

16 Energy 83

17 Restructuring 87

18 Oil & gas 90

19 Business criminal law 95

20 Real estate 99

21 Life sciences 105

22 Aviation 109

23 Corporate social responsibility 111

24 Understanding corruption risks in Brazil 118

Doing Business in BrazilDoing Business in Brazil 76

The idea of preparing this guide

emerged from countless inquiries

that we have received from foreign

investors. In this guide, we provide

investors with an introduction to the

laws and regulations applicable to

the most frequent types of inbound

investments, and answer the most

frequently asked questions

on this topic.

Brazil currently ranks among the eighth

largest economies worldwide, and is the

largest economy in South America. It is

the 4th largest recipient of foreign direct

investment in the world and the largest in

Latin America, attracting more than 40%

of the total investments in the region.

IntroductionIn 2018, the largest investors

were the United States and Europe.

The investments were made in a variety

of industries, including automotive,

electricity, financial services, food,

logistics, mining, oil and gas,

paper, and retail.

Brazil is an attractive market for

international investors due to several

factors, including a domestic market

of nearly 210 million people, a growing

middles class, a diversified and stable

economy, abundance of natural

resources, and a strategic geographic

position that allows easy access to

other South American countries.


RegulationsInvestments by nonresidents in

Brazil’s financial and capital markets

are regulated by resolutions from the

National Monetary Council (Conselho

Monetário Nacional – CMN) and specific

regulations enacted by the Central

Bank of Brazil (Banco Central do Brasil

– BACEN) and the Brazilian Securities

Commission (Comisssão de Valores

Mobiliários – CVM). These entities

are also in charge of monitoring

compliance with all regulations

concerning foreign investment.

Foreign investment

Foreign capitalUnder Brazilian laws and regulations,

“foreign capital” means any goods,

machinery, or equipment entering Brazil

for the purpose of producing goods

and services, as well as any capital

brought into the country to be used

in economic activities.

Nonresident individuals and legal

entities may invest in Brazil directly

by means of direct ownership of

interests in Brazilian companies, or

credit extended to a Brazilian resident

individual or legal entity, or indirectly,

in the Brazilian financial and

capital markets.


Registration of foreign capital with BACENIn accordance with applicable laws,

all foreign capital remitted to Brazil

as investments or loans must be

registered with BACEN.

Registration of foreign Investors with the Federal Revenue SecretariatAny entity and individual domiciled

abroad owning most types of assets

located in Brazil must also register with

the Individual or Legal Entity Taxpayers’

Register (respectively, CPF and CNPJ)

of the Brazilian Federal Revenue

Secretariat – RFB.

Restrictions on foreign capitalRestrictions on foreign participation

in certain key economic sectors have

been largely eliminated.

Financial sectorPursuant to article 192 of the Federal

Constitution, foreign ownership interests

in Brazilian financial institutions must

satisfy requirements to be established

by law. Since no specific law has been

enacted in this regard, any ownership

stake in a financial institution is in

principle prohibited for individuals or

entities residing or domiciled abroad

on the grounds of article 52 of the

Transitional Constitutional Provisions

(Ato das Disposições Constitucionais

Transitórias – ADCT).

Nonetheless, article 52 contemplates an

exception from the prohibition against

ownership by foreign investors of stakes

in financial institutions when such

ownership serves the Brazilian national

interest. A decree signed by the President

of Brazil is required in such case.

Mining and exploitation of mineral and energy resourcesDomestic or foreign-controlled

companies headquartered in Brazil are

allowed to explore mineral and hydraulic

energy potential under an authorization

or concession. In the event of direct

investment, the nonresident investor

must incorporate a company under

Brazilian law with head office and

management in Brazil.

For national security purposes, there are,

however, additional requirements

for exploitation of mineral resources

in the border strip.

Oil and gas sectorBrazil opened its oil and gas market

in 1995. Foreign companies may take

part in bid rounds called by the Brazilian

National Oil, Natural Gas and Biofuels

Agency (Agência Nacional do Petróleo,

Gás Natural e Biocombustíveis – ANP)

for exploration blocks, for investment in

the form of concession and production

sharing and E&P activities.

Broadcasting and news media sectorThis sector was opened in 2002 and

since then nonresident investors may

hold equity interests in broadcasting

and media companies, subject to certain

requirements, such as:

(i) direct interest may only be held

by Brazilian resident individuals

or entities;

(ii) Brazilian individuals must hold,

directly or indirectly, at least 70%

of both the outstanding and

voting shares; and

(iii) editorial powers must remain

with Brazilian individuals

(or foreigners with Brazilian

citizenship exceeding 10 years).

Telecommunications and Pay-TV sectorThere are no foreign ownership

restrictions in any other

telecommunications markets,

including Pay-TV.

Foreign exchange marketIn accordance with current regulations,

any entity or individual may buy foreign

currency without limitation in the amount

of purchase, provided that there is

an economic reason to support the

acquisition. However, some practical

restrictions may apply to the full

exercise of this right.

Additionally, outbound investments

from Brazil are permitted in the form of

direct investments, loan repatriation,

or investments in foreign financial and

capital markets without restriction on

the repatriation of such funds back to

Brazil. Investment funds formed under

Brazilian laws and regulations may

invest overseas, provided that minimum

requirements are satisfied.


Capital & financial markets and corporate entitiesCapital and financial markets

Nonresident investors may invest

in all securities and financial assets

available in the Brazilian financial and

capital markets (including investment

funds). Currently, there is an exemption

from capital gains tax for transactions

entered into by nonresident investors on

Brazilian stock exchanges, provided that

certain conditions are satisfied.

In order to qualify for indirect

investments, nonresident investors must

engage a financial institution to act

as legal representative, appoint a tax

representative, and execute a custody

agreement with a local institution.

Registration with the CVM is also

required and consists of a simple

process.

Transfers of custody positions between

nonresident investors are subject to

specific rules and only permitted in

cases expressly contemplated by

CVM rules or upon prior approval.

Advice should be sought before

any such transfer.

Nonresident investors who invest in the

Brazilian financial and capital markets

may also hold direct investments

registered with BACEN, but such

investments will be subject to a

different set of rules.


Direct foreign investmentBrazil offers two manners for

nonresident investors to do business in

the country: (i) through a Brazilian entity

formed by the nonresident investor; or

(ii) directly or through a branch, which

requires prior authorization from the

federal government and therefore may

be more cumbersome.

Brazil’s corporate legal system is

subject to the general principles of

the Brazilian Federal Constitution

and is regulated, primarily, by Law No.

6,404/1976 (the “Corporations Law”),

which regulates corporations, and by

Law No. 10,406/2002 (the “Civil Code”),

which regulates other corporate entities,

some of which are also governed by the

Corporations Law on a secondary basis.

Electronic system for registration of

direct foreign investment with BACEN

Registration of direct foreign investment

is made through a self-responsive

electronic system created by the Central

Bank of Brazil called SISBACEN – RDE-

IED/ROF system. Under this system, the

Brazilian entity receiving the investment

(either through a subscription of

securities or the extension of credit) is

responsible for such registration. It is a

simple and fast procedure.

Corporate entities

Several types of corporate entities may

be established in Brazil. The following

are the most common:

a. Sociedade Limitada:

more commonly known as a

“limitada”, it includes features

common to both partnerships

and corporations, and is generally

similar to an English private limited

liability company and other types of

European limited liability companies.

A limitada is relatively simple and

inexpensive to organize and its

disclosure requirements are less

stringent than those applicable

to an S.A.

In addition, corporate decision-

making in a limitada can be rather

less bureaucratic and, as such,

corporate decisions can be more

easily and quickly made in a limitada.

Because the law applicable to a

limitada is not as extensive and

detailed as the law regulating S.A.s,

a limitada may provide more freedom

to investors, including custom-

made provisions in the company’s

by-laws allowing the creation of

different management bodies,

disproportionate distributions of

profits, and simpler procedures for

convening company meetings and

passing resolutions.

b. Sociedade por Ações:

normally referred to as an “S.A.”, it

is broadly similar to a corporation

organized under state law in the

United States and a public limited

company in England. In an S.A.,

capital can be raised through a

public offering of shares and other

securities, such as debentures.

The management of an S.A. tends

to be more bureaucratic, time-

consuming and expensive (for

example, all minutes, by-laws,

and financial statements must be

published in the Official Gazette

and local newspapers), involving

several bodies. An S.A. may be

listed or unlisted and the duties of

the management, access to the

capital markets and how they are

overseen differ on the basis of this

choice. An S.A. should have at least

two shareholders who subscribe all

shares comprising the capital stock;

shareholders may be resident or

nonresident individuals or entities.

Shareholders are liable up to the

amount of their capital holdings.

The capital of an S.A. is divided

into shares, each representing a

fraction of the capital and a bundle

of rights. There may be a number

of different classes of shares, each

class providing different rights,

advantages and/or restrictions.

c. Sociedade Simples:

used only for non-business

purposes; its principals may

have unlimited liability towards

third parties.

d. Empresa Individual de

Responsabilidade Limitada – EIRELI:

individual limited liability company,

allows one individual to be the sole

owner and holder of the corporate

capital. The rules applicable to a

limitada also apply to an EIRELI.

Both resident and nonresident investors

generally prefer the corporate types

limitada and S.A. due to the limited

liability feature applicable to their

owners, but other types of entities may

be adopted in certain specific situations.


Corporate veil liability

The corporate veil of a company may be

pierced in certain circumstances, such

as misuse of the assets of the company,

use of the company’s resources

to pursue a purpose other than its

stated corporate purpose, fraudulent

management, and poor management

combined with failure to comply with

legal requirements and/or provisions

stated in the by-laws (such as failure

to pay taxes and labor or employment

duties when due).

Listed companies: capital markets

and corporate governance

The public and private sectors in Brazil

have increasingly recognized the

importance of adopting principles of

good corporate governance as a way

to stimulate trade volume

and improve Brazil’s long-term

economic performance.

One of the most important

developments in making corporate

governance a reality in Brazil was the

creation of four listing levels on B3

(Bovespa Mais, Level 1, Level 2, and

Novo Mercado) based upon a company’s

willingness to comply with different

sets of increasingly stringent corporate

governance rules.

Alternative investment structures

Branches

Establishing a branch of a foreign

company in Brazil is a rather complex

and time-consuming process that

requires a special decree to be passed

by the Brazilian President. Therefore, this

method of investment is not generally

recommended. A much simpler method is

to acquire interests in, or to incorporate,

a Brazilian company.

Consortia

The Corporations Law contemplates a

type of association called consortium

in which two or more Brazilian or

foreign companies associate for the

sole purpose of undertaking a specific

activity. A consortium agreement

contains the rules regulating the

consortium, including the liability

of its partners. A consortium does not

have corporate personality by nature,

but is deemed a separate entity

for tax purposes.

Joint ventures

A joint venture does not have

corporate personality in and of itself

under Brazilian law. Typically, parties

associating under a joint venture

agreement use one of the various types

of corporate entities available under

Brazilian law as vehicle. Limitadas

and S.A.s are commonly the preferred

types of entity for joint venture

vehicles in Brazil.


Investment funds Investment funds generallyBrazil has a sizeable investment funds

industry, reaching R$ 4.9 trillion in

March 2019, or approximately,

65% of the Brazilian GDP.

The significant amount indicated

above is a result of strong governance,

attractive taxation, first class

compliance protocols and a well-

established regulatory framework

passed and enforced by the Brazilian

Securities Commission (Comissão de

Valores Mobiliários - CVM).

According to Brazilian law, investment

funds are organized as pools of assets co-

owned by investors. Brazilian investment

funds are transparent for tax purposes,

i.e., generally there is no taxation at the

level of the investment fund.

Unlike other jurisdictions, in Brazil

investment funds are not distinguished

between registered mutual funds, and

private investment funds that do not

require registration with the relevant

securities commission. In Brazil, all

investment funds are registered with the

CVM and all investment funds require

licensed service providers in connection

with the provision of administration,

custody and portfolio management

services. This characteristic enhances

transparency and accountability

by service providers and

investor protection.

Brazilian investment funds are

operated by a fiduciary administrator

and a portfolio manager. While the

administrator acts as a gatekeeper of

the fund and is responsible for CVM

representation and disclosure of certain

information, the portfolio manager is

in charge of selecting the assets and

actually managing the portfolio of

the investment fund.


The service providers engaged by an

investment fund must satisfy certain

CVM requirements ensuring high

standards of corporate governance,

AML and compliance protocols. In

addition, a custodian registered with

the CVM is required to safeguard the

funds’ financial assets. The Brazilian

Central Bank (BACEN) regulates and

supervises financial institutions acting

as custodians for investment funds.

Below are the key categories of

investment funds in Brazil:

Equity funds (FIAs): funds in which

Brazilian public securities must comprise

at least 67% of the portfolio.

Private equity funds (FIPs): funds

tailored to sophisticated investors,

allowed to purchase debt and equity

securities of unlisted companies. Often

used for traditional private equity, real

estate, infrastructure, natural resources

and distressed debt situations.

Real estate funds (FIIs): investment

funds created to invest in the real estate

sector in various classes of assets,

including land, ground leases, mortgage-

backed securities and real estate SPVs.

Receivable funds (FIDCs): funds created

to purchase a vast array of receivables

ranging from senior investment grade

debt to legal claims or distressed debt.

Hedge funds (FIMs): investment funds

that range from simple strategies

available to general investors to more

complex strategies that are available

only to sophisticated investors.

Fixed income funds (FIs-RF): investment

funds available to general investors,

focused on investing in government

bonds and investment grade debt.

Private retirement funds: investment

funds focused on pensions, with a vast

array of strategies.

Below we provide additional remarks

regarding FIPs and FIIs, which receive

special attention from foreign investors,

given their flexibility, attractive taxation

and ability to purchase private, non-

listed assets.

Private equity funds (FIPs)

in a nutshell

FIPs are allowed to invest in different

types of securities (shares, convertible

debt, warrants) issued by both listed and

unlisted companies. Given this feature,

FIPs may be used as an investment

vehicle in many segments, including:

a. traditional private equity (buyout

strategies), growth equity and

venture capital;

b. real estate development

and finance;

c. infrastructure (including water and

sewage, generation, transmission

and distribution of energy, toll roads,

ports and airports);

d. investments in other FIPs in a

fund-of-funds strategy; and

e. distressed equity/special situations.


A FIPs’ governance revolves around

its shareholders (as opposed to a

traditional offshore private equity fund).

The fund’s shareholders are responsible

for making relevant decisions in relation

to the FIP’s strategy and investment

guidelines by approving amendments

to its investment policy. In addition, any

replacement of the FIP’s service provider

or increase of the management fees

must be approved by the majority of

the fund’s shareholders at a

general meeting.

