LEGAL GUIDE FORDOING BUSINESSIN BRAZILM a y 2 0 1 1

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Villela e Kraemer Advogados is a prominent boutique law firm

founded in 1986 by Gustavo Alberto Villela Filho and Tania Mara de

Morais Kraemer. The firm currently has eleven lawyers based in its

Rio de Janeiro and São Paulo offices.

Villela e Kraemer Advogados is recognized for its impressive track

record in civil and securities litigation cases, which it could only

achieve by maintaining a small close-knit group of lawyers. We take

pride in dedicated quality control of our work product, ensuring

delivery of premium service to all of our clients.

Providing business-oriented legal services, the firm is also strongly

positioned in real estate, wills and estates, securities, banking and

other litigation areas, such as torts, asset recovery, collection on

secured transactions and foreclosures.

We have recently widened our legal practice to include corporate

law, mergers and acquisitions, securities, insurance and investment

legal strategy, asset protection and succession planning.

Our client portfolio includes multinational corporations, medium

sized and small companies, asset management firms, investment

advisers, stock brokers and individuals.

Happy reading and welcome to Brazil!

LEGAL GUIDE FORDOING BUSINESSIN BRAZILM a y 2 0 1 1

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TABLE OF CONTENTS

TABLE OF CONTENTS

4 Table of Contents

1 Corporate ..............................................................................9 1.1. Limited liability company - Limitada (Ltda.) ..................9 1.2. Corporation - Sociedade Anônima (S.A.) .......................9

2 Licenses And Registrations................................................ 13 2.1. Business permit (Alvará) ............................................. 13 2.2. Taxpayer registrations ................................................ 13 2.2.1 Federal taxpayer registration (CNPJ) ....................... 13 2.2.2. State taxpayer registration ...................................... 13 2.2.3. Municipal taxpayer registration .............................. 13 2.3. Foreign investment registration ................................. 13 2.4. Customs registrations and licenses ............................ 13 2.5. Environmental licensing for activities with ................ 14 environmental impact ................................................ 14 2.5.1. Precedent license...................................................... 14 2.5.2. Installation license .................................................... 14 2.5.3. Operating license ..................................................... 14

3 Employment ....................................................................... 17 3.1. Overview of basic labor rights .................................... 17 3.2. Foreign personnel ....................................................... 18 3.3. Severance Indemnity Fund for Employees (FGTS) .... 18 3.4. Labor charges and social security .............................. 18

4 Immigration ........................................................................ 21 4.1. Brazilian visas ............................................................... 21 4.1.1. Permanent visas ........................................................ 21 4.1.2. Temporary visas – Type V ......................................... 21 4.1.3. Business trip “Temporary Visa” – Type II ................ 22

5 Taxes ...................................................................................25 5.1. Federal taxes ................................................................25 5.1.1. Corporate turnover taxes .........................................25 5.1.1.1. IRPJ ..........................................................................25 5.1.1.2. CSLL .........................................................................25 5.1.1.3. PIS ...........................................................................25 5.1.1.4. COFINS ....................................................................26 5.1.2. CIDE ...........................................................................26 5.1.3. Financial transactions tax (IOF) ...............................26 5.1.4. Import tax (II) ...........................................................26 5.1.5. Excise tax (IPI) ..........................................................26 5.1.6. Export tax .................................................................26 5.1.7. PIS on imports ...........................................................26 5.1.8. COFINS on imports ................................................... 27 5.1.9. Withholding income tax (IRRF) .............................. 27 5.2. State value-added tax (ICMS) ..................................... 27 5.3. Municipal service tax (ISS).......................................... 27

6 Foreign Trade .....................................................................29 6.1. Import transactions .....................................................29 6.2 Export transactions .....................................................29 6.3 Customs tariffs and duties ...........................................30 6.4. Marking and barcodes ................................................30 6.5. Methods of quoting and payment .............................30

7 Antitrust Merger Control ..................................................32

8 Trademark Registration .....................................................33

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1 Make sure to obtain a “business visa” for the first

business trips that you as nonresident make to Brazil.

This visa is valid for ninety days. For more information,

please refer to Section 4.1.3.

2 Choose the location where the Brazilian entity

will have its registered head office. Logistics and

taxation usually are the factors driving this election.

The company’s registered head office in Brazil must

be specified in the corporate charter. A lawyer or

accountant may lease or sublet a part of his office space

for the new company’s registered head office.

3 Appoint an attorney in fact. The easiest way to

have the incorporation charter executed is for each

foreign shareholder to grant a power of attorney to

an individual resident in Brazil to sign the corporate

articles and represent the foreign shareholder of

the Brazilian subsidiary. Incorporation is achieved by

filing the original execution copies of the Articles of

Organization (“contrato social”) if a limited liability quota

company, or the minutes of the shareholders meeting

of incorporation if a corporation, with the Commercial

Registry of the Brazilian State where the company will

have its headquarters. Such power of attorney should

contain specific authority to receive service of process on

behalf of the foreign shareholder. Otherwise, a power of

attorney specifically authorizing receipt of legal process

must be granted to another resident of Brazil. Powers

of attorney must be notarized and, except when the

grantor is domiciled in a jurisdiction having a valid treaty

with Brazil exempting consular legalization (e.g., France,

Uruguay and Argentina), it needs to be legalized at the

relevant Brazilian Consulate, then translated in Brazil by a

“sworn translator” and registered with a local Registry of

Titles and Deeds (often referred to as “RTD”).

This guide is only an overview of certain Brazilian laws and regulations. It does not constitute legal advice in respect of any particular situation and no action should be taken solely in reliance hereon.

Key steps for incorporating a legal entity in Brazil

4 The company’s capital and the time-frame for

its payment must be stated in the organizational

documents. A Brazilian corporation (sociedade anônima)

must have at least ten percent of its initial capital paid-

in upon incorporation if the corporation is closely-held,

or thirty percent in the case of a corporation whose

shares are publicly traded.

5 The company’s name must reference the main

business activity to be carried out by the company

followed by “Limitada” or its abbreviated form “Ltda.”

in the case of a limited liability quota company. For

corporations, the name must begin with “Companhia”

or its abbreviated form “Cia.”, or end with “Sociedade

Anônima” or its abbreviated form “S.A.”, which is most

common. To ensure that such name will be available,

it is advisable to check availability with the State’s

Commercial Registry website. If available, the name

will be reserved for 72 hours. For securing intellectual

property rights, the corresponding tradename should

be registered at INPI (please refer to Chapter 8) and

its domain name recorded with the “NIC.br” (Nucleus

of Information and Coordination) for ensuring rights

over the Brazi l ian internet’s domain name and

corresponding URL.

