Investing in Brazil – what to know before deciding!

The phenomenon of globalization is a reality. Reasons for a company investing abroad are: saturation of the domestic market, the expansion engine; opportunity (arbitrage); and international orientation leveraged on brand, financial resources, management capabilities and a replicable model. It can take place through: acquisition of an existing business; green-field or organic by reproducing the existing model in the new country; via cooperation by licensing brand and know-how; or yet via exports having a committed and separated commercial and marketing structure.

What aspects are taken into consideration when choosing a country? Essential aspects to consider include the existence of a market for the company’s products or services; entry barriers; regulation; taxation; economic stability (currency); manpower; social and cultural aspects; and governance.

Why considering investing in Brazil? Yes, it has a large population (206 million); a large GDP (US$ 1.8 trillion); and a large geography (8.5 million square kilometers). It also has a lot of taxes (high and complicated)!

What one needs to know before making a decision for investing in Brazil?



1)    Brazilians do not consider themselves Hispanics!
Brazilians do not consider themselves "Hispanic" (as all those not born in US or at its North are called) as they do not speak Spanish but Portuguese; they do not listen to "Hispanic" music but local (Brazilian) and international (mainly American) and they eat avocado (the fruit) with sugar and not with salt (like in salads).
Brazil is also a multi-cultural country formed by Europeans, Africans, Arabs (from Lebanon and Syria) and Asians (mainly Japanese). The influence of the "natives" (original indigenous inhabitants) is limited and confined to certain parts of the country (mainly in the states of Pará and Amazonia).


2)    Military dictatorship (1964-85)
A military dictatorship helped to shape a society which is hierarchical, adaptive, and bureaucratic (paper rules!).
Setting up a company takes time and demands a good accountant. Nevertheless is highly recommendable trusting the elaboration of bylaws to a good lawyer.


3)    Relationships are important!
Who you know and surnames facilitate doing business! There is a saying that summarizes the idea: For the enemies the Law/Rules, for friends everything!
Family is sacred and they like to be close. It makes any expatriation not an easy decision for a Brazilian.


4)    Entrepreneurial not Managerial
Managers are intuitive not enjoying planning. Structures exist to be “navigated”.
Negotiation is favored over confrontation. And a confrontation always leaves “marks”.






1)    Legal framework (governance)
There are 3 constituted powers: Executive, Legislative and Judiciary. All 3 have different layers and all of them within certain limits can rule. The Legislative frequently issues complicated and unconstitutional laws; the Executive is always hunger for collecting taxes and the Judiciary is slow in ruling (too many instances and procedures). This combination negatively impacts individuals and companies generating uncertainty. Apart from this uncertainty regarding legislation, the system allows protection for investors and investments. There is no case of asset expropriation.


The Brazilian legal system works as follows:

a)    There are 3 spheres of legislation: Federal, State and Municipal;
b)    The Brazilian federation is formed by 27 states (including the Federal District);
c)    There are over 5.500 municipalities;
c)    State, Municipalities and the Union are entitled to issue their own tax rules;
d)    The system is hierarchical, being constituted by:

i.    Federal Constitution;
ii.    Amendments to the Constitution
iii.    Supplementary laws;
iv.    Ordinary laws;
v.    Delegated laws;
vi.    Provisional measures;
vii.    Legislative decrees; and
viii.    Resolutions.


2)    Taxation
There are over 90 taxes and fees in Brazil. Main taxes affecting corporations are shown in the chart below:




Corporate Income Tax (IRPJ)

worldwide accounting income

15% or 25%

Social Welfare Income (CSL)

worldwide accounting income


Social Welfare Tax (COFINS)

gross revenues

3%, 4% or 7.6%

Social Welfare (PIS)

gross revenues

0.65% or 1.65%

Federal VAT (IPI)

domestic sales price and imports

0% to 365%

State VAT (ICMS)

domestic sales price and imports

0% to 25%

Tax on Services (ISS)

price of services rendered

0% to 5%

Tax on financial transactions (IOF)

loans, currency exchange, insurance, stock and commodities trades

0% to 25%


3)    Economy

When making an investment decision is imperative to separate what is transitory from what is more permanent.
Since 2014 Brazil is in recession. Economy is contracting, unemployment on the rise, personal income falling, and private and public investments shrinking. Positive is the devaluation of the Brazilian Real, what is favoring exports and the industrial sector. Also inflation is decreasing.

But the economy is still the 9th largest in the world. Population is the 6th. Devaluation of the Brazilian currency conjugated with a weak economy (and therefore company’s results) creates an opportunity of entering the country spending less.

More permanent in the Brazilian economy and that will not change in the near future:

a)    The Brazilian State will always be a present force in the economy. It will intervene by “fostering” development (via incentives or regulations), or to correct “distortions” (via taxes or raising barriers) and “eliminate” inequalities (via income distribution policies). Furthermore it costs close to one third of the GDP;
b)    The seven states that are part of the Southeast (São Paulo, Minas Gerais, Rio de Janeiro e Espírito Santo) and the South (Rio Grande do Sul, Paraná e Santa Catarina) regions are responsible for 60% of GDP;
c)    Cost of money (funding) will continue to be expensive relatively to the more developed economies;
d)    Land and means of production are available;
e)    Currency is exchangeable and money flows both ways (in, as investments or loans; and out, as dividends and capital reimbursement);
f)    Taxes will continue to be high and time consuming to calculate, file and pay.
g)    Payroll will continue to be heavily taxed and there will be no easing when comes to hiring.