Taxation

FIPs are not subject to taxation on

revenues and capital gains arising from

their transactions. Consistent with

this, FIPs are not subject to taxation

on income and gains resulting from the

transactions of their portfolio, including

dividends received from portfolio

companies, yields from convertible

debt and capital gains assessed on the

disposal of portfolio companies.

Additionally, the income realized by non-

resident investors in connection with the

distribution of proceeds and sale of FIPs

shares is generally subject to income tax

at a 15% rate. However, said income tax

rate may be as low as 0%, to the extent

that certain requirements are satisfied.

Real estate funds (FIIs) in a nutshell

FII’s are a unique type of investment

fund, given that they can invest in

several classes of assets that are not

available to other categories, such as:

f. property rights (including air rights);

g. shares, debentures and warrants

and their relevant coupons and

rights, subscription receipts, split

certificates, securities deposit

certificates , debenture certificates,

investment fund shares linked to the

real estate sector;

h. commercial paper and any other

securities linked to the real

estate sector;

i. special purpose entities that

undertake real estate activities;

j. shares in FIPs that invest solely

in construction or the real estate

market; and

k. certificates of potential

additional constructions.

Given this flexibility, FIIs are used

by foreign investors in several

contexts, including purchases of

stabilized property for rent, real estate

development or real estate finance.

In addition, given that FIIs are a very

common investment strategy for retail

investors, it is not uncommon to see

divestment through IPOs.

Taxation

FIIs are not subject to taxation on their

real estate activities (such as receiving

rent or selling real estate SPVs), but

taxes are levied on gains arising from

financial activities at the portfolio level.

Taxes due on financial activities carried

out at the FII portfolio level may be

offset against taxes due by

the shareholders.

Income realized by non-resident

investors in connection with investment

in FII shares is generally subject to

taxation at a 15% rate, including, but

not limited to, capital gains realized on

secondary market sales. Despite the

general treatment, foreign investors

selling FII shares on a Brazilian stock

exchange may be exempt from paying

income tax on capital gains, provided

that certain conditions are satisfied.


Since the opening of the

Brazilian economy to international

investment in the mid-1990’s,

M&A has become a common

vehicle for nonresidents to

establish businesses in Brazil.

Mergers and acquisitions

The actions in a standard M&A

transaction in Brazil are not much

different from those in other

major jurisdictions.

The type of agreements, legal protections

and documentation required for each

M&A deal will vary significantly, depending

not only on the characteristics of each

transaction, but also on the corporate

type of the target Brazilian entity. The

most common corporate types adopted

in Brazil are sociedade limitada and

sociedade por ações.

If the entity, which is the target of the

M&A, is a public corporation registered

with the Brazilian Securities Commission

(CVM), the buyer of its equity interest

may be required to make a tender offer

covering some or all of the stock held by

minority shareholders.

In terms of documentation, an M&A

process will typically include a Non-

Disclosure Agreement (potentially

including non-solicitation and standstill

obligations), a Memorandum of

Understanding (typically non-binding

other than for exclusivity, confidentiality

and disputes clauses), a Stock

Purchase Agreement and a Shareholders

Agreement (for transactions that

involve less than 100% of the capital

of the target).

Due diligenceIt is advisable for a prospective buyer

to carry out due diligence in order

to become aware of the conditions

(especially the existing and potential

liabilities) of the business it intends to

buy. Due diligence activities that are

related to a typical M&A transaction

usually involve financial, accounting,

and legal matters.

Legal due diligence usually encompasses

analysis of documents and information

related to ongoing litigation, tax and

labor liabilities, corporate documents

and agreements, as well as aspects

involving real estate, regulatory,

intellectual property, insurance,

environmental and anti-corruption

and compliance matters.

Antitrust approval In certain cases an M&A transaction

will require prior clearance from Brazilian

antitrust authorities. Competition law is

discussed in chapter 9 of this guide.

Other regulatory requirementsDepending on the industry of the

Brazilian entity targeted in the

M&A transaction, the change of

its shareholding structure may be

subject to prior approval or posterior

communication to the Brazilian

governmental agency overseeing

the sector.


Tax

Taxation of Brazilian companies activitiesThe Brazilian tax system is governed by

the Federal Constitution, the National

Tax Code, complementary laws, ordinary

laws, Senate resolutions, state laws,

and municipal laws.

The Brazilian Federal Constitution sets

forth the tax jurisdiction of the federal,

state and municipal governments, which

are entitled to charge specific taxes upon

the occurrence of different tax-triggering

events within their respective areas of

jurisdiction, provided they comply with

constitutional principles.


Taxes on profitsGenerally, Brazilian companies’ profits

are subject to Corporate Income Tax

(“IRPJ”) and Social Contribution on Net

Profits (“CSLL”), and are calculated

through either the taxable income

method (sistemática de apuração pelo

Lucro Real, “APM”) or the estimated

profit method (sistemática de apuração

pelo Lucro Presumido, “PPM”). The

APM method may be mandatory for

companies, including those

(i) whose total annual revenues in the

prior year exceeds R$ 78,000,000.00

(seventy-eight million Reais);

(ii) which have income or gains

obtained abroad;

(iii) which are financial institutions;

(iv) which are factoring companies; or

(v) which were entitled to specific tax

benefits and exemptions.applicable

until December 31, 2018.

Under the APM, taxable income

corresponds to the company’s

net book profits, after certain

adjustments (whether deductions,

additions or set-offs), as permitted

by Brazilian corporate tax law. In this

regard, under the APM, companies

are required to keep appropriate

accounting records (LALUR) and

supporting documentation and

calculations in order to be able to

demonstrate the amount of tax due.

Under the PPM, taxable profits

are calculated based on a certain

predetermined percentage of gross

revenues, which may vary according

to the activity.

IRPJ is due at the rate of 15% in addition

to a surplus rate of 10% for taxable

income exceeding R$20,000.00 per

month. As a rule, CSLL is charged

at the rate of 9%.

The CSLL tax rate currently applicable

to financial institutions is 15%. The first

draft of the pension reform currently

under discussion in the Congress could

result in an increase of CSLL rates

up to 20%.

Taxes on revenuesThe contribution to the Social Integration

Program (“PIS”) and the Contribution

to Social Security Financing (“COFINS”)

are taxes levied on monthly revenues

earned by Brazilian companies and are

calculated in accordance with either

the cumulative or the non-cumulative

regime. The non-cumulative regime

allows the appropriation of tax credits

on some costs and expenses expressly

determined by law.

PIS is levied at the rate of 0.65% of the

gross revenues of Brazilian companies

under the cumulative regime, or 1.65%

of the overall revenue of Brazilian

companies under the non-cumulative

regime. COFINS is levied on the same

tax basis, but rates are generally 3%

for the cumulative regime, 4% in case

of financial institutions under the

cumulative regime, or 7.6% under the

non-cumulative regime.

Revenues arising from exports of goods

and services are generally exempt from

PIS/COFINS taxation if certain

conditions are met.

Taxes on manufacturing and sale of goods

Tax on manufactured products –

IPI (Excise tax)

Tax on Manufactured Products (“IPI”) is

a federal tax levied on manufactured

goods. The applicable rate may vary

according to the product classification

code, and the granting of federal

tax benefits, if applicable to the

transaction. As a general rule, IPI works

as a non-cumulative tax, therefore,

the IPI collected generates a tax credit

that may be offset in subsequent

transactions. Exports are generally

exempt from IPI tax.

State value added tax – ICMS

The State Value Added Tax (“ICMS”)

is a state tax levied on transactions

relating to the circulation of goods,

as well as interstate and intercity

transportation and communication

services. The average tax rate for ICMS

is 18%, but it may vary depending on

the transaction, the goods involved or

services to be provided, or other specific

state regulations, such as tax benefits

that may apply. ICMS is also levied on

transactions involving goods or/and

services originated abroad.


Taxes on imports of goodsImported goods are subject

to the following taxes:

ICMS

As a general rule, ICMS levied on the

import of goods is calculated based on

the product’s customs value plus import

duty, IPI, PIS-Import, COFINS-Import, and

other customs expenses.

PIS and COFINS on imported goods

The contribution to the Social Integration

Program (“PIS-Import”) and Contribution

to Social Security Financing (“COFINS-

Import”) are due at the combined rate of

11,75% of the product’s customs value

for the importation of goods.

Tax on cross-border transactions

(import tax – II)

Import Tax (“II”) is a federal tax levied on

the customs clearance of foreign goods,

which includes the price of the imported

goods, plus expenses, insurance and

freight costs related therewith. The

II tax rate varies according to the

classification of the imported good and

its jurisdiction of origin.

Excise tax - IPI

IPI is collected on customs clearance

by the importer. The taxable base for

IPI is usually the price charged for the

import transaction (i.e. the product’s

customs value plus II) including all

ancillary expenses charged to the entity.

The IPI rate varies according to the

classification code of the imported item

and the granting of federal tax benefits,

if applicable to the transactions.

Services taxesServices Tax (“ISS”) is a municipal tax

levied on the price charged for the

rendering of certain activities (services)

that are listed in Complementary Law No.

116/2003, at tax rates that vary from to

2% to 5%, depending on the municipality

where the service provider is located as

well as on the service provided. ISS is

also levied on the import of services and,

therefore, the contracting party located

in Brazil is responsible for the collection

of that tax. As a rule, exports of services

are exempt from ISS, provided that all

the legal requirements are fulfilled, such

as that the result of the service rendered

is verified abroad.

Taxes on imports of services

Services tax - ISS

ISS is also levied on services originating

outside Brazil, including when the

services are completed in Brazil.

Contribution for intervention

in the economic domain - CIDE

Contribution for Intervention in the

Economic Domain (“CIDE“) is a federal tax

levied at the rate of 10% of any amount

paid, credited, delivered, employed, or

remitted abroad as royalties for technical

services or in connection with technical

or administrative assistance

service agreements.

PIS and COFINS on

imports of services

Contributions to the Social Integration

Program (“PIS-Import”) and Contribution

to Social Security Financing (“COFINS-

Import”) are taxes generally levied on

import of services at the combined rate

of 9.25% of the service price, before

applicable withholding income tax, but

after ISS Import PIS-Import and

COFINS-Import.


Taxes on financial transactionsFinancial transactions involving

foreign exchange, loans, securities

and insurance are subject to Taxes on

Financial Transactions (“IOF”).

Foreign exchange (IOF/FX)

As a rule, foreign exchange transactions

through Brazil are subject to IOF/FX,

currently levied at 0.38% rate for most

transactions. It should be noted that

IOF/FX is currently levied at 0% on the

inflow and outflow of funds relating

to investments made by non-Brazilian

residents in the Brazilian financial and

capital markets, for example.

The Brazilian government may increase

the IOF/FX rate at any time up to a

maximum rate of 25% to be applicable to

any transaction occurring after

such increase.

Loans (IOF/Credit)

As a rule, loan transactions carried out

between entities and between entities

and individuals are subject to IOF/Credit.

If the borrower is an entity, the loan

transaction is currently taxed at the rate

of 0.0041% per day generally limited

to 365 days, totaling approximately

1.5%. However, for a borrower who

is an individual, the applicable rate is

currently 0.0082% per day. In both cases,

an additional rate of 0.38% generally

applies. The Brazilian government may

increase the IOF/Credit rate at any time

up to a maximum of 1.5% per day.

Securities transactions

(IOF/securities)

IOF/Securities may apply to transactions

involving securities, including

transactions involving Brazilian stock,

futures, or commodity exchanges.

Currently, IOF/Securities rate for most

transactions is set at zero rate, but

there are specific provisions for different

transactions. For example, redemption

or disposal of fixed income investments

within less than 30 days of the

investment is subject to IOF/Securities

at a daily rate of 1%, but the applicable

rate drops to 0% if the redemption/

disposal occurs in a period exceeding

30 days of investment. The Brazilian

government may increase IOF/Securities

rate at any time up to a maximum rate of

1.5% per day. A specific maximum rate of

25% applies to derivative transactions,

which are currently subject to IOF/

Securities at the rate of 0%.

Taxes on payrollSocial Security Contributions due by

employees, directors, and independent

workers, are calculated on their gross

monthly compensation, including certain

fringe benefits. In this case, the tax basis

is limited to an amount determined by

the government. When the payment of

the compensation occurs, the employer

must withhold and pay the contributions

due by individuals.

Social Security Contributions due

by employers are levied on the total

amount paid as compensation to

employees, directors, and independent

workers including fringe benefits. The

applicable rate varies according to the

activities undertaken by each company,

ranging from 25,5% to 34,8%.

Alternatively, some select economic

sectors (such as transportation, retail,

and civil construction) are allowed to

collect Social Security Contributions

on the gross revenues, instead of

on the payroll, at rates that vary

from 1% to 4.5%.

Companies may also be obligated

to withhold and pay Social Security

contributions due by independent

contractors, calculated on the invoices

issued on a monthly basis, depending on

the service provided by the independent

contractor. The contribution to be

withheld will be calculated at the rates

of 3.5% or 11%, according to the

service provided.

Certain policies for compensation or

benefits may benefit from exemption

from Social Security contributions if

legal requirements are fulfilled, such as

profit sharing programs, bonuses,

private pension plans, healthcare

plans and reimbursements, and

educational allowances.


Tax on property ownership and transfers

Tax on urban property -IPTU

Tax on Urban Property (“IPTU”) is a

municipal tax levied on the ownership

of urban land or buildings, based on

their adjusted market value. The

corresponding tax rates may vary

in accordance with the location and

use of the property.

Tax on rural property - ITR

Tax on Rural Property (“ITR”) is a federal

tax levied on properties located outside

urban perimeters. The applicable tax rate

varies from 0.03% to 20% depending on

the value, size, location, and use of

the land.

Tax on donations and

inheritance - ITCMD

Tax on Donations and Inheritance

(“ITCMD”) is a state tax levied on

conveyance of property by way of

donation or inheritance. Each state

establishes the applicable tax rate,

which currently cannot exceed 8%.

Real estate transfer tax - ITBI

Real Estate Transfer Tax (“ITBI”) is

a municipal tax levied on the sale,

purchase or assignment of real estate

or rights under it. The applicable rate is

determined by the municipality in which

the property is located.

Taxation of income and gains of non-Brazilian residents

General taxation

of income and

capital gains

Dividends

Dividends relating to earnings payable by

a Brazilian company to any shareholder

are not currently subject to withholding

tax in Brazil. Additionally, it is important

to stress that exchange transactions

in connection with remittances of

dividends or interest on shareholders’

equity to beneficiaries located abroad

are subject to the current 0% tax rate of

IOF/FX irrespective of their location.

Interest on loans

Payment by a Brazilian party to a non-

Brazilian resident of interest on loans

is subject to withholding tax at a rate

of 15% – or 25% if the beneficiary is

domiciled in a Favorable Tax Jurisdiction.