6 The management of the Brazilian company must

also be established from inception. For a limited

liability quota company ( l imitada), at least one

administrator needs to be appointed. A natural person

resident in Brazil, whether or not a quotaholder, may

be appointed as administrator. The appointment

may be effected in the Articles of Organization or by

means of a resolution of quotaholders in a meeting.

The Articles may include limitations on the authority

of the appointed administrator, for instance, requiring

formal written approval from quotaholders for the

execution of certain acts, such as those involving

the disbursement of company funds that exceed

a certain value threshold. Most banks in Brazil are

familiar with such internal approvals enshrined in the

corporate charter and enforce them strictly. In the

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case of a corporation (sociedade anônima), unless it has

authorized capital or is registered as a publicly traded

corporation 1, the company may opt to have only a Board

of Officers, composed of at least two officers resident

in Brazil who shall be elected by the Board of Directors

in a board meeting or, if there is no Board of Directors,

by the shareholders in a shareholder meeting. If the

corporation has a Board of Directors, such board must

have at least three members, who are not required to

be resident in Brazil if a power of attorney has been

granted to a Brazilian resident to receive service of

process in the name of the Board member for a period

not shorter than three years after the expiration of her/

his office tenure. The rules for removal and office tenure

(which cannot exceed three years) must be established

in the corporate charter. Each administrator, officer and

director must sign an affidavit (often in the corporate

charter itself) declaring that she/he was not declared

bankrupt or guilty of certain infractions, and is not a

defendant in a case which prevents the performance of

corporate acts by force of law.

7 Once the corporate charter is registered with the

relevant State’s Commercial Registry (which takes two

weeks on average), the company must enroll with the federal

taxpayers registry of the Ministry of Finance, which results in

the issuance of a CNPJ number and card (which takes three

weeks on average). Such registration will enable the Brazilian

subsidiary to enter into contracts (e.g., lease agreement),

open bank accounts and hire employees in Brazil. Any foreign

shareholders/quotaholders must also appoint a Brazilian

resident to be accountable for her/his undischarged tax

obligations in Brazil.

8 After the registrations referenced in the preceding

paragraph are accomplished, the company officially

exists and an accountant must be hired to handle the

bookkeeping and make the filings and submissions of

all tax, labor and social security forms and documents

required under federal, state and local laws, which may

result in fines if not filed in a timely fashion.

9 To begin operations, the company will also need a

business permit (alvará) issued by the local authorities

and possibly other federal, state or municipal licenses

and registrations. Such application processes are

lengthy and may take months to be completed. Please

refer to Chapter 2 for more information.

1Corporations registered with the Brazilian Securities Commission (CVM) are referred to as being “publicly traded” because most

of them have their shares traded on the Brazilian stock exchange (Bovespa) or over the counter. It is possible, however, for

corporations in Brazil to seek registration without listing their securities, thus subjecting themselves to public reporting requirements.

Such registration is not triggered by the number of shareholders, so the distinction between “open capital” and “closed capital”

corporations in Brazil is based merely on CVM registration status and not shareholder number. Nor does Brazil offer pass-through

tax benefits for corporations with shareholders below a certain number, as in the case of a U.S. so-called “close” corporation. To

avoid confusion, we refer to S.A. corporations in this paper as being either publicly traded or non-publicly traded.

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1 CORPORATE

CORPORATE

8 Corporate

1.2 Corporation - Sociedade Anônima (“S.A.”)

The Brazilian entity similar to a US stock corporation or European

joint stock company (sociedade anônima) is governed by Law

nº 6.404/76. The organizational charter of an S.A. (“Estatuto

Social”, hereinafter referred to as “Articles of Incorporation”) 2

contains most of the company’s information, such as the data

typically contained in the Articles of Incorporation and By-laws

of US corporations and European joint stock companies. Its

capital stock is represented by shares, which may be common

or preferred (the latter representing up to 50% of the total

share capital), may be divided into different classes, and do not

need to have a par value. Transfers of title to shares are usually

made by means of book entries in the share ledgers kept at

the headquarters or recorded through electronic custody by a

share issuing agent (bank). Although certificates reflecting the

shareholding may be issued, the share ledgers are the ultimate

proof of share ownership. When the scrip form is adopted,

share agents may issue account statements indicating the

shareholding position. No bearer shares or other types of bearer

securities are allowed in Brazil since 1992. Upon incorporation,

the shareholders must deposit at least ten percent of the

subscribed capital in a bank account, for a non-publicly traded

corporation, or thirty percent for a public corporation. Five

percent or more of the corporation’s annual profits must be set

aside in a legal reserve until such reserve accrues twenty percent

of the company’s capital.

In a sociedade anônima, the Articles of Incorporation must state

the company’s corporate information (i.e. corporate name,

issued capital, registered head office and branches, profit-

sharing rules, management bodies and the rules for election

or appointment of directors and officers, etc.). Corporate

resolutions are passed in shareholders meetings and reflected

The types of company more commonly used in Brazil are the

limited liability quota company (“sociedade limitada”), and the

corporation (“sociedade anônima”). Both corporate forms require

a minimum of two equity holders, that is, two quotaholders or

two shareholders.

2The corporate charter of an S.A., called the “Estatuto Social”, consolidates into such single document most of the corporate

information (i.e., name, address, purpose, capital, governance, etc.) typically found in the Articles of Incorporation and also

the Bylaws of U.S. corporations and European joint stock companies. The term Estatuto Social of the S.A. is often translated

into English as Bylaws in order to distinguish from the Articles of Organization (“Contrato Social”) of the Limitada. Only some

corporations in Brazil adopt a separate internal document to regulate governance matters, called the “Regimento Interno”, which

is not registered, and would be more appropriately translated into English as the corporation’s Bylaws. For consistency and ease

of reference, we refer to Estatuto Social in this paper as the Articles of Incorporation because such term best corresponds with

the nature of this S.A. charter document.

1.1 Limited liability company - Limitada (“Ltda.”)

The limited liability quota company is similar to a U.S. LLC. Its

equity capital is represented by quotas, usually with par value,

which are held by at least two quotaholders without any

residency or domicile requirement, meaning that any and all of

quotaholders may be either Brazilian resident or non-resident

individuals or entities. Each quotaholder has her/his/its liability

limited to the respective amount of the quotas of the company’s

capital effectively paid-in by each one but all quotaholders remain

jointly and severally liable for any unpaid portion of the capital.

Unless the company’s business activity is regulated, there is no

minimum capital requirement.

All of a company’s characteristics, such as the number of quotas

held by each quotaholder, the amount of the issued capital, the

company’s duration (usually indefinite) and the management

structure, powers and duties, must be stated in the company’s

Articles of Organization (Contrato Social) and all amendments

to such Articles require the approval of holders of quotas

representing at least seventy-five percent of the company’s

capital. Other corporate matters not requiring an amendment to

the Articles of Organization (e.g., appointment and removal of

managers, filing for reorganization) are subject to a lower voting

requirement percentage. Limitadas are regulated mainly by the

2002 Civil Code of Brazil and, where the Civil Code is silent, by the

Corporation Law (Law nº 6.404/76) if such secondary application

was provided for in the Articles.

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in meeting minutes. Unless all shareholders attend the meeting

personally or are represented by a proxy holder, or otherwise

waive notice, the shareholders meeting must be convoked by an

invitation notice, published in a newspaper of broad circulation

at least three times on different days. The first notice must be

published at least eight or fifteen days before the meeting at first

call, depending on whether the company is non-publicly traded

or publicly traded. Notices of meetings at second call must be

published for the first time five or eight days before the meeting.

As a general rule, decisions in meetings are taken by approval

of the simple majority where usually each share gives the right

of one vote to their shareholders, but for corporate matters

relating to changes in the rights attributable to preferred shares

or the reduction of the mandatory dividends, the resolutions

will require approval by shareholders representing the simple

majority of the affected class of preferred shares in a meeting

convened for such purpose. If the shares are highly dispersed and

certain conditions are met, Brazil’s securities commission (CVM)

may authorize a reduced voting percentage for approval.

The quorum to hold a shareholders meeting at the first call is

two thirds if the resolution is to vote a change in the Articles of

Incorporation and one fourth for any other matters, and any

number in a second call if the first call did not have the required

quorum of attendees. Thirty days before the annual shareholders

meeting, the financial statements, the auditor’s opinion thereon,

and the management report to be approved must be published

in a newspaper for disclosure to shareholders or made available

at the company’s headquarters.

If the company has plans to issue debentures or other

securities or to have its shares listed on a stock exchange or

over the counter, or if the law so requires due to the company’s

activity (e.g., banking or insurance), it must incorporate as a

corporation. The shareholders’ names are only stated in the

share registry books. The corporation must have a minimum of

two officers. If there is a Board of Directors, it shall be elected

at the shareholders meeting. The officers (at least two) are

elected at a meeting of the Board of Directors or directly at

the shareholders meeting if there is no Board of Directors. The

officers and board members are not referenced in the Articles

of Incorporation. A Board of Directors is only required for

publicly traded corporations or those with authorized capital

Corporate

stated in the Articles of Incorporation and must have at least

three members. Up to one third of the members of the Board

of Directors may also serve as officers of the corporation.

The representation of the corporation is made by the officers

pursuant to the rules contained in the Articles of Incorporation,

always subject to the directives of the Board of Directors or

Shareholders Meeting, as the case may be, which may also

need to grant approval for the execution or implementation

of certain corporate actions by the officers. The core attributes

of the Board of Directors are listed in the Corporation Law. The

management structure and duties of all administrative bodies

shall be set forth in the Articles of Incorporation.

Publicly traded and non-publicly traded corporations with

assets exceeding R$ 240 million or whose gross revenues in

the past year exceeded R$ 300 million must have their financial

statements audited by an independent external auditor. Non-

publicly traded corporations with less than twenty shareholders

and net worth below R$ 1 million are exempt from publishing

notices of convocation of shareholders meetings and from

publishing financial statements, balance sheets, auditor’s

reports, management reports and other corporate documents

in newspapers before the shareholders’ annual meeting.

If a person does not wish to appear on the company’s records

as a shareholder but has agreed to share in the profits of the

entity, it may participate as a co-venturer in an unincorporated

joint venture with the incorporated partner. The relationship

(e.g., funding requirements, return on investments and liability

of the parties) is ruled by contract in a silent partnership called

“Sociedade em Conta de Participação”, as regulated by the 2002

Civil Code of Brazil. A consortium may also be formed according

to rules of the Civil Code to set up a “de facto company” pursuant

to a joint venture arrangement.

2LICENSES AND REGISTRATIONS

LICENSES AN

11 Licenses and Registrations

The following are the most important registrations and licenses,

but other filings, enrollments and registrations may also be

required. The company’s location and activity are important to

determine all administrative requirements for the business and

some of them are conditions precedent for others. As such,

registration with the local Fire Department will normally be

applicable for merchants and manufacturers.

2.1 Business permit (“Alvará”)

The “alvará” is a document issued by the relevant municipality

for each company operating in Brazil in order to ensure that

the company meets all legal requirements for its activities. The

application process is usually straightforward and the Alvará is

represented by a small poster that must be displayed in a visible

location on the reception wall of the company’s headquarters

in order to facilitate inspections by municipal officials.

2.2 Taxpayer registrations

2.2.1 Federal taxpayer registration (“CNPJ”)

All Brazilian companies must obtain a “CNPJ” federal taxpayer’s

registration by electronically submitting the application forms

available on the Brazilian Federal Revenue Service’s website and

presenting the required documents, such as proof of its existence,

to the competent office of the Brazilian Federal Revenue Service.

Foreign companies holding assets and rights subject to ownership

recordation in Brazil (including shareholding of Brazilian

companies) must also obtain a CNPJ number.

2.2.2 State taxpayer registration

If the Brazilian company is an “ICMS” (value-added tax)

taxpayer, it must obtain a state taxpayer’s registration from

the competent Brazilian State where it has its registered head

office. Manufacturers, merchants (wholesalers and retailers) of

goods and commodities, transportation companies and trading

companies, for instance, are required to hold a state taxpayer’s

registration. Each state’s treasury department regulates its

application procedures.

2.2.3 Municipal taxpayer registration

If the Brazilian company provides any service set out in the

list attached as an exhibit to Complementary Law nº 116/03,

it is an ISS (service tax) taxpayer and must obtain a municipal

taxpayer’s registration with the competent local authorities

where it has an office and where the services are rendered. The

treasury department of the relevant municipality regulates the

application process.

2.3 Foreign investment registration

Within thirty days after a foreign exchange transaction to

buy Brazilian currency for the purpose of making a capital

contribution to a Brazilian subsidiary is made, the investor must

effect an online declaratory registration widely referenced

as “RDE-IED” (which is an acronym for its original name in

Portuguese: “Registro Declaratório Eletrônico – Investimento

Externo Direto”) with the Central Bank of Brazil for monetary

and fiscal control purposes. As a condition for such registration,

both the foreign investor and the Brazilian recipient company

must be enrolled with the “CADEMP” roll of foreign or Brazilian

companies which is managed at the Central Bank’s electronic

system (“Sisbacen”). The RDE-IED online registration can be

made by a bank, foreign exchange dealer or by any person

authorized by the foreign investor or by the Brazilian company

having access to Sisbacen.

2.4 Customs registrations and licenses

Brazilian and foreign companies engaging in import or export

transactions in Brazil must obtain an electronic accreditation

with the Federal Revenue Service commonly referred to as

“RADAR”, which is the acronym in Portuguese for “Tracking

of Customs Agents’ Operations” (Rastreamento de Atuação

dos Intervenientes Aduaneiros). The main types of RADAR are

the “simplified” and the “ordinary”, which enable access to

the Integrated System of Foreign Trade (Sistema Integrado de

Comércio Exterior – “SISCOMEX”).