With respect to loans between a

Brazilian company and related parties or

any third parties domiciled in a Favorable

Tax Jurisdiction, specific transfer pricing

and thin capitalization rules apply. Once

the average minimum term of 180 days

currently required by tax law for repaying

the principal ends, flows of funds into or

out of Brazil are subject to the IOF/FX

currently at 0%.

Royalties

The remittance or payment of royalties

is subject to withholding tax generally at

the rate of 15%, or 25% if the beneficiary

is domiciled in a Favorable Tax

Jurisdiction. Withholding tax payments of

royalties are also subject to the CIDE at

a rate of 10%.

Foreign exchange transactions entered

into in connection with payments of

royalties are currently subject to IOF/FX

tax at a rate of 0.38%.

Services

Any remittance or payment of funds

due on imports of services is subject

to withholding income tax at rates that

vary from 15% to 25%, considering the

nature of the service and the domicile

of the beneficiary of the services in

question. Other taxes on remittances

or payment of services abroad are due

by the Brazilian company that retains

the services (such as CIDE, PIS-Import

and COFINS-Import, as described above).

Capital gains

Capital gains earned by non-Brazilian

residents (not domiciled in Favorable Tax

Jurisdictions) in transactions involving

the disposal of Brazilian assets are

generally subject to withholding income

tax at progressive rates from

15% to 22.5%.

The exemption for foreign investors not

domiciled in a Favorable Tax Jurisdiction

in connection with transactions on the

Brazilian Stock and Futures Exchange

is still available.

Specific regimes

Foreign investments in the Brazilian

financial and capital markets are subject

to a special tax regime for income

tax purposes.

For an example, Brazil has reduced to

0% the tax levied on income arising

from investment in Private Equity

Funds (“FIPs”) by foreign investors

who are not resident or domiciled in a

Favorable Tax Jurisdiction, subject to

certain requirements.

Other tax topics

Transfer pricing

Transfer pricing rules are applicable to

import and export transactions between

a Brazilian company and a related party

domiciled abroad, a third party domiciled

in a Favorable Tax Jurisdiction, or a party

benefiting from a privileged tax regime.

With respect to import transactions,

all costs, expenses and charges in

connection with imported goods,

services and rights may be deducted for

IRPJ and CSLL purposes up to certain

references, determined by

specific methods.


Intellectual property and information technologyBrazil’s intellectual property system is

primarily divided into industrial property

law (patents, trademarks, industrial

design, mask-works) and copyright

law (different from the common law

understanding of copyright).

The governmental entity in charge

of registering and monitoring

industrial property in Brazil is the

National Institute of Industrial

Property (“Instituto Nacional da

Propriedade Industrial” – “INPI”).

The Madrid Protocol implements the

international trademark registration

system, whereby signatory country’s

trademark owners may seek trademark

protection in multiple member countries

by filing a single international application

at the World Intellectual Property

Organization’s central office.

Types of intellectual property protection:

IP and IT law

PatentPatent protection is contemplated by the

National Industrial Property Law (Law No.

9,279/1996, which is consistent with the

Agreement on Trade-Related Aspects

of Intellectual Property Rights –

“TRIPS Agreement”, ratified by Brazil.

Brazil is also party to the Patent

Cooperation Treaty.

TrademarkThe Industrial Property Law also

regulates trademark protection in

Brazil. Protection is consistent with

the TRIPS Agreement and the Paris

Convention. Brazil recently became a

member of the Madrid Protocol, which

will enter into effect on October 2, 2019.

The protection of trademarks is unrelated

to the protection of trade names in Brazil.

Trade names should be registered with

the appropriate Commercial Registry.

Trademarks are registered in Brazil for 10

years, and registration is renewable for

successive periods.


Industrial designThe Industrial Property Law

also provides protection for

industrial designs.

Once an application for an industrial

design is filed, the INPI publishes it

and registration is deemed granted

after such publication. The INPI only

determines whether all required

documentation has been provided and

no material analysis is made. However, if

applicable, a review on the merits of an

industrial design may be requested after

registration of the industrial design.

In certain cases, the holder of an

industrial design may also seek

simultaneous protection in the form of

trademark registration and copyright.

Transfer of technologyIn accordance with applicable Brazilian

regulations, transfer of technology

agreements include:

(i) license/assignment of trademarks,

patents, and industrial designs;

(ii) acquisition/transfer of

non-patented technology;

(iii) provision of specialized technical/

scientific services; and

(iv) franchise.

As a rule, registration of transfer of

technology agreements with the INPI is a

condition precedent for:

(i) remittance of funds abroad as

payment under any agreement;

(ii) any tax deductions applicable to the

Brazilian party; and

(iii) the actual protection of any

intellectual property rights.

Technology agreements may be subject

to antitrust filings if the transaction falls

under any of the cases contemplated by

Brazil’s antitrust legislation.

Since 2017, INPI’s rules and regulations

applicable to registration of transfer

of technology agreements have been

relaxed and the parties have gained

more freedom to negotiate the terms of

such agreements.

CopyrightIn Brazil, copyright protection is

specifically contemplated by Law No.

9,610/1998 (Copyright Law), which is

consistent with the Berne Convention.

The Copyright Law protects works in

two manners:

(i) provision of ownership of

the work; and

(ii) protection of moral rights

to authors.

SoftwareIn Brazil, individuals granted software

protection have the same rights as

authors of literary works under copyright

laws. Law No. 9,609/1998 (Software Law)

contemplates specific provisions relating

to software protection.

In Brazil, copyright registration (including

registration of computer programs) is

not mandatory, but in certain cases,

registration of software is advisable

to ascertain title. Although software

is protected under copyright law,

registration is made with the INPI.

Copyright protection for software is valid

for 50 years from its creation or from

January 1 of the year following

its publication.

Domain namesIn Brazil, domain name registration

and management of the Domain Name

System – DNS for the “.br” domain

are both undertaken by Registro.br, a

body of the Brazilian Internet Steering

Committee (“CGI.br”). Third parties may

challenge title to a domain name either

by administrative or judicial proceedings.

Inspired by the dispute resolution policy

adopted by the Internet Corporation for

Assigned Names and Numbers – ICANN,

the Brazilian domain name registration

authority implemented an administrative

dispute resolution procedure for

“.br” domain names called SACI-Adm.

However, disputes pertaining to domain

names registered before October 1,

2010, are not subject to the SACI-Adm

procedure and have to be litigated

in court.

Plant varietiesPlant varieties are not subject to

protection in the form of a patent in

Brazil. Plant varieties enjoy special

protection in Brazil under Law No.

9,456/1997 (Plant Variety Law).

To be eligible for protection under the

Plant Variety Law, the cultivar/plant

variety must be new, homogeneous, and

stable. These are the same standards

required by the International Union for

the Protection of New Varieties of Plants

(“UPOV”), of which Brazil is a member

(adopting UPOV’s 1978 version).

In Brazil, the Ministry of Agriculture

is responsible for registering plant

varieties. Protection is available to plant

varieties for a period of either 15 or 18

years, commencing on the date on which

the respective Provisional Protection

Certificate is issued.


Biodiversity lawFederal Law No. 13,123/2015

(“Biodiversity Law”) introduced

innovations for scientific research and

technology development with respect

to access to genetic heritage and

associated traditional knowledge in

Brazil. The Biodiversity Law contains

rules on payment of royalties under

sales of covered material developed in

connection with Brazilian

genetic heritage and associated

traditional knowledge.

E-commerceThe Consumer Protection Code and

Decree No. 7,962/2013 regulate

E-Commerce.

Internet lawLaw No. 12,965/2014 (“Internet law”)

establishes principles, guarantees, rights

and duties for the use of the Internet in

Brazil. Decree No. 8,771/2016 regulates

certain aspects of the Internet Law.

Users’ rights and guarantees

The Internet Law addresses the

constitutional principles of inviolability

of privacy from the perspective of

communications stored over the

Internet or privately.

Net neutrality

Net neutrality, a principle which prohibits

different treatment of Internet traffic

on the basis of origin, destination,

application or content, is also

contemplated by the Internet Law.

This matter is further regulated by

Decree No. 8,771/2016.

Civil liability of access providers

In accordance with the Internet Law,

access providers cannot be held

liable for damages resulting from user

generated content. However, application

service providers may be held liable for

damages resulting from user generated

content if, after a court order, they do

not take action to remove content that

was ordered to be removed.

Cybersecurity and data breachesOrganizations processing personal data

should comply with the cybersecurity

requirements contained in the LGPD.

Data controllers and processors should

adopt measures to protect personal

data from unauthorized access and

from accidental or unlawful destruction

or any other occurrence resulting from

inadequate or illegal processing

(a data incident).

Data incidents that may result in

relevant risk or harm to individuals

should be reported to the appropriate

authorities within a reasonable period

and to the affected data subjects.

The LGPD also requires data controllers

and processors to adopt data protection

measures upon creation of any new

technology or product, requiring

organizations to adopt a privacy by

design approach.

In addition to the LGPD, the Consumer

Protection Code also provides that

companies should take all reasonable

steps to offer safe and free-of-defect

products and services. If an organization

does not implement appropriate security

measures (normally based on industry

standards or best practices), a product

or service may be deemed defective

and trigger liability under the Consumer

Protection Code.

The LGPD does not prevent other

cyber-related statutes from being

imposed by sector-specific agencies

and regulators.


Data protection

Driven by the increase of data

incidents that occurred in recent

years and the adoption by the

European Union of the EU General

Data Protection Regulation (GDPR),

the Brazilian Congress passed a

comprehensive data protection

law in August 2018.

OverviewThe Brazilian Data Protection Law (Law

No. 13,709/18 or LGPD) regulates how

personal data may be processed by

individuals and organizations in Brazil

by establishing detailed rules for

collecting, using, processing and

storing personal data.

The LGPD significantly transformed

the Brazilian data protection system

and is in line with the GDPR. It will

affect all economic sectors, including

the relationship between customers

and suppliers of goods and services,

employees and employers and other

relationships in which personal data is

collected, both in the digital and

physical environment.

The LGPD is applicable to processing

activities that occur within the Brazilian

territory and outside Brazil, if (i) personal

data are collected in Brazil; (ii) data

are related to individuals located in

the Brazilian territory; or (iii) their goal

is to offer products and/or services to

Brazilian or foreign individuals in Brazil.

The LGPD will come into force in August

2020 and any failure to comply with it

may give rise to fines of up to 2% of

the company or group income, up to a

maximum of BRL$ 50 million per violation

and other administrative sanctions,

such as blocking of personal data

corresponding to the violation until they

are corrected and elimination of personal

data corresponding to the violation, in

addition to indemnification to affected

data subjects, where applicable.

In addition, Law No. 13,853/2019 was

recently enacted and created the

National Data Protection Authority

(ANPD), a government entity with

technical and decision-making

autonomy connected to the Cabinet of

the President that will be responsible

for regulating, drafting guidelines and

supervising compliance with the LGPD.


Sectorial regulationAs the LGPD did not revoke sector-

specific laws, specific obligations may

continue to apply to organizations

engaged in certain sectors based on

such laws, in addition to the LGPD.

Telephone or radio communications

The Wiretap Law (Law No. 9,296/1996)

and the Telecommunications Law

(Law No. 9,472/1997) protect the

confidentiality of telephone and

computer communications. Access

to, and interception of, telephone

communications and telematics may

only occur under the authority of a

valid court order.

Health

The Code of Medical Ethics (Resolution

No. 2,217/2018) contains rules on the

protection of patient information and

medical records. The Code establishes

that, except for limited circumstances,

patient data may only be disclosed

to third parties with his or her written

consent. The Electronic Medical Chart

Law (Law No. 13,787/2018) deals with

digitalization and use of computerized

systems for storing and handling patient

records. The Ministry of Health and the

National Health Surveillance Agency

(ANVISA) have passed specific rules

applicable to data processing activities

in clinical trials.

Banking (Complementary Law

No. 105/2001)

The Bank Secrecy Law provides that

financial institutions must maintain strict

confidential the financial transactions

and financial information of their

clients. Resolutions No. 4,480/2016

and 4,474/2016, issued by the National

Monetary Council, have regulated,

respectively, the opening and closing

of bank accounts by electronic means

and the digitalization of documents,

contemplating specific cybersecurity

rules to ensure privacy in those

situations. Resolution No. 4,658/2018,

also issued by the National Monetary

Council, determines that financial

institutions should implement and

maintain a cybersecurity policy, an

incident plan and comply with certain

requirements for engaging data

processing, storage and cloud service

providers. Circular No. 3,909/2018

establishes the same cybersecurity rules

for payment institutions.

On 2019, the Good Payers Registry Law

was amended to allow the automatic

inclusion of consumers in the good

payers registry. After such amendment,

the individual must be communicated of

this inclusion in the database within 30

days of the registration and is allowed

to opt-out at any time of this inclusion in

such database.

Public Administration

The Information Access Law (Law

No, 12,527/2011) governs how data

are used and processed by the public

administration and establishes rules and

procedures for individuals to request

details of their information collected by

the public administration.

Cybersecurity and data breaches

Organizations processing personal data

should comply with the cybersecurity

requirements set forth in the LGPD.

Data controllers and processors should

adopt technical and organizational

measures to protect personal data

from unauthorized access and from

accidental or unlawful destruction or

any other occurrence resulting from

inadequate or illegal processing

(a data incident).

Data incidents that may result in

relevant risk or harm to individuals

should be reported to the appropriate

authorities and to the affected data

subjects within a reasonable period.

The LGPD also requires data controllers

and processors to adopt data protection

measures upon creation of any new

technology or product, requiring

organizations to adopt a privacy by

design approach.

In addition to the LGPD, the Consumer

Protection Code also provides that

companies should take all reasonable

steps to offer safe and free-of-defect

products and services. If an organization

does not implement appropriate security

measures (normally based on industry

standards or best practices), a product

or service may be deemed defective

and trigger liability under the Consumer

Protection Code.

The LGPD does not prevent other

cyber-related statutes from being

imposed by sector-specific agencies

and regulators.


Competition law

Law No. 12,529/2011 (“Competition

Law”) is the law governing the

antitrust review of mergers and

potentially anticompetitive conduct

in Brazil. The authority responsible

for enforcing the Competition

Law is the Administrative Council

for Economic Defense (Conselho

Administrativo de Defesa

Econômica – CADE).

Merger control

Filing requirements

Pursuant to the Competition Law, a

transaction is subject to mandatory

filing when it satisfies three

cumulative thresholds:

• The transaction has actual or

potential effects in Brazil. The

effects test is typically met if the

target has assets/operations and/or

export sales to Brazil.

• The transaction amounts to

a “concentration”. Under the

Competition Law, the definition of

concentration includes mergers

between two or more companies, the

acquisition of sole or joint control,

certain minority shareholding

acquisitions, joint ventures, and

consortia. Unlike other jurisdictions,

collaborative agreements and

acquisition of assets may also be

regarded as reportable transactions.