As the name indicates, the simplified RADAR requires much

less documentation than the ordinary. The simplified RADAR

accreditation takes approximately two months if all documents

are in good order although, according to the applicable

regulations, the review of an application for a “simplified”

RADAR must be made within ten days. Such RADAR is limited,

however, to export transactions not exceeding US$ 300,000

(FOB value) per semester, or import transactions of up to US$

150,000 (CIF value) per semester.

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An “ordinary” RADAR may be required for higher trade

volumes, which are usually made through international trading

companies. Its application requires more documents and is

processed by a more complex and thorough review of the

Federal Revenue Service, which has thirty days to process and

grant or deny applications.

2.5 Environmental licensing for activities with environmental

impact

Each environmental agency of the relevant Brazilian state is

in charge of regulating, reviewing and issuing permits for the

installation, expansion and operation of activities and facilities

that could potentially have an adverse impact on the natural

environmental of the relevant state. The general guidelines and

main requirements for such licensing are found in Law nº 6.938

of August 31, 1981 which delegated to the National Council of

Natural Environment (“CONAMA”) responsibility for studying

the official environmental policies, and CONAMA’s Resolution

nº 237 of December 19, 1997, but each state has a certain degree

of discretion to regulate its specific proceedings in this regard.

Each license has different time-frames for review and

adjudication, which may not exceed six months for the less

complex licenses and twelve months for those applications

requiring an environment impact survey or technical analysis.

Some Brazilian states adopt other intermediary licensing

procedures, but the following are the core licenses required for

manufacturers and other potential polluters to build a plant or

start an activity:

2.5.1 Precedent license

This license approves the environmental feasibility of the business

activity to be carried out and must be sought during the planning

phase of the installation, change or expansion of the activity.

It does not approve construction work. The validity period of

the precedent license cannot be shorter than the milestones

established for the planning, projection and blueprinting of each

phase of the project, up to a maximum of five years.

2.5.2 Installation license

The installation license approves the project itself and

authorizes the commencement of the building/construction

of plants and installation of machinery on the land. The

“installation license” can only be issued after the conditions set

forth under the precedent license are met. The validity period

of the installation license cannot be shorter than the timeline

established for the installation of the plant or activity, up to a

maximum of six years.

2.5.3 Operating license

The operating license approves the commencement of the

activities or industrial operations in the facilities and can

only be issued after fulfillment of the installation license’s

conditions. The validity period must take into consideration the

relevant environmental controls and contingency plans but, in

any event, it ranges between four and ten years. In case the

venture is predicted to last longer than the period of validity

of the operating license, a renewal must be applied for at least

one hundred and twenty days before expiration.

Licenses and Registrations

13

3EMPLOYMENT

EMPLOYMENT

14 Employment

3.1 Overview of basic labor rights

The longstanding and employee-favorable Brazilian labor

legislation regulates most aspects of labor-management and

employment contractual issues. Trade unions and employee

labor unions have an important role in the negotiation of

collective bargaining agreements for different categories

of employees based on the relevant industry sector.

Most of the fundamental employment rights, which may

not be changed even with the employee’s written consent,

are restated in the Consolidation of Labor Laws (“CLT”), a

compendium of labor laws. The more important rules are

as follows:

(i) Working schedule: The maximum duration of the work

week in Brazil is forty-four hours, unless provided otherwise

in the collective bargaining agreement entered into with

the relevant labor union. Certain professional categories,

such as bank clerks, telephone operators and call center

operators are subject to a different working schedule.

Management executives holding jobs considered to be

“trust positions” are not subject to a working schedule.

(ii) Vacation: After completion of a period of twelve months

of work, employees are entitled to thirty calendar days of

vacation (or less if the employee missed six or more days of

work in the year), receiving regular salary payments during

that period, plus one third of the monthly salary, which shall

be paid at least two days in advance. The employer has the

discretion of choosing the 30-day vacation period within

that twelve-month period. Employees may opt to exchange

one third of the vacation period for a corresponding

monetary allowance.

(iii) Wages: All work of equal nature and function must be

remunerated at the same rate, irrespective of nationality, age,

gender, marital status, place of work, or any other particularity.

A minimum wage is set by law annually by the Brazilian federal

government and each state’s government. The federal

minimum wage is currently R$ 545.00 per month and in some

cases serves as the basis for readjusting salaries.

(iv) Annual Bonus: Employees in Brazil are entitled to an

annual bonus named “13th salary”, usually paid in two

installments or in a lump sum at the end of the year, which

must be equivalent to one twelfth of the total salary and

certain selected benefits and bonuses received by the

employee throughout the referenced calendar year.

(v) Profit sharing program: Employees are entitled to

participate in the financial profits of her/his employer or

upon achieving certain benchmarks, as agreed to with a

committee of employees and/or with the relevant workers

union, in a specific program sponsored by the company

(“Participação nos lucros e resultados”, or just “PLR”).

Certain statutory standards must be observed for such a

program. PLR payments do not accrue in the calculation

basis of FGTS, social security levy and other mandatory

labor charges.

(vi) Overtime: Any actual or presumed work performed after

the employee’s work shift entitles the employee to receive

an hourly overtime pay of at least fifty percent above the

employee’s ordinary hourly wage. Employees in managerial

or similar positions considered as trust functions are not

entitled to overtime pay.

(vii) Maternity/paternity leave: Female employees in Brazil

who become mothers are entitled to a paid maternity leave

of one hundred and twenty days (payment being refundable

to the employer by INSS, the official social security entity),

and fathers to a “paternity leave” of five calendar days.

Employers who grant one hundred and eighty days of

maternity leave may enjoy a tax benefit for wages paid

during such paid leave.

(viii) Termination notice: In cases of dismissal without cause,

the dismissed employee must receive a prior written notice

of termination at least thirty calendar days in advance of

her/his last working day, during which period the employer

may require the employee to work or not. Employees

must also submit a thirty-day prior written notice upon

resignation.

(ix) Weekly holiday: All employees are entitled to a twenty-

four-hour uninterrupted rest period per week, preferably on

Sundays.

(x) Tenure: Pregnant women and members of unions or

15

safety teams (CIPA) have employment tenure and can only

be laid off under certain special circumstances.

3.2 Foreign personnel

If a company has more than two employees, at least two-

thirds of its employees must be Brazilian citizens. The

same ratio must be observed for the remuneration of

Brazilian and foreign nationals. In case a certain industry

sector lacks qualified workers of Brazilian nationality for

a specific job, Brazilian authorities may allow a lower ratio

of Brazilian nationals. That has been the case of welders

on Brazilian oil platforms, for example. For purposes of

such proportionality headcount, an expatriate married to

a Brazilian citizen or officially residing in Brazil for more

than ten years is considered to be a Brazilian citizen. Only

foreigners holding a Permanent Visa or a Temporary Visa

(Type V) may lawfully work in Brazil. For more information

on this topic, please refer to Chapter 4.