• The groups involved in the

transaction meet the applicable

revenue thresholds, i.e., one group

must have registered total gross

revenues of at least R$ 750 million

in Brazil in the year prior to the

transaction, and the other group

must have registered total gross

revenues of at least R$ 75 million in

Brazil in the same period.

Review proceedings

• Non-complex transactions, such

as those resulting in minor or no

horizontal or vertical relationships

are eligible to fast-track review. In

those cases, CADE has up to 30

calendar days from the formal filing

to issue a clearance decision.

• Transactions that are not eligible to

fast-track review should follow the

ordinary procedure. These cases

take, on average, 90 to 120 calendar

days to be cleared. Transactions

raising substantial antitrust

issues may take longer to be

reviewed, and may require

remedies to be approved.


Standstill obligation

• Transactions subject to mandatory

filing may not be closed before

obtaining final merger

control clearance.

• Failure to comply with this standstill

obligation exposes the parties to

fines ranging from R$ 60,000 to R$

60 million, injunctions declaring null

and void the acts undertaken in

violation of the standstill obligation,

and an investigation into the

parties’ behavior.

• CADE is also entitled to seek a range

of remedies in court to invalidate

acts implemented without clearance.

Anticompetitive and conduct investigations• The Competition Law provides that

any conduct that has the potential

to prevent, distort or in any way be

detrimental to competition is an

antitrust violation.

• A corporate defendant may be

subject to fines for anticompetitive

behavior. Fines are calculated as

percentages of the gross revenues

recorded by the company, group or

conglomerate in the fiscal year prior

to the launching of the investigation.

• The Competition Law

also contemplates

nonmonetary sanctions.

• Directors and officers are also

subject to fines.

• In the course of investigations,

CADE has comprehensive powers,

including the power to search

companies and seize documents or

other appropriate materials. Dawn

raids without prior notice are also

possible, but require a court order.

• Third parties harmed by

anticompetitive conduct are allowed

to pursue claims for damages.

Leniency program

• The Competition Law allows leniency

agreements to be executed by

companies and individuals involved

in antitrust violations.

• A leniency agreement is only

available to the first company or

individual to bring the antitrust

violation to the authority’s

knowledge.

• The applicant must report and admit

the wrongdoing, commit to cease

the illegal conduct, and to cooperate

with the investigation.

• Upon fulfillment of the leniency

agreement, the applicant is granted

full immunity from applicable

administrative and criminal

penalties. Only partial administrative

immunity is granted if the authority

had prior knowledge of the conduct.

• There is no immunity from civil

damage claims.

Settlement program

• The Competition Law allows

settlement agreements to be

executed by companies and

individuals involved in antitrust

violations that were not the first to

bring the antitrust violation to the

authority’s knowledge.

• The settlement applicant should

acknowledge participation in the

wrongdoing, commit to cease the

illegal conduct, cooperate with

the investigation, and pay a penalty.

• The monetary contribution is based

on a reduction of the fine that would

likely be imposed. If the investigation

is at the General Superintendence

level, reductions may be of up 50%

to the first applicant, up to 40% to

the second applicant, and up to 25%

to the third and following applicants.

If the investigation is at the Tribunal

level, the reduction may be of up to

15% for any applicant.

• There is no immunity from criminal

penalties and civil damage claims.


The basic rules that regulate

employment and labor relations

in Brazil are contemplated by the

Federal Constitution and the Brazilian

Labor Code (Consolidação das Leis

do Trabalho – CLT). Brazil’s labor and

employment legislation is supplemented

by federal and social security statutes,

court decisions, collective bargaining

agreements and employers’ policies

or practices.

On November 11, 2017, Federal Law

No. 13,467/2017 came into effect

significantly changing employment

and labor relations in Brazil in several

respects and kicking off the so-called

“Labor Reform”.

Labor and employment

The labor and employment legal system

in Brazil is divided into judicial and

administrative levels. There is no trial by

jury in the employment/labor system.

The labor and employment judicial

system covers individual labor claims,

collective or class actions filed by

unions or the Labor Prosecution

Office (Ministério Público do Trabalho

– MPT), which may relate to collective

employment rights and conditions, health

and safety matters, strikes, and

disputes with unions.

The Labor Reform permits arbitration in

disputes if the employee has a college of

university degree and his/her wages are

greater than twice the greatest benefit

paid by the Social Security.


Employment relationshipAs a general rule, detrimental changes

to the terms and conditions of

employment – even by mutual consent

– are subject to future challenge

by employees before labor courts

because the law provides that vested

employment rights cannot be waived.

However, the Labor Reform brought

about more flexibility in labor relations

and the parties can now negotiate

certain matters through collective

bargaining agreements or individually if

the employee has a college or university

degree and his/her wages are greater

than twice the greatest amount paid by

the Social Security.

Change in ownership of a businessIn general, changes in ownership of a

business, irrespective of the type of

business transaction, do not

have any detrimental effect on

employment agreements.

There is full successor liability for

all past liabilities of the predecessor

company, including employment

obligations. In the event of fraud or if

the predecessor company is insolvent

or in the imminence of becoming

insolvent, both the predecessor and

successor companies are jointly and

severally liable towards employees. A

thorough due diligence investigation

on labor and employment liabilities is

required in potential deals.

Brazilian law and employees of Brazilian entities seconded to another countryA different package of right applies

to employees of Brazilian companies

seconded to another country. This

package includes both the employment

rights applicable in the jurisdiction where

the employee actually works and rights

under Brazilian law, in such a manner as

to seek in every respect what is more

beneficial to the employee. Brazilian law

also applies to payroll taxes relating to

payments made abroad.

Statute of limitationsThe statute of limitations for an

employee to bring a labor claim

after termination of the employment

agreement is two years. The date of

employment termination is the last day

of the notice period.

An employee may demand any right to

which he was entitled in the period of

five years preceding the date the

claim is filed.

Employment registrationHiring an employee requires the

employer to annotate the employee’s

“employment booklet” (Carteira de

Trabalho e Previdência Social – CTPS).

The employer should record information

such as the employer’s name, date

of hire, remuneration, job positions,

salary increases, vacation periods,

and union dues. Similar annotations

should also be made in the company’s

books. This employment booklet is an

identity document issued by the Labor

Authorities and belongs to the employee.

Corporate group definitionOne or more companies (including

foreign companies) of the same

conglomerate or corporate group

(economic group) are deemed jointly

and severally liable for labor-related

debts towards workers employed by

any company in the economic group,

irrespective of the company’s direct

relationship with such employee. The

employment definition of “conglomerate”

or “corporate group” is distinct and

broader than the definition for purposes

of corporate, commercial, and tax laws.

According to the Labor Reform, an

economic group will be recognized when

the following conditions are present:

(i) cohesive interest between

the companies;

(ii) common interests, and

(iii) joint activities by the companies.

The existence alone of a common

shareholder between two or more

companies is not sufficient to

characterize an economic group.


Other labor and employment rightsPursuant to Brazilian law, an employee

is entitled to certain rights in addition to

those that may have been specified in a

written employment agreement, such as:

(i) annual salary increase at the

percentage rate specified in

the relevant collective

bargaining agreement;

(ii) annual Christmas bonus: an

additional monthly wage;

(iii) vacation: annually, 30-day vacation

and a cash bonus equal to 1/3 of the

employee’s monthly compensation;

(iv) severance Fund (FGTS): 8% of the

employee’s monthly compensation

to be funded by the employer and

deposited into a special severance

funds account in the name of

the employee. If an employee is

dismissed without cause, he is paid

the credit deposited in his FGTS

account plus a fine corresponding to

40% of the total amount paid by the

employer (in addition, 10% should be

paid by the employer

to the government);

(v) paid weekly rest: weekly rest of 24

hours paid by the employer;

(vi) 15 days of paid leave in case of

normal sickness or occupational

disease or accident: the employer is

responsible for the payment of up

to a 15-day leave; subsequently, the

leave may be extended for a period to

be determined by the Social Security,

which then becomes responsible for

payment of the employee’s salary;

(vii) 120 days of maternity leave:

this benefit may be extended

to up to 180 days and

(viii) 5 day paternity leave: this benefit

may be extended to up

to 20 days.

In addition, employers are responsible for

workers’ health and safety and should

implement special programs pursuant to

Labor Authorities directives in order to

ensure that employees are not harmed

by their workplace.

Limit on working hoursRegular working hours are limited to

eight hours per day and forty-four

hours per week. In certain occupations

and professional categories such as

ordinary banking workers and telephone

operators, regular daily hours are limited

to six, and thirty hours per week. There

are other occupations in which workers

may be subject to different working

hour maximums.

According to the Labor Code, the eight-

hour workday may be extended by up to

two hours per day. For work performed

during business days (Monday through

Saturday), overtime should be paid with

an additional allowance of at least 50%

of the amount of the employee’s regular

hour. For work performed on Sundays

and holidays, the additional premium is

equal to 100%.

However, a higher overtime rate may

apply as a result of the respective

provisions of any existing collective

bargaining agreement or employment

contract, or as a result of the

company’s practices.


Additional paymentsPursuant to Brazilian law, employees are

entitled to additional compensation in

the following cases:

(i) overtime ;

(ii) night work;

(iii) work allowance for unhealthy

work conditions;

(iv) premium risk for work in hazardous

conditions; and

(v) temporary transfer of workplace.

Profit or results sharingCompanies should negotiate with

employees, either through their unions

or through a special committee of

employees elected for such purpose,

a profit or results sharing plan, which

should contemplate the following:

(i) clear rules in connection with the

right of employees to receive a share

of the company’s profits or results

(“results” meaning productivity

or company results that are not

necessarily profits);

(ii) objective criteria for an employee to

achieve such right;

(iii) dates of the profit or results sharing

payments; and

(iv) the term of such agreement and

review dates.

Such profit or results sharing payments

are not subject to Social Security

contributions and may be recorded by

the company as a deductible business

expense for income tax purposes.

Termination of employmentTermination of employment without

cause should be preceded by no

less than thirty-day written notice

plus an additional three-day salary

indemnification for each full year of

employment up to a maximum of 90

days. The employer decides if the

30-day advance notice will be worked

or compensated.

As provided in the Labor Reform,

it is no longer necessary to ratify the

termination with the applicable labor

union or Labor Authoritires, unless

this is provided in any collective

bargaining agreement.

The labor reform also permits mutual

consent termination, in which case the

costs related to payment in lieu of notice

and FGTS fine (40% payable to the

employee) will be half the regular costs

of termination without cause.

Apprentices and handicapped personsBrazilian law requires businesses to hire

a certain number of apprentices and

handicapped persons proportionately

to the employer’s total number of

employees. Likewise, employers should

hire a given number of apprentices

between the ages of fourteen

and twenty-four.

Minors under the age of sixteen are not

allowed to work as employees.


Civil litigation Overview of the court system in BrazilBrazil features a civil law system.

Accordingly, the Brazilian legal system

is based primarily upon codified law as

opposed to court precedents. However,

a trend has developed over time to

ascribe greater relevance to precedents

in certain cases. This trend has been

particularly boosted by the current

Code of Civil Procedure, enacted in

2015 and in effect since 2016, which

contemplates circumstances in which

judges have less room for deciding

against certain decisions that have been

considered binding precedents. As such,

the Brazilian legal system experiences

a salutary degree of emphasis on

coherence and uniformity.

The Judicial Branch is divided into

specialized (e.g., employment and

electoral courts) and ordinary courts.

Ordinary courts are subdivided into

federal and state courts. Both federal

and state courts have two levels.

Appellate courts may assess matters of

fact and law. Appeals against appellate

court decisions may be filed with the

Superior Court of Justice, the highest

authority in relation to federal law, and/or

the Federal Supreme Court, the highest

authority in constitutional matters, but

are subject to an admissibility analysis

that limits the appeals that can be heard

by the superior courts.

Both the Superior Court of Justice and

the Federal Supreme Court only judge

matters of law. While the Superior

Court of Justice judges cases of alleged

violation of Federal Law and conflict

of decisions by different courts of

appeals, the Federal entered Supreme

Court decides between primarily on

constitutional matters. Civil courts

do not hold jury trials in Brazil;

a jury is only convened in specific

criminal proceedings.


Overview of procedural rules in BrazilCivil proceedings are primarily regulated

by the Brazilian Code of Civil Procedure.

Litigation costs

The prevailing party’s legal fees, in an

amount ranging from 10% to 20% of the

relevant award, are set by the court that

judges the matter and should be paid

by the non-prevailing party.

Taking evidence

All lawful forms of evidence are

admissible to prove the facts claimed

by the parties. In general, the production

of evidence is conducted by the judge

in charge of a matter and is not party-

driven. Typically, parties produce oral,

documentary and expert evidence.

Court rulings

A judgment is delivered in writing and

contains a brief description of the parties,

the disputed issues and the decision of

the dispute, including its rationale.

Procedural law contemplates a

mechanism to address mass tort

litigation. This mechanism allows issues

of law common to mass tort cases to

be decided once in a bellwether case,

which becomes a precedent and is then

followed in subsequent cases.

Appeals

The Brazilian procedural system

contemplates a range of appeals, both

against final and interlocutory decisions.

As a rule, interlocutory appeals are only

available in relation to certain types of

decision expressly specified in the Code

of Civil Procedure and other federal

laws. However, a recent decision of

the Superior Court of Justice extended

interlocutory appeals to additional cases

of urgency, subject to the appellate

court’s analysis on a case-by-case basis.

Appeals are submitted to a panel of

judges in a state or federal court of

appeals who review the respective

trial court’s decision in relation to its

interpretation of the law and/or the facts

of a case. A court of appeals may stay

the proceedings until it issues a decision.

On the other hand, appeals to the

Federal Supreme Court and the Superior

Court of Justice do not deal with the

interpretation of facts, but only the

law and do not stay proceedings and,

consequently, the parties may apply for

provisional enforcement.

Time to issue a judgment

There is no predetermined time for a

judgment to be issued. The total time

required to adjudicate a lawsuit varies

considerably from court to court.

Enforcement proceedings

Enforcement proceedings apply to

either of the following: (a) judgments and

arbitral awards; or (b) readily enforceable

instruments specified as such in the

Code of Civil Procedure.


Recognition and enforcement of

foreign decisions

Foreign arbitral awards and court

decisions require recognition from

the Superior Court of Justice to be

valid in Brazil.

The recognition procedure is subject to

certain formal requirements, such

as evidence of service of process on

the defendant.

The regime for recognition and

enforcement of foreign arbitral awards

in Brazil is regulated by the New York

Convention, as well as the Internal

Rules of the Superior Court of Justice

and the Brazilian Arbitration Law.