3.3 Severance Indemnity Fund for Employees (“FGTS”)

The employer must deduct and deposit every month in the

employee’s FGTS blocked interest-bearing account held at

the government-controlled bank Caixa Econômica Federal

(“CEF”) an amount equal to 8.5% of each employee’s

monthly compensation (including bonuses and most fringe

benefits). Upon dismissal without cause of the employee,

she/he may withdraw the balance accrued with a penalty

payable by the employer equal to forty percent of such

balance. The employer must also pay another ten percent

of the accrued balance to the Federal Government. Other

triggering events regulated by law (e.g., buying a first home)

also allow the employee to withdraw the cash balance from

her/his FGTS account.

3.4 Labor charges and social security

Except for those companies benefiting from a special

taxation program available to lower income companies,

employers are subject to certain labor charges and social

contributions levied on each employee’s monthly pay

check.

Employers must pay twenty percent of each employee’s •

salary to the National Institute for Social Security (“INSS”)

and deduct and remit to the INSS from the employee’s

salary her/his contributions of between 8% and 11% of the

employee’s salary, subject to a maximum of R$ 3,467.40.

The actual applicable rate depends on the employee’s

salary bracket, applying the variable scaled rate schedule

issued by the INSS.

Mandatory employer’s contributions to sponsor •

governmental official programs:

(*) The application and actual rate depends on the

company’s main business activity.

Employment

Beneficiary Institutions Or Fund Maximum Rate (*)SESI, SESC and SEST 1.5%

SENAI, SENAC or SENAT 1.0%INCRA 0.2%

SEBRAE 0.6%Education Salary 2.5%

Work accident insurance fund 3.0%Total (Maximum rate) 8.8%

16

4IMMIGRATION

IMMIGRATION

17 Immigration

4.1 Brazilian Visas

Brazil maintains a rigid immigration policy to protect

Brazilian workers. As a general rule, for temporary visas, the

Ministry of Foreign Affairs issues the visa to a foreigner after

the approval of the foreign citizen’s employment contract

by the Ministry of Labor.

4.1.1 Permanent visas

Pursuant to specific rules issued by the National Immigration

Council and by the Ministry of Labor, permanent visas are

usually granted to expatriates assigned to occupy a top

management position in the Brazilian subsidiary of a foreign

company, or to a foreign person intending to invest her/his

own capital in productive activities in Brazil.

Requirements: A minimum direct investment equivalent to

US$ 200,000 in the capital of the Brazilian subsidiary for each

foreign individual appointed to a management position, or an

investment equivalent to US$ 50,000 in a Brazilian company

coupled with the creation of ten new jobs within the

following two years for each appointed foreigner. The visa

will only be valid during the foreign citizen’s tenure in office

but expiring at latest within two or five years, depending on

the basis of the visa application (i.e., five years of validity

for visas supported by investments of US$ 200,000 or two

years for investments of US$ 50,000). Individual investors

who evidence investment of her/his own funds equal to

at least R$ 150,000 as a capital contribution to a Brazilian

company with a productive purpose (i.e., generate jobs,

transfer know-how, develop a region, etc.) may also obtain

a permanent visa for five years according to a business

plan to be reviewed by the Brazilian authorities processing

the application. If such productive investment generates

employment for at least ten Brazilian citizens, the permanent

visa may be granted without expiration date even if the

individual investor fails to prove such minimum investment

threshold. Foreign investments below the threshold of R$

150,000 may still qualify as the basis for a permanent visa

application to the extent that the investor is a citizen of a

South American country or that her/his investment has a

strong welfare objective, such as to support a Brazilian non-

governmental organization.

Foreigners married to Brazilian citizens or having Brazilian

children may also be eligible for a permanent visa.

4.1.2 Temporary visa V (VITEM V)

Among other cases not mentioned herein, temporary work

visas may be granted to foreigners under certain limited

circumstances, namely:

With a labor contract:• The foreigner must have an

employment contract with a Brazilian company to perform

professional activities, which must be approved by the

Ministry of Labor. It must be evidenced that the foreign

professional has a background compatible with the

function, such as nine years of education and two years

of work experience; a college degree plus one year of

professional experience; or, a graduate degree (Masters,

PhD etc.). Her/his compensation must be equal to that of

Brazilian nationals hired for the same function. The visa

is issued for a period of up to two years, renewable for

another two years. South Americans are exempt from

most of those eligibility requirements.

Without a labor contract (Technicians):• Foreigners

without an employment contract with a Brazilian

company who come to Brazil to perform scientific or

technical functions must have a technology transfer or

technical assistance contract or cooperation agreement

registered with “INPI”, the Brazilian patent and

trademark office, entered into between her/his employer

abroad and the Brazilian entity to which the services will

be provided. It must be evidenced that the expatriate’s

previous work experience includes at least three years

of carrying out the relevant activity. Such visa is granted

for a period not longer than one year but it is subject to

renewal.

Internship program:• The foreign employee of a

multinational company who comes to Brazil as a trainee

of the Brazilian subsidiary or branch entity and whose

salary is paid completely outside Brazil may also be

eligible for such a visa.

Crew members:• Foreigners who come to Brazil to work

on a vessel, ship, cruiser, fishing boat or offshore oil rig

18

in any river, lake or sea, either with or without a Brazilian

valid labor contract, may apply for a temporary visa.

The application process must be initiated in Brazil by the

contracting company by completing and filing the proper

application form. Once the National Immigration Council

approves the visa, the approval is published in the Official

Journal of Brazil. Once the visa is granted, the foreigner

has three months to enter the Brazilian territory and thirty

days thereafter to register with the Federal Police in the city

where she/he will live.

Individual income taxation in Brazil of immigrant aliens

A foreign individual holding a permanent visa or a temporary

visa tied to an employment contract is considered to be a

Brazilian taxpayer as of the date of her/his arrival in Brazil.

Temporary visa holders without an employment contract

are deemed to be Brazilian taxpayers as of the 184th day

spent in Brazil, whether consecutive or not, within any

given twelve-month period. As a Brazilian taxpayer, the

foreign immigrant becomes subject to the income tax rules

applicable to residents of Brazil and all of her/his worldwide

income is subject to taxation in Brazil. A tax credit may be

granted for income taxes paid in other countries if certain

conditions are met. Individual employment income in Brazil

is normally withheld at the source at rates varying from 0% to

27.5%, depending on the actual income bracket. The ultimate

tax burden is assessed upon filing the annual income tax

return by the end of April of each year for the fiscal year

ending on the preceding December 31. Any difference

between the amount determined on the tax return and the

values withheld at source throughout the year (e.g., payroll

compensation) must be paid by, or refunded to, the taxpayer.

Certain income, such as dividends or interest on equity, is

not considered taxable income and several deductions may

also apply.

4.1.3 Business trip “Temporary Visa” II (VITEM II)

The business visa permits a foreign individual to enter

Brazil for a short term (ninety days or less) on specific

business assignments. The business visa is recommended

to business owners or their representatives that come to

Immigration

Brazil exclusively for a business purpose, such as to attend a

meeting, conduct market surveys or negotiate agreements.

It is valid for up to five years from date of issuance and it is

valid for multiple trips.

19

5TAXES

TAXES

20

Brazil has a vast and complex tax system which

encompasses several federal, state and municipal taxes. The

Brazilian federal government taxes most types of income;

manufacturing activity, financial, credit and securities

transactions, and foreign trade (imports and exports). It

imposes taxes and contributions on certain taxable events

and revenues generated by specific economic activities. Each

Brazilian state taxes the sales and transportation of goods

and services, telecommunication, motor vehicle ownership,

transfer of title over assets by gifts and inheritance. Each

Brazilian municipality taxes service fees, transfers of title and

interests over real properties and real estate ownership.

We comment below only on the most important taxes

applicable to corporate activities and business transactions.

5.1 Federal Taxes

5.1.1 Corporate income taxes

Certain qualified Brazilian companies whose gross annual

income in the preceding fiscal year did not exceed R$

48,000,000 or, in case of new companies, R$ 4,000,000

times the number of months that it carried out operational

activities during the preceding fiscal year3 may choose

between two tax computation methods, namely the

“estimated or presumed profit” (lucro presumido) or the

“actual profit” or “taxable income” taxation method (lucro

real) on annual or quarterly taxable income. Taxable income

is equal to the excess of gross turnover over the sum of costs

of goods sold, administrative and operational expenses and

other reserves and accruals permitted by law. Net operating

losses generated in a given period can offset taxable income

of the subsequent period up to 30% of taxable income and

be carried forward.

Small and mid-size companies with an annual gross income

not exceeding R$ 2.4 million may elect to be taxed under a

simplified regime at a lump sum rate that encompasses most

taxes that would otherwise be levied separately. Such rate

will depend on the company’s annual income and it is called

Simples.

Taxes

5.1.1.1 Corporate income tax (“IRPJ”)

The IRPJ corporate income tax is ascertained based on the

calendar year’s taxable income with monthly estimated tax

payments required, and is generally computed on the basis of

annual or quarterly taxable income at the taxpayer’s choice.

In the actual profit taxable method (lucro real), the IRPJ is

levied at 15% on adjusted net income plus a surtax of 10% on

annual taxable net income in excess of R$ 240,000. Under the

estimated profits computation method (lucro presumido), if

eligible and actually opted for, the company applies a rate

that varies from 1.6% to 32%, according to its activity sector

classification set forth in the applicable legislation (for most

service companies, it is 32%), on its gross quarterly income

to assess the taxable base (estimated profit margin). IRPJ

of 4.8%, plus a surtax of 8% on the amount of the taxable

base exceeding R$ 20,000.00, are imposed on the estimated

profit margin amount so calculated.

5.1.1.2 Social contribution on net income (“CSLL”)

Brazilian tax legislation provides for a social contribution

tax on profits, which also has the nature of corporate

income tax, being in practice another surcharge. Its taxable

base is similar to that of the IRPJ, with certain adjustments.

For companies taxed under the actual profit taxation

income method, the CSLL is levied at a flat 9% rate on net

income. However, under the estimated profits taxation for

companies which qualify for such method and actually opts

in, the company applies a rate that varies from 1.6% to 32%

according to its activity (for most service companies, the

applicable rate is 32%), on its gross income to assess the

taxable base. From the taxable base amount yielded, the

CSLL is levied at a 2.88% rate.

5.1.1.3 Contribution for the social integration program (“PIS”)

The PIS is a federal welfare contribution on most gross

revenues, generally levied at 1.65%. Higher rates are imposed

on companies in some industry sectors. A “credit system”

granted to the company on acquisition of inputs and certain

expenses ensures that it applies only once to the final value of

the transaction in a chain of transactions. Certain companies

3Please note that some entities such as banks are required to be taxed under the “actual profit” method.

21

may pay the PIS cumulatively (i.e. without recording PIS

credits) at a lower rate (0.65%). The PIS applies also to the

import of goods and to the payment of services to non-

residents. Export revenues are exempt.

5.1.1.4 Contribution for social security financing

(“COFINS”)

COFINS is also a federal welfare contribution on most gross

revenues, levied on a monthly basis generally at 7.6%. Higher

rates are imposed on companies in certain industry sectors.

A “credit system” granted to the company on acquisition of

inputs and certain expenses ensures that it applies only once

to the final value of the transaction in a chain of transactions.

Certain companies may also pay the COFINS cumulatively

(i.e. without recording credits on purchases) at a lower rate

of 3%. The COFINS applies also to the importation of goods

and to the payment of services to non-residents. Export

revenues are exempt.

5.1.2 Contribution for the intervention in the economic

domain (“CIDE”)

Brazilian companies paying royalties, fees or other amounts

pursuant to licensing or assignment of technology,

tradenames, patents and other rights, or service agreements

not involving transfer of technology, with foreign entities

are subject to a 10% CIDE, assessed on the value of payments

made to a foreign recipient.

5.1.3 Financial transactions tax (“IOF”)

IOF is a tax levied on monetary, currency, credit, insurance,

securities and gold-backed transactions whose rate varies

from 0% to 25%. Its taxable base and rates vary according

to the type of transaction and the federal government’s

monetary policy at the relevant time and it is often used

as a tool for making certain investments or flows of funds

more or less attractive. Funds remitted to Brazil for capital

markets investments may be taxed with IOF.

As a general rule, foreign currency exchange transactions

in connection with offshore payments of royalties, loans or

technical assistance/administrative services, for instance,

are subject to IOF. The current IOF rate for foreign

exchange transactions (payment in a currency other than

the Brazilian Real - R$) is 0.38%. The IOF is imposed at a

rate of 5.38% on foreign loans with an average maturity of

ninety days or less. Loans with longer average maturities

are subject to IOF at a 0.38% rate.

5.1.4 Import tax (“II”)

The II (import tax) is levied on the CIF price (“ad valorem”

basis) at a rate defined by the product’s tax code in

accordance with the tariff classification schedule of the

Mercosur’s Common Nomenclature (“NCM”) upon clearance

of imported products.

Unlike the ICMS, IPI, PIS and COFINS taxes, for which the

taxpayer may obtain a tax credit to be offset against sales of

products, the II (import tax) is not recoverable.