After the court decision/arbitral award

is recognized by the Superior Court of

Justice, enforcement may be sought

in any federal court having jurisdiction

over the parties. The enforcement

proceedings follow the same rules

applicable to a domestic court decision

or domestic arbitral award.

Arbitration

Any right that can be the subject matter

of disposal by the parties may be subject

to arbitration. Court decisions show that

Brazil offers a prosper environment

for arbitration.

The parties may freely agree on

procedural arbitration rules, provided

that they contemplate due process

and equal treatment principles. The

most usual is for the parties to choose

to refer their dispute to an arbitral

institution in charge of administrating

the proceedings in accordance with its

institutional rules, as amended

by the parties.

The parties are free to choose the

applicable law. The Brazilian Arbitration

Law adopted a favorable regime to

arbitration, following international

standards, including the severability of

the arbitration clause, the Kompetenz-

Kompetenz principle, and the prohibition

against reviewing the merits of arbitral

awards in court.

The parties may seek to vacate an

award under limited circumstances

contemplated by the Brazilian Arbitration

Law, mainly due to violations of

due process.

Subject to some specific requirements,

such as applicable law and publicity, as a

rule, government entities may resort to

arbitration to resolve disputes in respect

of transferable monetary rights.

Class actions

Class actions are regulated by the

Code of Civil Procedure and Law No.

7,347/1985. Individuals do not have

standing to file class actions in Brazil.

The following entities have standing to

file class actions:

(i) Federal and state public

prosecution office;

(ii) Federal government, states,

municipalities and the

federal district;

(iii) Government-owned companies

and the public defense office; and

(iv) Civil associations incorporated

at least 1 year before the class

action is filed.

Class actions may deal with matters

such as environmental and consumer

issues, protection of the economic

order, diffuse, collective and individual

homogeneous rights.

Unlike the United States, there is no

opt-in/opt-out system. There is no class

representative, or class certification

procedure either.


Environmental lawThe Brazilian Federal Constitution

dedicates a full chapter to the

environment and provides that

all citizens have the right to a

balanced environment. In Brazil,

public authorities and society have

a general obligation to protect

and preserve the environment for

present and future generations.

In addition to the Constitutional chapter,

the Brazilian legal framework applicable

to environmental protection comprises

several stringent federal, state and

local/municipal environmental laws

and regulations. In general, strict

liability is the norm.

Environmental licenses and permitsIn order to perform activities that

use environmental resources or that

may cause pollution or environmental

degradation, interested parties are

required to apply for licenses and

authorizations from federal or state

environmental agencies and, in some

cases, municipal environmental agencies.

In general, these are the applicable

environmental licenses in Brazil, which,

as a rule, are issued in a sequential

manner: preliminary license, installation

license and operating license.


Environmental licenses are valid for a

specific period, subject to compliance

with certain technical requirements,

which may vary according to the

activity undertaken by the applicant

and its location. Noncompliance with

such requirements may subject the

transgressor to administrative and,

in certain circumstances, criminal

sanctions, and an order may also be

entered for reparation of damages of

the necessity to repair any damages,

criminal sanctions, and an order

may also be entered for reparation

of damages. In addition to meeting

environmental standards when

implementing a business, in case of

certain high environmental impact

activities – e.g., infrastructure or

complex plants – the investors and

entrepreneurs should consider the

respective social effects on local and

surrounding traditional communities and

public utilities available, among other

related aspects.

Other legal authorizations may be

required for the development of a facility

or activity, such as those for extracting

water resources, discharging effluents,

and transporting or disposing of waste.

In addition, registration with the Brazilian

Institute of Environment and Renewable

Resources (Instituto Brasileiro do Meio

Ambiente e dos Recursos Naturais

Renováveis –IBAMA) and state or

municipal environmental agencies may

be required in certain circumstances.

With respect to using water resources,

in addition to the appropriate permitting

process to which the interested party

will be subject, depending on the region

of the project, payment may be

required considering the amount of

water consumed.

Solid waste managementThe proper management of solid waste

and the circular economy of products,

their design and packaging in Brazil

are also an important issue. As such,

manufacturers, importers, distributors,

and retailers of certain products should

structure and implement a post-

consumption take-back system for

their products, so that their disposal is

separate from public urban sanitation

facilities or solid waste systems.

Additionally, companies are responsible

for the adequate disposal of solid waste

generated by their activities and are

liable in case any environmental damage

occurs during solid waste collection,

transportation and disposal – even if

third parties are retained to perform

such activities.

Land contaminationWith respect to land contamination,

which includes soil and groundwater,

the buyer or person responsible for

a contaminated area may be jointly

responsible for remediation and

payment of damages associated with

such environmental liability. Such liability

involves both dealing with environmental

agencies and with third parties that

could be affected. The buyer/seller

or landlord/tenant can contractually

allocate such liability, which prevails

between the parties, but cannot be

argued against third parties.

Rules on forests and specially protected areasMatters relating to forests, native

vegetation and specially protected areas

are regulated by the Forestry Code

(Law No. 12,651/2012) and the

Conservation Unit Law (Law No.

9,985/2000), in addition to other

applicable laws and regulations.

In general, the Forestry Code

establishes several obligations, mainly

focused on the use and exploitation

of rural properties covered by forests

and native vegetation. The most

common specially protected areas

regulated by the Forestry Code are the

Permanent Preservation Areas (“APP”,

in the Portuguese acronym), such

as riverbanks, surrounding lagoons,

reservoirs and water springs, and dunes,

and the Statutory Reserves (“RL”, in

the Portuguese acronym), which are

a minimal plot of land that should be

preserved in each rural property.

In turn, conservation units are specially

protected territorial areas, each

established by the Government with a

predefined delimitation and administered

under a special management regime.

Activities that may affect such areas

are subject to a series of requirements,

including additional environmental

permitting. Conservation units may also

be implemented within private properties

in order to assure conservation of

specific private land.


BiodiversityBiodiversity is regulated by Law No.

13,123/2015 (“Biodiversity Law”) and

other laws and regulations thereunder.

This legal framework, particularly the

Biodiversity Law, reduced bureaucracy

and simplified the procedure for

accessing genetic heritage and

traditional knowledge for researchers

and businesses.

In summary, Brazilian biodiversity

framework the acknowledges that

people with traditional knowledge have

the right to share in the profits arising

from their knowledge. In addition, it

creates a profit sharing fund, stimulates

innovation, regulates and encourages

research and stipulates sharing of

benefits resulting from the sale of a

final product or reproductive material

developed from components

related to genetic resources or

traditional knowledge.

Entities from different sectors, such

as pharmaceutical, food, cosmetics,

biotechnology and agribusiness

companies that exploit genetic heritage

or traditional knowledge are subject to

the Biodiversity Law.

Climate change regulations Brazil is party to the United Nations

Framework Convention on Climate

Change (UNFCCC). The Brazilian National

Policy on Climate Change (Federal Law

No. 12,187/2009) has established a

voluntary reduction target of between

36.1% and 38.9% in emissions of

greenhouse gases (GHG) by 2020 and

the need to create sectorial plans

focused on adaptation and mitigation

measures to achieve such target. Some

Brazilian states have also enacted their

own policies and, depending on the

region of certain emission reduction

projects, the opportunity towards

issuance of carbon credit increases.

In 2015, at the 21st Conference of

the Parties (COP 21), Brazil signed the

Paris Agreement, which was ratified

in September 2016 and introduced in

the Brazilian legal system by means of

Federal Decree No. 9,073/2017. The goal

set by the Brazilian government through

its Nationally Determined Contribution

(NDC) was to reduce GHG emissions by

37% below 2005 levels by 2025. In this

regard, Brazil has committed to increase

the share of sustainable biofuels in the

local energy mix to approximately 18%

by 2030, in addition to a total amount of

45% of renewables and to restore and

reforest 12 million hectares of forests.

Environmental assets’ market Government at all levels and the private

sector are interested in creating an

environmental assets’ market to enable

the use of market mechanisms to

comply with environmental regulations,

while also boosting investments

in local markets.

For example, in addition to the

regular carbon credit market and the

importance of biofuels to achieve

the Paris Agreement goals, Federal

Law No. 13,576/2017 introduced the

National Biofuels Policy (PNB). The PNB

contemplates Biofuels Certification,

goals for reduction of GHG emissions

in the fuel sector, and issuance and

negotiation of Decarbonization

Credits (CBIOs).

In addition, Federal Decree No.

9,640/2018 set forth rules for issuing

and trading securities corresponding

to areas of native vegetation, named

Shares in Environmental Reserve

(CRA, in the Portuguese acronym).

Liability for harmful environmental acts Environmental liability in Brazil is based

on Constitutional provisions, which

contemplate environmental liability

in three different fields: civil,

administrative and criminal.

Environmental civil liability is strict,

joint and several, unlimited and not

subject to statutes of limitations. Under

environmental civil liability, liable parties

are subject to collective lawsuits seeking

redress for environmental damages

(e.g. public civil actions filed by the

Public Prosecution) as well as individual

lawsuits filed by third parties seeking

compensation for losses and damages

resulting from a harmful event (e.g., tort)

While environmental administrative

liability subjects transgressors to

administrative sanctions, such as

fines, embargo and restriction of

rights, criminal liability may result in

penalties such as community services,

restriction of rights and, in the worst

case scenario, imprisonment. Executive

officers, directors, administrators, and

other members of the management of a

company may be found to have criminal

liability, along with companies, when

an environmental crime is practiced

seeking benefits or advantages

for the company.


Succession of estateDecease of a non-brazilian individual who owned assets in Brazil

General rule

Pursuant to the Brazilian Code of Civil

Procedure (section 23, II), Brazilian

courts have exclusive jurisdiction over

probate and succession proceedings

involving assets located in Brazil,

irrespective of the nationality or

domicile of the decedent. If conducted

in another country, any such

proceedings are deemed null and void

and the relevant judgment cannot

be enforced in Brazil.

There are two manners to distribute the

assets of a deceased person that are

located in Brazil: proceedings in a

court of law or a simpler procedure

with a notary public.

Generally, the procedure with a notary

public is permitted when (i) all heirs are

present or represented by proxy, (ii) all

heirs agree with the apportionment of

assets, (iii) all heirs have legal capacity,

and (iv) the existing will, if any, has been

validated by the appropriate court.

In principle, Brazilian courts apply the

law of the country where the deceased

used to live. However, pursuant to the

Brazilian Constitution (article, 5, XXXI),

Brazilian law or any point of any foreign

law involved is applied when it is more

favorable to the Brazilian spouse/

common law marriage spouse or children

of the decedent.

Tax on Donations and Inheritance

applies to any property of the deceased

transferred to his/her heirs. This is a

state-level tax and, therefore, the tax

rate varies from state to state, but it is

usually between 3% and 8%.

Forced heirship

Half of a decedent’s assets should

be distributed to his/her forced

heirs comprising (i) the appropriate

descendants and ancestors and (ii) the

spouse of the deceased, depending,

however, on the matrimonial regime. The

other half is free to be distributed under

a will, as desired by the deceased.


Regulatory bodies The insurance and reinsurance markets

in Brazil are regulated and supervised by

two main regulators, namely the National

Council for Private Insurance (Conselho

Nacional de Seguros Privados – CNSP)

and the Private Insurance Authority

(Superintendência de Seguros Privados

– SUSEP). The CNSP is responsible for

establishing the core rules applicable to

the insurance and reinsurance markets,

whereas SUSEP is responsible for

implementing CNSP’s resolutions and

supervising Brazilian insurance and

reinsurance companies. Both entities

have jurisdiction to regulate open

private pension entities, saving bonds

companies (sociedades de capitalização),

insurance companies and their products.

Insurance, reinsurance and pensions

InsuranceInsurance is a particularly regulated

market in Brazil. Brazil is a non-admitted

country, and as such no direct or

indirect offer, advertisement or sale

of insurance can be made in Brazil

by a foreign insurance company. As a

general rule, only insurance companies

duly incorporated in Brazil (as Brazilian

entities) are allowed to operate in Brazil.

In addition, individuals and entities

domiciled in Brazil are not allowed to

purchase insurance coverage abroad

(subject to some exceptions

established in the law).

Insurance companies should comply

with a number of legal requirements

in order to conduct business in Brazil,

including the following:


a. Incorporation

In order to offer insurance in Brazil,

an insurance company must be

incorporated in Brazil as either

a corporation (sociedade por

ações, also referred to as “S.A.”)

or a cooperative (cooperativa).

Cooperatives are restricted to

operating agribusiness insurance

and health and life insurance for

accidents at the workplace.

Prior to incorporating an insurance

company in Brazil, the controlling

shareholders of the company must

obtain SUSEP’s authorization. During

the authorization process, SUSEP

assesses the economic strength of

the direct and indirect shareholders,

among other criteria.

b. Corporate control

SUSEP strictly supervises the exercise

of controlling interests in insurance

companies. The direct actual control

of insurance companies is exercised

solely by:

(i) individuals;

(ii) entities registered with SUSEP;

(iii) entities located in Brazil whose

sole corporate purpose is to hold

interests in companies authorized

to operate by SUSEP; or

(iv) private equity funds whose

sole corporate purpose is to

hold interests in companies

authorized to operate by SUSEP

and whose shareholders are

solely closed pension entities

and/or otherwise any entity

registered with SUSEP.

c. Foreign players

Even though only Brazilian

companies authorized by SUSEP

can undertake insurance related

activities in Brazil, indirect control of

such Brazilian companies may

be fully exercised by foreign

companies or groups. Foreign

shareholders are not supervised

by Brazilian regulators.

Under current regulations, a

foreign company engaging directly

in insurance activities in Brazil is

subject to penalties.

d. Minimum capital requirement

Pursuant to CNSP regulations,

insurance companies should

maintain at all times a minimum

share capital consisting of the

greatest between the base capital

or the risk capital. Additionally,

Brazilian insurance and reinsurance

companies should maintain monthly

assets in excess of 20% of the risk

capital plus assets required to cover

their reserves. Companies operating

solely micro-insurance must have

a base capital of 20% of the base

capital otherwise required from

general insurance companies.

CNSP provides a formula for

calculation of the capital required

to cover each risk.

ReinsuranceAs a general rule, all reinsurance

transactions in Brazil must be placed

with Brazilian or foreign reinsurers

licensed by SUSEP to write reinsurance

business in Brazil.

Insurance companies may transfer risk

to reinsurers that are not registered in

Brazil only in case of (total or partial) lack

of reinsurance capacity from Brazilian

reinsurers registered with SUSEP.

Preferential offer requirementAdditionally, insurance companies must

offer at least 40% (forty per cent.) of

their reinsurance business to

local reinsurers.