5.1.5 Excise tax (“IPI”)

The IPI is a federal value-added tax imposed on manufacturers

and assemblers at the time of sale of an output good

to another manufacturer for further industrialization or

improvement, or to a wholesaler or retailer, or similarly on

the importation of products. But IPI is a non-cumulative tax

because the subsequent manufacturer down the chain may

take a credit for the prior IPI paid. The IPI must be stated

conspicuously in the sales invoice and shall be levied as the

products leave the plant where they are manufactured.

The IPI tax rate is defined by the product’s tax code in the

NCM’s tariff schedule. The IPI applies also on the import of

manufactured goods upon importation and resale by the

importer.

5.1.6 Export tax

Only a few products are subject to the export tax: (i) raw

hides and skins of bovines, including buffalo, horses, sheep

and lambs; (ii) cigarettes containing tobacco exported to

the Caribbean, Central and South America countries; and

(iii) weapons and ammunition exported to Central American

and South American countries except for Argentina, Chile

and Ecuador. The export tax is calculated on the ad valorem

export price of exported goods.

Taxes

22

5.1.7 PIS on imports

The PIS on imports is a federal welfare contribution on the

import of goods and payment of services to non-residents,

generally levied at a 1.65% rate.

5.1.8 COFINS on imports

The COFINS on imports is a federal welfare contribution

on the import of goods and payment of services to non-

residents, generally levied at a 7.6% rate.

5.1.9 Withholding income tax (“IRRF”)

The current withholding income tax rates applicable to

offshore remittances to nonresidents are as follows:

(1) The royalty agreement must be registered with

the National Institute of Intellectual Property (“INPI”)

and the Central Bank of Brazil.

(2) The specified IRRF rates do not apply to payments

to jurisdictions with whom Brazil has a treaty to avoid

double taxation (South Africa, Argentina, Austria,

Belgium, Canada, Chile, China, Czech Republic, Denmark,

Ecuador, Finland, France, Hungary, India, Israel, Italy,

Japan, Korea, Luxembourg, Mexico, Netherlands,

Norway, Phil ippines, Portugal, Slovakia, Spain, Sweden

and Ukraine), in which cases the respective treaty

should be reviewed in order to assess the applicable

taxation.

(3) Payments to low tax jurisdictions, understood

as those which tax income at a rate of 20% or less,

l isted in Brazil’s Federal Revenue Service’s Normative

Instruction nº 1.037 of June 4, 2010, are subject to a

25% IRRF.

(4) Such remittances are also subject to CIDE at a

10% rate.

Taxes

Nature of payment Taxation rate

Dividends 0%(2)

Interest on loans 15%(2)(3)

Royalties(1) 15%(2)(3)(4)

Technical and administrative services

15%(2)(3)(4)

Other service payments 25%(2)(3)

5.2 State value-added tax (“ICMS”)

Each of the Brazil ian states collects a value-added tax

(ICMS) on the sale and/or on the supply or transportation

of goods and on certain services not otherwise subject

to the ISS tax, and also on import transactions. The ICMS

is levied on imported and domestic products when the

goods exit an establishment at each stage of business.

The ICMS is levied based on the price of products sold

and a tax credit is granted for all ICMS paid on the

purchase or importation of a product, similarly to the

IPI tax-credit system. As a non-cumulative tax, the

ICMS taxable basis is ascertained on the increased

value of the product’s price in each subsequent

phase of trade. The calculation process provides for

a check of credits and debits by the relevant taxpayer

on each sale phase to ascertain the actual ICMS due.

The specific rate will depend on the relevant taxable

event (sale or transportation) and the taxing state

but most states levy the ICMS at rates varying from

12% to 18%. Some products are subject to a higher or

lower rate. Intrastate transactions are usual ly subject

to lower rates. The rates may also vary depending on

the specif ic product, service or state in which the

transaction occurs, and for interstate transactions.

The ICMS is also imposed on interstate and inter-

municipal transportation and communication services.

Communication services are ICMS taxed usual ly at a

25% rate.

5.3 Municipal service tax (“ISS”)

The ISS is a municipal tax imposed on certain services

which are listed in the schedule attached as exhibit to

Complementary Law nº 116/2003. The applicable rates for

each taxable event or service are determined by each

municipality but may not exceed 5%. As a general rule,

the ISS is collected by the city where the service provider

has its registered head office but companies rendering

assembly, construction, seismic, demolition, energy

transmission, oil drilling and distribution services, inter

alia, are taxed under special rules that look at the place

of provision of the service.

23

6FOREIGN TRADE

FOREIGN TRADE

24 Foreign Trade

An extensive list of items is subject to non-automatic

licensing, such as imports subject to restrictions or

tax benefits; items similar to products which are also

manufactured in Brazil; after-market materials; imports

made under financial or operating lease transactions;

and imports made without “exchange cover” or foreign

exchange payment clearance (e.g., donation). These

are subject to prior examination and special control by

governmental agencies either prior to shipment abroad or

prior to customs clearance, depending on the case.

As a general rule, all imports are subject to II (import tax),

IPI, ICMS, PIS and COFINS (import duties), irrespective of

foreign exchange currency transactions. The II (import tax)

rate for machinery and equipment not produced locally

may be reduced to 2% upon request by the importer to the

competent authorities.

Used goods can only be imported if not manufactured in

Brazil and whose age is lower than the limits of its useful

life attested by a technical report prepared by an entity of

reputable knowledge.

6.2 Export transactions

Any company organized in Brazil and accredited with the

Federal Revenue Service’s RADAR (please refer to section

2.4) may carry out export operations upon registration as

an exporting company with SECEX. Industrial companies,

commercial exporting companies and trading companies are

among the types of companies eligible for registration with

SECEX. Registration of industrial companies and commercial

exporting companies is very simple, and no prior export

experience is required. Registration of a trading company is

complex, requiring the fulfillment of several conditions.

As a general rule, exportation of goods is free of taxes, subject

only to the necessary export registration with the SISCOMEX.

The exportation of certain products, however, is prohibited

(e.g., native animals, skins of native animals and works of

art older than one hundred years and antique books). The

SISCOMEX registration of exports is the mechanism through

which all exports are regulated so as to ensure acceptable sales

price, collection of export taxes and compliance with export

Foreign trade is under the direct control and jurisdiction

of the federal government. The agency responsible for

regulation, supervision and control of foreign trade

transactions in Brazil is the foreign trade secretariat

(Secretaria de Comércio Exterior - “SECEX”) subordinated to

the Ministry of Development, Industry and Foreign Trade of

Brazil which, together with the Central Bank of Brazil and the

Federal Revenue Service, holds a tight control over transfer

of funds in connection with foreign trade transactions to

prevent tax avoidance and money laundering practices

and to ensure compliance with applicable transfer pricing

rules.

Brazil is a member of the Latin American Integration

Association and of the World Trade Organization and

signatory of the Treaty of Asuncion that created Mercosur

with Argentina, Paraguay and Uruguay, and which more

recently added Venezuela as a new member, with the goal of

uniting the economies of the acceding countries by fostering

trade and foreign investments among its members. Bolivia,

Chile, Colombia, Peru and Ecuador are Mercosur’s associated

nations.

6.1 Import transactions

Import operations are carried out in Brazil by industrial

companies, commercial import/export companies and trading

companies accredited with the Federal Revenue Service’s

RADAR. Each foreign trade transaction requires an electronic

registration with SISCOMEX (refer to section 2.4), which is

jointly managed by SECEX, the Federal Revenue Service

and the Central Bank of Brazil, which are the authorities

responsible for monitoring and enforcing tax, customs and

foreign exchange laws and regulations regarding cross-border

transactions. The licensing for import transactions may be

either automatic (compulsory), with the registration of the

transaction with SISCOMEX being made upon the arrival of

the goods in Brazil, or non-automatic when the registration

of the transaction depends on an import licensing made

prior to the shipment of the goods from outside of Brazil.

Imports carried out under the “temporary admission regime”

(e.g., leases and products coming to Brazil to be displayed in

exhibitions or competitions) are not subject to any licensing.

25

programs.

Commissions to foreign agents are permitted and may

be deducted from the export invoices registered with

SISCOMEX. Nevertheless, except for very specific cases and

at SECEX’s discretion, the payment of commissions to legal

entities affiliated with the Brazilian exporter will not be

permitted.

6.3 Customs tariffs and duties

Tariffs, in general, are the primary instrument in Brazil

for regulating imports. Brazil and its Mercosur partners

implemented the Mercosur common external tariff schedule

(“TEC”). Products manufactured in or exported to Brazil are

classified under Mercosur NCM’s classification, which was

adapted to the IV Amendment to the Harmonized System

of Designation and Codification of Goods approved by the

Customs Cooperation Council known as “SH-2007”. Mercosur

members have also unilaterally adjusted their tariffs in

response to economic crises and, given these developments,

the TEC is currently full of exceptions. Automobiles, luxury

items and other goods are subject to higher rates.

As mentioned above, the import duties (II, IPI for

manufactured goods, PIS on imports, COFINS on imports

and the ICMS), apply to imported goods.

6.4 Marking and barcodes

The essential identifying marks, such as shipping marks, port

of destination and package number, when required, must be

prominently shown on shipping cases and situated so that

they will not be covered by any subsequent strapping. Any

other markings should be placed in a less prominent place

and should be limited to essential data. Identifying marks

used in the bill of lading should be shown on shipping cases.

A number may be used as an identification mark, provided

that it is placed within a geometric figure (e.g. triangle or

square).

6.5 Methods of quoting and payment

Quotations for foreign trade transactions in Brazil are usually

made on an FOB (free on board) or C&F (Cost and freight)

basis in US dollars. Payment maturity terms for exports and

imports are freely negotiable, averaging 360 days, whether

or not backed by an irrevocable letter of credit. The more

usual modalities of foreign trade transactions in Brazil are

the CAD (Cash against documents), ADD (Acceptance against

documents) and other modalities upheld by documentary

credit (UCP-600 – ICC 2007)

Foreign Trade

7ANTITRUST MERGER CONTROL ANTITRUST /MERGER CONTROL

ANTITRUST | MERGER CONTROL 26

Brazilian laws confer on governmental agencies overseeing

certain regulated business sectors, such as banking,

insurance and telecommunications, authority to pre-approve

transactions of change of control or amalgamation, mergers

and joint ventures which may be harmful to competition in

the relevant economic sector.

In addition to the required merger controls by such

industry regulatory agencies, any M&A transaction or joint

venture which may harm competition by creating a market

concentration in a specific segment in Brazil must be

submitted for prior approval by CADE (acronym in Portuguese

for “administrative council of economic defense”), even

if the triggering event occurs outside Brazil, within fifteen

days after execution of any binding agreement. Letters of

intent and conditional transactions may also trigger CADE’s

review.

According to CADE’s rules, any take-over, merger or

association among companies or economic groups which

yields a market-share of twenty percent or greater is subject

to CADE review. Additionally, if any of the transaction’s

participants had gross revenues in the financial year

preceding the deal of R$ 400 million or more in or from the

Brazilian territory, the transaction shall require a filing with

CADE. A participant’s gross revenues for such purposes are

calculated by aggregating all gross revenues of its economic

group worldwide, i.e. the participant and all of its affiliates.

Failure to submit the transaction to CADE may subject the

parties to penalties, fines and even to an order to unwind

the transaction.

As a result of CADE’s analysis and in order to protect the

Brazilian market from a market concentration or harmful

competition, CADE may impose a series of conditions on the

deal, such as the divestment of certain divisions or brands,

the restriction on operations in certain Brazilian states or

areas and the change of a tradename, among others. CADE

may even require the parties to unwind the deal.

TRADEMARK REGISTRATION 27

8TRADEMARKREGISTRATION TRADEMARK

REGISTRATION

The holder of foreign trademark rights may apply for the same

trademark in Brazil at the Brazilian Patent and Trademark

Office (“INPI”) under the rules of the Paris Convention which

secures preference for a period of six months from the date

of application in the country of origin. The applicant must

submit: (i) a certified copy of the trademark application or

certificate of registration; and (ii) declare that it is in good

standing in its country of origin and actually operates in such

field of business.

The INPI trademark registration in Brazil affords a protection

over the registered rights for ten years, which may be

renewed and extended, for successive ten-year periods,

indefinitely. If the trademark holder fails to use the same

for a period longer than five years, the registration becomes

subject to a forfeiture proceeding. Well-known trademarks

may be afforded special protection.

In addition to entitling exclusive use of the registered

trademark, registration with INPI allows for payments of

royalties offshore with tax deductibility. Any agreement

providing for licensing or transfer of trademark rights

must therefore be filed for registration with INPI and

subsequently with the Central Bank of Brazil to comply with

foreign exchange controls. Outbound remittance of royalty

payments may be supported by the filing for registration of

the trademark licensing agreement but tax deductibility may

require the actual registration by INPI.

Trademark registrations may be applied for and granted for

each class (nature) of business activity and business sector,

thus enabling the same tradename to be registered for

entrepreneurs in completely different industries if there is

no chance of confusion. The registration may be for a word

mark, for a word and an associated logo mark, which is

known as a ‘composite mark’, or for a device mark.

The examination process is very lengthy due to a lack of staff

and it may take several years for INPI to publish final approval

of registration in its official magazine. Any aggrieved party

may file an administrative opposition with INPI requesting

the rejection of an application for a tradename or mark

already registered, or annulment thereof if the trademark

registration was already completed.

28

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