An insurer will have complied with the

preferential offer requirement whenever

(i) the required percentage of

preferential offer is placed with

local reinsurers;

(ii) all local reinsurers have totally or

partially refused the preferential offer

and any remaining percentage was

accepted under the same terms and

conditions by other registered non-

local reinsurers; or

(iii) admitted and/or occasional

reinsurers have accepted the risk

under the terms and conditions

rejected by the local market under

the preferential offer regime.

BrokerageThe intermediation by an insurance

broker in the purchase of a (re)insurance

policy is not mandatory in Brazil. Brokers

are required to obtain prior authorization

from SUSEP to act in Brazil.

Pension fundsClosed pension funds are supervised

and regulated by the National

Complementary Pension Council

(Conselho Nacional de Previdência

Complementar –CNPC) and the

National Complementary Pensions

Authority (Superintendência Nacional de

Previdência Complementar – PREVIC).


Public tenders consist of a series

of acts subject to strict regulations.

Public tenders seek to select the

most advantageous proposal for the

government. The most common criteria

for evaluation of bids are:

(i) the lowest bid or;

(ii) the highest offer, as the case may

be, depending on the position of

governmental interests.

However, there are instances that

require bidders to be chosen for their;

(i) technical capability or;

(ii) the combination between the

best offer and technical capability,

as further explained below.

Law No. 8,666/1993 (“Public Procurement

Law”) contemplates general rules

to which all branches and levels of

government should adhere in relation

to public tenders, whereas Law No.

13,303/2013 (“State-Owned Enterprises

Law”) regulates tenders and contracts

executed by wholly-owned government

corporations and government-

controlled corporations.

Public tenders


Procurement proceduresThe Public Procurement Law and Law

No. 10,520/2002 contemplate different

types of public tender procedures.

The most important procedures

are as follows:

a. Call for bids (Concorrência):

A call for bids is a form of bid

that is undertaken to assure the

participation of any interested

parties who fulfill the requirements

contemplated by the respective

notice of tender. This is the

appropriate procedure in case of

large government contracts. A call

for bids is mandatory in certain

cases, for instance in public tenders

over R$ 650,000.00

b. Auction (leilão):

An auction is the method used, for

example, for sales of assets that are

no longer needed by the government

and confiscated goods.

c. Procurement auction (pregão):

A procurement auction is the

method used to acquire the

so-called common goods or

common services.

QualificationA request for proposals is the means

employed by the government to publicly

announce a public tender and its

conditions and call on interested parties

to submit proposals.

The qualification of bidders is the phase

in which bidders demonstrate that

they comply with all legal requirements

to participate in a public tender. A

commission or designated agents

assess the bidders’ qualification

documents, and review all documents

submitted by bidders in connection

with their legal, technical and financial

capabilities, and tax and employment

law compliance.

If the company qualifies to participate in

a public tender, all documents submitted

are publicly disclosed and subject

to public scrutiny.

Waiver of tendersThere are circumstances in which

the government is exempted from

public tenders.

Situations in which public tenders may

be waived include those in which the

government searches for particular skills

of an individual (e.g., an opinion given by

a renowned scholar); depending on: what

is most beneficial to the government;

small procurement values; international

agreements and other circumstances.

A public tender may also be waived in

certain other cases, always taking into

account what is most beneficial to

the government.

Administrative contractsAdministrative contracts are regulated

by public law, and are entered into after

a procurement procedure.

The rules applicable to administrative

contracts differ from the rules applicable

to private agreements under general

contract law to further protect the State.

SecurityThe Public Procurement Law requires

provision of a bond. This is considered

part of the qualification of a bidder.


Monitoring and terminating administrative contractsAdministrative contracts may be

unilaterally amended or terminated by

the respective governmental party.

A unilateral amendment may financially

rebalance the agreement whereas

a unilateral termination may include

compensation for damages, depending

on the case. The government is entitled

to monitor the agreement and to

this end access all administrative,

accounting, technical, economic,

and financial information of the

private parties.

Ordinary concession of public servicesA concession must follow a call for

bids. In case of concession, the end-

users of the public services pay the

concessionaire. The economic-financial

feasibility of the project is based solely

on the tariffs paid by end-users.

Public-private partnerships (“PPP”)Under Federal Law No. 11,079 of 2004,

a Public-Private Partnership is the

mechanism in which the government

enters into contracts with private

parties for the implementation of an

infrastructure project (for a relevant

investment in an infrastructure public

project) and the supply of services

related to it.

Investment partnerships program (“PPI”)The PPI was created by Federal Law

No. 13,334/2016 to strengthen the

coordination of investment policies in

infrastructure by means of partnerships

with the private sector and to stimulate

national and foreign investors to

invest in infrastructure projects by

privatizing state-owned companies in

different manners:

(i) Ordinary Concessions;

(ii) Public- Private Partnerships,

(iii) Privatization and Divestment and

(iv) other mechanisms.

PPI’s key sectors are Airports, Ports,

Oil & Gas, Highways, Railroads,

Hydroelectric power generation

and Mining.

Privatization and divestment Privatization and Divestment are the

procedures used to sell state-owned

enterprises to private investors.

Generally, privatization occurs when

a state-owned enterprise is not

generating the profits needed to

compete in the market or when it

undergoes financial difficulties.

State-owned and government- controlled corporations The State-Owned Enterprises Law

applies to all State-Owed Enterprises

that exploit economic activities of

production or sale of goods or services,

including where the economic activity is

subject to a governmental

monopoly regime.

TCU’s role in privatization and divestment transactionsThe Federal Court of Auditors

(Tribunal de Contas da União) is a body

subordinated to the Brazilian Congress

in charge of exercising external control

over public expenditure, and, notably,

supervising and inspecting privatizations

conducted by the Federal Government,

such as PPI projects. The Federal Court

of Auditors plays a fundamental role in

connection with approving any public

tenders before their public notices can

be disclosed to the market.


Energy

In the past years, the Brazilian

Government has renewed its

efforts and taken different

measures to expand the energy

industry. As a result, the role of

private investments and the overall

competition in the sector have

improved substantially.

Sector agents and main governmental authoritiesA number of government agencies

have jurisdiction over the energy

sector in Brazil.

The Ministry of Mines and Energy (MME)

is the Brazilian government’s primary

authority for the energy industry,

having policymaking and

supervisory responsibilities.

The National Electric Energy Agency

(Agência Nacional de Energia Elétrica

– ANEEL) is an independent federal

agency whose primary responsibility is

to regulate and supervise the electricity

industry in accordance with policies set

forth by the MME.

The National System Operator (Operador

Nacional do Sistema Elétrico – ONS) is a

nonprofit organization that coordinates

and controls the generation and

transmission of electricity and the

activities of other market participants

such as importers and exporters.


Finally, the Energy Trade Chamber

(Câmara de Comercialização de

Energia Elétrica – CCEE) is a nonprofit

organization in charge of registering all

power supply agreements, accounting

and advancing spot market transactions

executed by energy producers, traders,

distribution companies, free consumers

(i.e. consumers having at least 3MW of

demand, or 2,5MW of demand as of July

2019), special consumers (i.e. consumers

having at least 500kW of demand, who

can only acquire renewable energy),

importers and exporters and managing

certain sectorial funds.

Activities and opportunitiesThe ten-year energy expansion plan

approved by the MME in 2018 forecasts

that by 2027 Brazil will have an installed

capacity of 216.294 GW. In addition, the

ten-year plan seeks to add 55,000 km

of transmission lines to the National

Grid System.

Expansion of the energy system

occurs primarily by means of auctions.

Distribution companies purchase power

at public energy auctions, which are

typically held three or more times a year.

For each auction, distribution companies

inform the MME of forecast energy

needs for future periods and

the MME certifies the power volume

to be purchased.

An important energy auction (A-6)

involving gas-fueled power plants and

other energy sources is expected to

occur by mid-2019. An important energy

auction (A-6) involving gas-fueled power

plants and other energy sources is

expected to occur on October 17, 2019.

For transmission lines, ANEEL

establishes the location and extension

of lines in a bid notice. Interested

companies provide ANEEL with their

financial proposal and supporting

documentation for construction,

operation and maintenance of the lines

for a period of not less than 30 (thirty

years). Based on the previous ten-year

energy expansion plan prepared by

EPE, it is expected that 55 thousand

kilometers of transmission facilities

will be installed by 2027, resulting in

investments in the total amount

of R$ 108 billion.

During 2017 and 2018, there was

considerable discussion regarding

the divestment of assets operated

by Centrais Elétricas Brasileiras S.A. –

ELETROBRAS and by the end of 2018,

the state-owned company completed

the sale of its six distribution companies

to private players. Currently, there is

also an ongoing discussion on whether

ELETROBRAS will be able to continue

its divestment from other assets,

such as power production and

transmission companies.

Restrictions on foreign capitalWhile direct investment in Brazilian

energy companies is available to foreign

investors on the stock exchange and

in M&A deals, the primary means for

foreign investors to obtain a license or

concession to construct and operate

power production, transmission or

distribution facilities in Brazil is by

participating in competitive public

auctions. Certain additional obligations

apply in this case.


RestructuringOverview

The Brazilian Bankruptcy Law (Law

no. 11,101/2005) regulates insolvency

proceedings in Brazil and seeks to

maximize the possibility of restructuring

distressed businesses that are

economically viable or to increase the

recovery ratio in a liquidation scenario

where restructuring is not feasible.

The Brazilian Bankruptcy Law is not

applicable to state-owned corporations

(such as BNDES or Caixa Econômica

Federal), government-controlled

companies (such as Petrobras), and

financial institutions (banks, insurance

companies, credit cooperatives etc.), all

of which are subject to specific laws.

Judicial reorganization proceedings

Judicial reorganization proceedings bind

all pre-filing claims, including those not

yet due and must be requested by the

debtor. The debtor should negotiate

and submit a plan containing the

terms and conditions of restructuring,

subject to approval by the four classes

of creditors (labor, secured claims,

unsecured claims and small enterprises).


Claims not subject to the proceedings

Tax and social security claims,

credits arising from foreign exchange

agreements (“ACCs”), and credits arising

from financial leases, fiduciary sale,

credits resulting from sales of real

estate (where the purchase and sale

agreement is irrevocable) and

purchase agreements with title

retention are not subject to judicial

reorganization proceedings.

Stay period

Judicial reorganization provides a stay

period of 180 days to a distressed

company, during which existing claims

and enforcement proceedings filed

against the debtor are suspended,

including those that are not subject to

the judicial reorganization. During this

period, sale and withdrawal of assets

that are essential to the debtor

are not permitted.

Out-of-court reorganization or pre-pack administrationIn an out-of-court reorganization, a

debtor files a pre-negotiated plan, and

upon court confirmation, the plan crams

down all other creditors of the same

class/group. These proceedings may

affect all creditors of the company, only

one or more classes or even a group of

creditors within a class, except for labor

claims, tax claims, and claims secured by

fiduciary sale. A pre-packaged plan has

to be signed by creditors representing

60% of the claims of the affected

group of creditors.

Liquidation proceedingsLiquidation proceedings may be either

voluntary or involuntary, and result

in the termination of the corporate

veil of the debtor. Liquidation is a

long and cumbersome process, and

typically causes loss of value. The

management of the debtor is replaced

by a court-appointed administrator,

affecting the decision-making process.

The administrator is responsible for

collecting, appraising and selling the

assets of the debtor in order to apply

the proceeds of the sale towards

payment of creditors.

Legal term

The legal term is the pre-filing period

during which the transactions of a

debtor are either ineffective in relation

to the bankruptcy estate or subject to

clawback. This period cannot retroact

to more than 90 days prior to the filing

of the liquidation request, or of the filing

of judicial reorganization (subsequently

converted into liquidation proceedings),

or of the first protest of a negotiable

instrument issued by the debtor.

Opportunities in distressed companies

Clean purchase of assetsSeveral assets of companies undergoing

insolvency proceedings are available for

purchase, creating M&A opportunities.

The acquirer of such assets is not

exposed to the debtor’s liabilities, such

as tax, labor, environmental and antitrust

liabilities if the assets are organized as

“isolated production units” and sold by

the debtor by means of a competitive

procedure held by the court.

New moneyInvestors may provide new money

to debtors undergoing insolvency

proceedings through binding offers

to anchor the insolvency plan or DIP

financing, since Brazilian banks typically

do not finance companies facing liquidity

issues or companies in distress. New

money is not subject to judicial or out-

of-court reorganization and has a senior

ranking in liquidation.

New money may improve restructured

debt in relation to other creditors and

may be used as a bridge for an asset

acquisition with advantages (right

to match, right to top etc.). These

protections have been confirmed by

Brazilian courts in favor of investors.

Purchase of claimsA purchase of claims is a possible

strategy in different scenarios, such as

to influence the approval of the plan

and to obtain information provided to

creditors. It is also a strategy where

there is expectation that the claims will

be converted into equity, or to get any

upside in the difference between the

amount paid to purchase the claim and

the recovery amount under the plan.


Oil & gas

In general, the exploration and

production of oil and gas in Brazil is

undertaken under a concession regime.

In addition, the production sharing

contract (“PSC”) regime applies to the

licensing of offshore “pre-salt” and

other strategic areas. Petrobras (the

Brazilian NOC) has an exclusive right to

explore and develop certain offshore

fields in Brazil (this is known as onerous

assignment regime).

Therefore, Brazil has three different

regimes for upstream exploration and

production: the concession regime,

the PSC regime, and the onerous

assignment regime.

Upstream E&P regimes

Concession regime

A company is granted a concession to

explore and produce oil and natural gas

in Brazil upon submission of a winning

bid in an auction (or bid round) called

by the Brazilian Oil, Natural Gas and

Biofuels Agency (ANP).

There is no restriction on foreign

participation, provided that the foreign

investor incorporates a company

under Brazilian law and complies

with all technical, legal and financial

requirements established by the ANP

before the execution of the concession

agreement (also applicable to the PSC

Regime). Depending on the bid round

rules, the ANP may require the foreign

company to provide a parent company

guarantee (also known as performance

guarantee) in which it undertakes to

be the primary obligor towards the

ANP in connection with all duties and

obligations of its Brazilian subsidiary

under the concession agreement.

The formula used by the ANP to

assess each bid takes into account

the signature bonus offered by bidders

and the minimum work program for

the exploratory phase. After much

discussion with the industry, the

Brazilian Government decided to

establish local content as a

contractual obligation rather than

a selection criterion.

Since 2017, the ANP has called

another type of bidding process that

includes relinquished (or in process of

relinquishment) areas and exploratory

blocks that were not granted in past bid

rounds. In this type of bid, the ANP offers

such areas on a continuous basis and

any company may show its interest in an

area included in the permanent offer, at

any time. Upon a show of interest, the

ANP calls an expedited bid for the area

and grants the concession agreement

to the winning bidder.


PSC regime

Under the PSC regime, a portion of

the production of oil and gas is paid to

companies by way of reimbursement of

their exploration and production costs

(known as cost oil), and the Brazilian

Government shares the remaining

production (known as profit oil) with the

companies according to the ratio set

forth in the respective PSC. Petrobras

has a preemptive right to hold a minimum

interest in any consortium and to be the

operator of blocks in the pre-salt area.

PPSA, a state-owned company,

represents the Brazilian Government

in consortia awarded exploration and

development of blocks located within

the pre-salt area.

The only criterion used to determine the

winning bidders is the percentage of profit

oil to be given to the government. The

signature bonus under the PSC regime has

a fixed value, and so do the minimum work

program and the local content.

Onerous assignment regime

This is an extraordinary regime

applicable to Petrobras. Under this

regime, the Brazilian Government

transferred the rights to explore

certain pre-salt areas to Petrobras,

without any sort of bidding procedure.

In consideration for the transfer of

rights, Petrobras paid an amount of

approximately R$ 75 billion, mainly

using Brazilian Government bonds

paid into the company by the Brazilian

Government during Petrobras’ last public

offering of stock in 2010.

Government takes

Royalties are payable on onshore and

offshore production. For Concession

Agreements, the rate is often 10% of

the volume of oil produced in each given

month. However, royalty rates may

be reduced to 5%, depending on the

geological risks of a given field. Under

the PSC regime, royalties are charged

at the rate of 15% of the volume of oil

produced in each month.

In addition to royalties, the federal,

state and local governments are

also rewarded in the form of other

‘government takes’, i.e., payments to be

made by a company as a result of its

exploration and production of oil and

natural gas, such as:

• signing bonus – a one-off lump

sum payable upon execution of a

concession agreement or PSC;

• special participation – extraordinary

financial compensation payable

in the event that high volumes of

oil or natural gas are produced, or

a certain field is otherwise highly

profitable (applicable only to the

Concession Regime); and

• payment for area occupation

or retention – this consists of

an annual sum payable for the

occupation or retention of oil

prospecting areas. The ANP sets the

amounts to be paid in the bidding

documents and granting instruments

(applicable only to the Concession

Regime).

Environmental requirements

The ANP, the Brazilian Institute of

Environment and Renewable Resources

(IBAMA) and state environmental

regulatory agencies are responsible

for the safety and environmental

regulations in respect of upstream

activities. The IBAMA has competent

jurisdiction over offshore blocks and

unconventional oil and gas exploration,

while state environmental regulatory

agencies enjoy competent jurisdiction

over onshore blocks using

conventional methods.

Taxation

All income resulting from the exploration

of oil and gas is taxed by federal

corporate income tax and is subject to

general corporate income tax laws.

The following taxes may apply to oil

and gas activities, among others:

Federal taxes:

• import tax (II);

• excise tax (IPI);

• contributions to social security

(PIS/COFINS);

• contribution for intervention in the

economic domain (CIDE); and

• tax on financial transactions (IOF);

State taxes:

• value-added tax (ICMS); and

Municipal taxes:

• services tax (ISS)

In addition, Brazilian companies may

acquire assets to be used in petroleum

activities (equipment and spare parts)

through a special temporary admission

of goods system, known as “REPETRO”.

Exports and imports

Oil and gas are freely exportable to

and from Brazil and there are no limits

or quotas applicable to oil and gas

production as long as companies are

authorized by the ANP to import and

export crude oil and natural gas.

In addition, as in any other exports and

imports, certain additional requirements

may apply, including requirements

established by the Central Bank

of Brazil and the Brazilian

Federal Revenue.


Business criminal law

As a rule, in Brazil, criminal liability is

personal and subjective, and is primarily

focused on individuals.However, under

certain circumstances corporations may

also face significant legal repercussions

arising out of criminal investigations

such as dawn raids and freezing of

assets - when a related individual is

targeted by enforcement authorities. As

is widely known, Brazilian enforcement

of corporate and business criminal law

has been increasingly more thorough

than ever in the recent years, and it

seems clear that the times of high-

enforcement and high-risk tend to

continue in the near future.

Corporate criminal liability

According to Brazilian law, corporations

may only be held criminally liable in case

of environmental crimes (as per section

3 of Law Nº 9,605/1998). Even in

this case, there is no strict liability

and the entity may only be subject

to criminal charges if the relevant

offense was committed pursuant to

an unlawful decision made by its legal

representatives or its management.

Criminal liability for directors

and officers

As stated above, an individual’s

liability is personal and subjective and,

therefore, may reach whoever may have

willfully or negligently ( in some cases,

the law expressly contemplates criminal

liability for negligence) participated by

any means – directly or indirectly – in a

criminal offense. Brazilian law does not

admit, therefore, that anyone be charged

solely on the grounds of his position

within a company. Indeed, it is necessary

to demonstrate that he or she actually

contributed somehow to the offense.


Federal and state-level

jurisdictions and prosecution

Historically, the general rule in Brazil is

for most criminal investigations in Brazil

to be conducted by state police and

state prosecutors, and then brought to

state courts. Federal jurisdiction applies

only where the facts under scrutiny may

have caused direct or indirect harm to

a Federal government’s asset or a

federal public servant is bribed or is

somehow involved in a crime against

the government in the exercise of

his/her duties.

Where the offense under scrutiny causes

damages to public assets both in the

federal and state (or municipal) levels,

federal jurisdiction prevails over

state jurisdiction.

Use of plea deals, leniency

agreements or other types

of settlement

The recent years of high-enforcement on

corruption, money laundering, antitrust

and other subjects related to business

crimes have increased the use of plea

deals (for individuals) and leniency

agreements (for companies) in high-profile

investigations that usually have important

repercussions both in the criminal and

the administrative/regulatory areas.

These legal tools, however, are

relatively recent and are still laconically

regulated in Brazil, which gives room for

a significant level of legal uncertainty

not only in a legal system that is not

used to them but also in an institutional

framework composed of a multi-agency

system of control where different

authorities overseeing connected sets

of offenses at times seem unable to

coordinate their investigations and

sometimes even contradict one another.

This reality may often bring challenges

for companies and individuals seeking

resolutions. Consequently, experienced

advice is required before any discussion

with enforcement authorities.

There are specific settlement

mechanisms for minor offenses,

established by Law Nº 9,099/1995.

These usually consist of payment of

small fines and suspension of criminal

judicial proceedings initially brought

for a period ranging from 2 to 4 years,

after which a case may be dismissed

if the defendant is not involved in any

additional criminal investigation.

International cooperation

Brazilian authorities have been more

active than ever in international

cooperation for criminal procedural

purposes and there seems to be

considerable room to increase active

and passive cooperation with foreign

authorities in the years ahead. Most

notably, cooperation with U. S. and

Swiss authorities has reached an

unprecedented level in the last few

years and more recently Brazilian federal

prosecutors have reached cooperation

agreements with some of their Latin

American peers in order to make

evidence exchange procedures

more expedite.

Although there is still a degree of legal

uncertainty in relation to plea deals and

leniency agreements, federal authorities

and corporations have recently

successfully reached a number of

international settlements in some of the

most high-profile cases in Brazil. Several

of them involved Brazilian, U. S., Swiss,

British and Singaporean authorities,

among others. This seems to

indicate a trend for the near future

of global enforcement.


Real estate

The Real estate title

Real estate includes land and its natural

or artificial appurtenances. It also

includes the soil beneath the surface

and the airspace above the land. In order

to be deemed included in real estate,

ancillary items should be permanently

attached to the land in a way that their

withdrawal would otherwise create a

substantial drop in the use or economic

value of the property.

Pursuant to Brazilian law, ships and

aircraft are also considered real estate.

Therefore, they should be registered

with the relevant Land Registry and may

be mortgaged.

The Brazilian system for land

registration is based on real estate

record files that are kept and controlled

by the respective Land Registry with

jurisdiction

over a location.

Ownership of real estate is transferred

by registering the relevant transfer

document in the real estate record

file of a property. Therefore, title is

evidenced by a certificate of registration

of the transfer, which is issued

by the Land Registry.

This rule is subject to two

important exceptions:

(i) Adverse possession. In case

of adverse possession, title is

evidenced by a judicial order

declaring ownership of a

certain property.

(ii) The so-called “terras devolutas”,

i.e. unoccupied properties without a

registered owner - they are by default

owned by the government after a

specific procedure.

Public registry

An estate record file includes the chain

of title since the opening of the record

and a description of any liens. Lease

and pre-nuptial agreements relating to

the property should also be recorded.

Likewise, any easement or usufruct will

appear in the file.

The information registered in a real

estate record file is publicly available,

and, therefore, not protected against

disclosure. This ensures effects

against third parties.

Although any Land Registrar is liable

if wrong information is provided on a

property, there is no state guarantee of

clear title. For this reason, it is practice

for parties to contract an indemnification

clause under which the seller is liable for

losses sustained by the buyer

due to bad title.

Brazilian insurance companies do

not offer title insurance. Foreign

investors interested in this type of

insurance generally purchase it from

foreign insurers.


Purchase of real estate in Brazil

Pre-contractual arrangements

During the negotiation of purchases of

real estate in Brazil, key aspects of the

deal may be inserted in a non-binding

term sheet and/or letter of intent. Before

negotiations begin, exclusivity and

confidentiality agreements are

usually executed.

If certain conditions precedent are

agreed by the parties during the

negotiation, a purchase and sale

agreement is generally executed. This

agreement gives the buyer time to

perform due diligence on the property

and arrange financing, if applicable. If the

purchase and sale agreement contains

all the elements of the final sale contract

and the parties do not grant each

other the right to withdraw from the

transaction, the agreement is binding

on the parties. After due diligence

is performed and all conditions are

satisfied, the parties execute a purchase

and sale deed under which the buyer

acquires ownership of the real estate

subject to registration formalities.

Sellers’ warranties

In an asset sale, warranties include

title, possession, and the physical and

environmental conditions of the property.

In a share sale, the seller usually gives

the buyer warranties on the target

company’s compliance with corporate,

tax, environmental, labor, and social

security regulations.

Inheriting liability

As a general rule, a party that

acquires real estate also inherits all

liabilities relating to the real estate.

The buyer is liable despite the seller’s

representations on the non-existence of

such liabilities. Therefore, the buyer will

be required to pay any outstanding debt

and then request redress.

Likewise, in a share sale, the liability for

matters relating to the property stays

with the target company.

Taxation

Tax on transfers of real estate is a

municipal tax owed upon transfer of title.

Rates and exemptions vary according to

specific municipal legislation. Generally, a

buyer pays real estate related taxes.

Capital gains derived from a sale of

real estate are generally subject to

taxation in Brazil.

Real estate developments (“Incorporação”) and Land Parceling (“Loteamento”)

Real estate development

Pursuant to the Real Estate

Development Law ( Law No.4,591/1964),

a real estate development is an activity

undertaken to advance the construction

and total or partial sale of buildings

or a complex of buildings comprising

independent units.

The developer may establish a grace

period during which it may withdraw

from the respective development. This

period cannot exceed 180 days. The

construction of the building may be

contracted and paid by the developer or

by the final owners of the units.

Land parceling

Land parceling is a type of real estate

development and consists of dividing a

large piece of land into smaller plots of

land to be sold to investors. According

to the Urban Ground Parceling Law

(Law No. 6,766/1979), a land parceling

project should be registered with the

relevant municipality.

Separate estate

(“patrimônio de afetação”)

Developers may elect to create a

separate estate regime, whereby they

can separate their regular assets and

liabilities from those directly related to a

real estate development. The separate

estate is solely liable for debts and

obligations of the project and does not

interact with other assets, rights and

obligations of the developer.


Farm landBrazil has one of the largest suitable

farm land in the world and the largest

in South America.

The majority of the national territory

is suitable for agriculture and forestry

development. Plentiful and available

land at a competitive price, a large

demand for wood, sugar cane and other

commodities in the international market

are aspects that contribute to the

appeal of investing in the agribusiness

and forestry sectors.

According to the Brazilian Constitution,

rural areas should:

(i) be rationally and adequately used;

(ii) have their natural resources

adequately used, with

environmental preservation;

(iii) comply with employment laws; and

(iv) the well-being of owners and

laborers should be pursued when

land is exploited.

Restrictions on foreign ownership

or occupation

Some restrictions apply to foreign

companies and individuals in relation to

ownership and lease of rural properties

in Brazil, although no restrictions apply

to the creation of other security over

rural land.

There is an ongoing discussion both

in court and the executive branch on

whether such restrictions also apply

to Brazilian companies whose majority

share capital is held by foreign persons

or companies that are otherwise

controlled by foreign persons.

As a rule, foreign companies and

individuals are free to purchase, lease,

possess, or create security over

commercial and industrial properties

that are not considered rural land, and

residential properties.

Rural properties located in the border

strip (faixa de fronteira)

The area within 150 km of the Brazilian

national border is deemed national

security area. The legislation on foreign

capital in connection with rural estate

located in the border strip is stricter than

the laws on rural land in general.

• Under Brazilian law certain actions

require the National Defense

Council’s prior consent, including

transactions that, directly or

indirectly, result in the acquisition of

rural real estate, possession, domain

or any other right in the border strip

by a foreign entity or individual.

Such consent is also required for

the participation of a foreign entity

or individual in any manner in a

company that owns, possesses or

has any right in relation to rural real

estate located in the border strip.

• The exception involves the

possibility of creating mortgage or

fiduciary sale in favor of international

financial institutions as security.


Life sciencesOverviewThe Brazilian Federal Constitution

contemplates a series of fundamental

rights, including the right to healthcare

and to sanitary surveillance. In this

regard, in addition to undertaking public

health assistance activities, the Brazilian

Federal Government has established

social and economic policies for health

and sanitary surveillance, and for

the provision of medical services

to all citizens.

The Brazilian legal framework applicable

to health and sanitary activities

comprises a series of federal, state and

local laws. In addition to such laws, the

Brazilian Federal Government has also

established several regulatory agencies

responsible for health and sanitary

surveillance of particular segments, such

as health plan operators, pharmaceutical

companies, hospitals and clinics,

among others.

Medicine and medical devicesThe Brazilian National Health

Surveillance Agency (ANVISA) is the

regulatory agency responsible for

regulating companies that carry out

activities with sanitary impact, which

include manufacturing, transporting,

storing, distributing, exporting, importing,

repackaging and fractioning medicine,

medical devices, cosmetics and

sanitizing products.

ANVISA’s relevant regulations include

the technical requirements for

manufacturing, transporting, storing,

distributing, exporting, importing,

repackaging and fractioning products

overseen by such agency; quality control

processes for assets and products

subject to sanitary surveillance;

import and export procedures;

and price monitoring and price

ceilings for medicine.


Companies’ registration with ANVISACompanies that manufacture, transport,

store, distribute, export, import, repack

or fraction products subject to sanitary

surveillance (medicine, medical devices,

cosmetics, sanitizing products, among

others) should obtain operating

authorization from ANVISA. In addition,

companies that manufacture, transport,

store, distribute, export, import,

repack or fraction products subject to

special sanitary surveillance (as a rule,

substances capable of causing physical

or psychic dependence, narcotics, and

abortive medicine) should obtain a

special authorization from such agency.

Registration of products with ANVISAAny national or foreign-made product

subject to ANVISA’s supervision may

only be manufactured, sold or marketed

after prior registration with such agency.

Products with lower sanitary risk are

subject to the Cadastro registration

procedure, a more simplified application

process. Products with higher sanitary

risk are subject to the Registro

registration procedure, which includes

a more thorough review.

Health plan operatorsThe Brazilian National Regulatory

Agency for Private Health Insurance and

Plans (ANS) is the regulatory agency in

charge of fostering the development

of private health insurance activities in

Brazil and, at the same time, protecting

public interest. In order to reach such

goals, the ANS regulates heath plan

operators (HPO) and their relationship

with service providers and consumers.

The key ANS regulations on HPOs

include policies and guidelines for

healthcare services offered by HPOs;

definition of the mandatory minimum

health coverage; oversight of the

financial health of HPOs; and imposition

of transfer of portfolios in the event

certain HPOs are found to be incapable

of providing services.

Hospitals and ClinicsHealthcare facilities - such as hospitals

and clinics are directly regulated by

the Ministry of Health. They should

register and maintain registration with

the National Registry of Health Facilities

(also known as CNES). Establishments

which undertake activities in the

healthcare sector should hold sanitary

permits issued by the State or Municipal

sanitary departments, depending on

how decentralized sanitary supervision

is in each State.

Foreign Investment in Hospitals and ClinicsTraditionally, Brazilian regulations

generally prohibited the participation

of foreign companies and foreign

capital in hospitals and clinics. In

2015, Brazilian law was amended to

authorize direct and indirect (control

included) participation of foreign capital

in healthcare facilities, hospitals, clinics

and clinical analysis labs. Although

there are pending cases regarding the

constitutionality of such amendment,

the possibility of a declaration of

unconstitutionality seems remote.

The statutory amendment also

expressly allows foreign capital in

nonprofit hospitals.

Transactions that require authorization from the ANSAs a rule, any corporate event that

results in merger, spin-off, transfer

or change of corporate control of

HPOs requires prior and express

approval of ANS.

Companies’ registration with ANS Companies that wish to operate in the

health insurance market should obtain

operating authorization from ANS

and register with ANS all health plans

intended to be sold.


AviationOn June 17, 2019, the Brazilian

government enacted Law No.

13,842, which amended the Brazilian

Aeronautics Code (Law No. 7,565/1986

or CBA) to exclude the former 20%

limitation on foreign investment in

Brazilian air companies, such as airlines

and air taxi companies, provided they

are incorporated under Brazilian law, with

head offices and management in Brazil.

The Brazilian aviation market is

now open for unlimited foreign

investment in Brazilian airlines

As amended by Provisional Measure

No. 863, of December 13, 2018 – later

converted into Law No. 13,842, of June

17, 2019 –, article 181 of the Brazilian

Aeronautics Code now allows unlimited

foreign investment in Brazilian air

transportation and specialized

services companies.

Sections 184, 185 and 186 of the

CBA were revoked, resulting in less

bureaucracy in the sector given that the

Brazilian National Civil Aviation Agency

– ANAC no longer needs to approve the

by-laws of companies engaged in air

transportation and specialized services.

The Brazilian President has vetoed

certain amendments to Provisional

Measure No. 863/18, which had been

suggested by the congressional

committee, seeking to reestablish the

compulsory offer of minimum checked

baggage allowance by air transportation

companies. The matter may be approved

or overruled by the National Congress.

The industry is mostly optimistic with

the opening of the Brazilian market

for unlimited foreign investment. It

is expected that the recent changes

brought by Law No. 13,842/2019

should contribute to the continuing

development of the sector, as they

should attract new business players,

increasing competition within the

industry. Accordingly, they should have

a positive impact on Brazilian economy

and motivate the offer of better services

and reduced airfares.


Corporate social responsibility Corporate social responsibility (CSR) is

an essential component of a business’s

long-term success. Stakeholders and

investors increasingly expect or require

CSR programs to be in place. In addition,

CSR adds value to corporate image and

brand and potentially increases the

market value of a corporation.

There are different ways to

implement CSR.

The following is an overview of the

governance and tax aspects of

nonprofit organizations in Brazil,

including tax incentives that are

available when donations are made to

institutions or projects.

Incorporation of a Brazilian Not-For-Profit Organization

Corporate Aspects

According to the Brazilian Civil Code,

nonprofit organizations can be

incorporated in Brazil in the form of

associations or foundations. The primary

characteristics of each of these two

types of entities are discussed below.

Associations

According to the Brazilian Civil Code, an

association is a nonprofit entity formed

by a group of people with a common

purpose. In this regard, an association

must have at least two members in order

to be incorporated.

The first step to incorporate an

association in Brazil is to draw up its

by-laws. The by-laws are the internal

rules of an association consisting of

contractual clauses, which establish

the purpose of the association and the

rights and duties of both the association

and its members.


The Brazilian Civil Code establishes that

association by-laws must describe:

(i) the name and institutional purpose of

the association;

(ii) requirements to admit, to dismiss,

and to exclude members;

(iii) members’ rights and duties;

(iv) sources of income of the association;

(v) constitution and functioning of

the management body; and

(vi) conditions for amendments to the

by-laws and winding up of

the association.

Although the association’s by-laws

can freely govern the aforementioned

matters, the Brazilian Civil Code places

restrictions upon the constitution and

functioning of managing boards of an

association. In this respect, the Brazilian

Civil Code requires associations to hold

one obligatory administrative board: the

General Meeting or General Assembly.

Members of an association may be

foreign citizens, but they can only act

at meetings through Brazilian citizens

or foreign nationals with permanent

visa, holding powers of attorneys. The

members of board of directors must

be Brazilians or foreign national with

permanent residency in Brazil.

In order to incorporate an association,

its by-laws must be filed with the civil

registry. It is only after such filing that

the association becomes an entity with

legal capacity and possessing rights

and duties.

Foundations

A foundation may be defined as a

collection of assets that is granted

personhood pursuant to law, and intends

to achieve a goal, which serves a

public interest.

Foundations are created through a

testamentary instrument or public will,

the former being a unilateral disposition

for last wishes, and the latter a public

declaration of will. A public will or a

testament prepared with the intention to

incorporate a foundation must include:

• Information about the grantor(s);

• The grantor’s intentions to create

the foundation;

• The goal of the foundation; and

• The grantor’s disposition of his/her

unencumbered assets.

In a foundation, corporate control is

exercised through a curators’ council.

To be part of such council, a person may

not have been subject to a judgment in

a criminal or civil proceeding. The council

must follow the directives set forth in

the foundation’s charter documents as

stated by the grantor.

As it is the case with an association,

members of the board of directors of

a foundation must be Brazilian citizens

or foreign nationals with permanent

residency in Brazil.

A foundation will only acquire legal

status after its by-laws are filed with

the Civil Registry. Representatives

designated by the grantor in his/her

testament or public will are charged with

preparing the by-laws of the foundation.

In certain cases, the by-laws are

previously set forth within the testament

or the public writ.

In order to file by-laws, it is necessary

to first obtain the approval of the Office

of the Attorney General (“Ministério

Público”), which ensures that all legal

rules with regards to the organization

and functioning of the foundation have

been respected.

Endowments

Recently, a new law regulating

endowments (“Fundos Patrimoniais”)

was approved, establishing terms and

conditions for structuring and managing

endowments in Brazil. Pursuant to

the Federal Law No. 13,800/2019, the

management of endowments will be

made by nonprofit entities (association

or foundation) exclusively focused

on this activity. Even though the new

legislation does not specify any tax

benefits to donors of endowments, it

sets forth rules that are expected to

assure more reliability for contributors

regarding the path of the donated

assets, and at the same time, restrict

the potential deviation of funds.


Tax Aspects

Most nonprofit organizations having

public goals and operating in Brazil are

entitled to tax and other legal benefits.

The applicable legislation does not

distinguish between associations

and foundations, with tax immunities

and exemptions being equally

available to each type.

Immunity

The Brazilian Constitution contemplates

that the federal government, the states,

the Federal District, and municipalities

cannot tax associations or foundations

with educational and social

assistance purposes.

Assuming that the organization fulfills

the requirements below, it will be immune

from taxation:

(i) does not distribute any portion

of their assets or income, for

any reason;

(ii) fully applies its revenues in Brazil

in the maintenance of its

institutional purposes;

(iii) keeps records of its income and

expenses in books covered with

formalities capable of ensuring

their accuracy.

Exemption

Under certain circumstances stipulated

by law, tax exemptions on entities –

associations and foundations - which

fulfill certain legal requirements may

be applied.

Tax exemptions are contemplated in

various bodies of law, and it is essential

to consult specific laws of each type

of tax in order to identify whether a

nonprofit organization meets all its legal

requirements. For example, associations

and foundations may be exempted from

corporate income tax (IRPJ/CSLL). The

requirements for such exemptions are

that the entity:

(i) has a philanthropic, recreational,

cultural, or scientific character;

(ii) is a civil association that provides

services relating to its corporate

purpose; and:


• does not compensate its

administrators above the limits

established by legislation;

• fully applies its resources to the

maintenance and development of its

corporate purposes;

• maintains full accounting registers in

compliance with formal requests;

• maintains in good order, for a

period in excess of five years, the

documentation required to support

its accounting registers; and

• files annual income tax returns in

accordance with the rules of

tax authorities.

Tax Benefits

With respect to tax benefits granted to

donors, Federal Law No. 13,019/2014

provides that all donations from

corporate entities to non-profit

organizations that meet certain

requirements are deductible from the

corporate entity’s operating income,

limited to 2% of the amount of its

gross revenue. It should be noted that

only donors who calculate income tax

through the real profit system (“lucro

real”) may take such deductions.

As a result, donors benefit by reducing

the amount of their operating income,

which is the basis for calculation of

their income tax and social contribution

obligations. This deductibility generally

provides the donor a 34% (thirty four

per cent) return on the amount donated

in the form of a reduction in their

income tax and social contribution

obligations, meaning that for each R$100

donated, the donor has a reduction of

approximately R$34 from its income tax

and social contribution obligations.

In addition, companies donating to

educational or research institutions

may also benefit from tax deductibility

in the same manner as donations made

to nonprofit organizations, except that

deductibility is limited to 1.5% of the

donor’s operating income.

At the federal level, there are also tax

benefits for cultural, sports, and health

projects, as well as projects targeted at

children, adolescents, and the elderly.

The most well-known tax incentive

for businesses in Brazil relates to

cultural projects. Pursuant to the

Federal Law No. 8,313/1991, entities

can deduct sums contributed through

donations or sponsorship to cultural

projectsapproved by the Cultural Affairs

Secretary of the Citizenship Ministry. The

entity can deduct part of the amount

granted from income tax due (30% for

sponsorship and 40% for donations),

limited to 4% of the total income tax

due. In specific segments such as scenic

arts and the preservation of cultural

heritage, amounts donated to cultural

projects are fully deductible for purposes

of income tax, but also limited to 4% of

the total amount due by the taxpayer.

Nonetheless, donations to cultural

projects in such segments cannot be

deducted as expenses.

Pursuant to the Federal Law No.

11,438/2006 (“Sports Incentive Law”),

entities or individuals can deduct from

income tax due the amounts transferred

to/which support sports and parasports

projectsapproved by the Sports

Secretary of the Citizenship Ministry.

In case of donations or sponsorships

promoted by individuals, the income

tax deduction cannot exceed 6% of the

total due. With respect to donations/

sponsorships made by legal entities,

the deduction is limited to 1%, and

the values transferred to support

sports projects cannot be deducted as

operating expenses when the income

tax is calculated.

On the other hand, health programs

incentives are regulated through

Federal Law No. 12,715/2012. Donors

and sponsors that support projects

approved by the Ministry of Health,

under the National Oncology Care

Program (“PRONON”) and the National

Program for Attention to the Health

of Persons with Disabilities

(“PRONAS/PCD”) can deduct the

amounts transferred of their income

tax, limited to 1% of the total due, for

each program separately. However, once

more, in the case of legal entities, the

donations and sponsorships cannot be

deducted as operating expenses.

States and municipalities can also

establish their own tax incentives, such

incentives typically benefit cultural and

sports projects. For example, both the

state and the municipality of São Paulo

have incentives for businesses that

donate to cultural projects.


Understanding corruption risks in Brazil

Brazil has several statutes governing

the enforcement of criminal,

administrative, and civil penalties to

individuals and companies for

corruption-related practices.

I) The Brazilian Criminal Code imposes

criminal penalties on individuals who

offers or promises an undue

advantage to a Brazilian or foreign

government official in order to induce

him/her to omit, delay, or carry out an

official act. Companies are not

subject to criminal penalties for

corruption-related practices in Brazil.

II) Federal Law No. 8,429/1992 (the

“Public Improbity Law”) imposes civil

penalties for acts of improbity by

government officials, including illegal

enrichment and financial damages to

government entities, provided that

there is willful misconduct or fault.

These penalties may reach

companies and individuals involved

in or benefiting from the acts of

improbity and include fines and

debarment from government

contracts.n of damages.

III) Federal Law No. 12.846/2013 (the

“Anti-Corruption Law” imposes strict

administrative and civil liability on

companies for certain acts against

local or foreign governments,

including the payment of bribes, bid-

rigging and obstruction of justice.

Violations to provisions in the Anti-

Corruption Law can result in severe

penalties, such as fines that reach up

to 20% of annual revenues and

debarment, and companies may be

liable for restitution of damages.

The Anti-Corruption Law is applicable to

companies permanently or temporarily

incorporated in Brazil, or unincorporated,

with headquarters, branches or

representation in Brazil. Liability for fines

and damages is joint and several

between controlling and affiliated entities

and joint venture partners, and the law

imposes successor liability following

mergers or acquisitions.

The Anti-Corruption Law also contains

provisions on anti-corruption compliance

programs, which are not mandatory but

may result in reduced penalties in the

event of a violation. The criteria set forth

by the Anti-Corruption Law for

authorities to assess such programs are

consistent with international standards

and best practices.

Subject to certain requirements, a

company may also enter into a leniency

agreement with Brazilian authorities if it

is willing to cooperate with investigations

and admit to corruption-related

violations. Any such agreement exempts

the company from certain penalties and

may reduce fines.

Therefore, a company planning to do

business in Brazil needs to consider the

corruption-related risks related to its

intended activities and potential

business partners, particularly before

mergers or acquisitions or the

negotiation of joint ventures.

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