1)    Transportation
The transportation matrix is unbalanced as over 60% of it is road, 20% railroad, 11% water and the remainder is comprised of air and pipeline. The road system has over 1.7 million Km out of which less than 15% are paved. Thus the combination of an unbalanced matrix with the lack of integration between the transportation modes and yet an ill conserved road system makes the freight cost expensive.
In spite of the cost factor, the country is linked and goods and people can travel everywhere.

2)    Energy and Water
The main sources of energy in Brazil are: Hydric (+60% of the total); Fossil (+17% of the total); and Biomass (+9% of the total).
Energy is available and can be contracted directly from the energy distribution companies or in the “over the counter” market.
Although Brazil has 13% of the world’s sweet water, water distribution is yet an issue in some parts of the country.
Also periods of drought like in 2014-2015 can put the supply of energy and water at risk.

3)    Telecommunications

Installed base is relevant: 275 million mobile phones (including smartphones); 44 million fixed (land) lines; and 19 million cable TVs. System is reliable. Existing complains are related to the cost of the services.
Main carriers are: Vivo (Telefónica Group from Spain); TIM (Italy) and Oi (local).


4)    Financial System
Financial system is healthy and efficient. It is tightly controlled by the Central Bank.
Top 5 banks are: Banco Itaú, Banco do Brasil, Caixa Economica Federal, Bradesco and Santander. Within them the only foreign controlled bank is Santander.
The use of credit and debit cards is disseminated. In 2015, 11.4 billion transactions were made with a face value of R$ 1.1 trillion. Out of this total, credit card was responsible for, respectively, 46% and 62%.


5)    Healthcare & Education
Healthcare and Education are universally provided. The state provides full healthcare coverage. Education is also provided since early age until university.
Nevertheless, Healthcare and Education are also privately offered. Close to 25% of the total population has private healthcare coverage. This is possible as the companies in general offer this benefit.
Private education has also gained grounds in the last 10 years due to the growth of the middle class and the offering and popularization of higher education (helped by a fund that finances student tuitions).


Market & Customers – where to find them

Brazil is a diversified economy with a US$ 1.8 trillion GDP. Most important sectors, in this order, are: Service, Industry and Agriculture. The “star” sector in terms of growth and international trade is Agriculture. A 206 million population (out of which 100 million are employed) forms in the aggregate a large market for practically any good or service.


Having said that, if I had to put together an expansion plan, the cities that I would prioritize investing would be, in the presented order:

State of São Paulo: Greater São Paulo area (comprised of São Paulo, Santo André, São Bernardo, Diadema, Osasco, Guarulhos, Mauá); Campinas, São José dos Campos, Sorocaba, São José do Rio Preto e Ribeirão Preto
State of Rio de Janeiro: Greater Rio de Janeiro area (Rio de Janeiro, Niterói, São Gonçalo, Duque de Caxias, Nova Iguaçu, São João do Miriti, Belford Roxo)
State of Minas Gerais: Uberlândia (close to the border with São Paulo), Juiz de Fora (close to the border with Rio de Janeiro), Greater Belo Horizonte area
Federal District: Greater Brasília area
State of Goiás: Greater Goiânia area
State of Paraná: Greater Curitiba area
State of Rio Grande do Sul: Greater Porto Alegre area
State of Santa Catarina: Greater Florianópolis area
State of Bahia: Greater Salvador area
State of Pernambuco: Greater Recife area
State of Ceará: Greater Fortaleza area
State of Manaus: Greater Manaus area
State of Mato Grosso: Greater Cuiabá area


I would consider investing in other cities only after covering the above listed.


Real Estate

The purchasing of Real Estate demands a complete due diligence encompassing both the site and zoning legislation. Take time and get a good lawyer.
General rule: a well located, non-occupied site always has a story! Renting is always an option. It reduces investment. 5 year contracts give the rights to an automatic renewal.

The purchase of cultivable land by foreigners is subject to limitation.  They cannot own more than a percentage of the area within a municipality.


When comes to rent space in malls an extra attention must be given in the following items of the lease agreement: a) minimum rent (rent is variable fixed as a % of sales, nevertheless a minimum rent is fixed); b) in December minimum rent is doubled; c) Termination penalty tend to be hefty (it is fixed in number of months); d) “cession of rights” over the contract and point of sale is generally permitted, however malls fix a “transfer fee” of 10 – 12 months of rent.


Business Practices/Curiosities

1)    An aspect affecting supply efficiency is the tax war among states. One will find a lot of suppliers with plants or Distribution Centers in regions far from the customers.

2)    Importing is not easy! There are tariff and non-tariff barriers. Yet feasible, but 3 things make it difficult: the final cost after all duties make the final product expensive; the lack of payment terms (exporters want to receive at sight) and logistics (incl. customs).

3)    Customers in general are price focused. They want price + everything else. Important is to have a clear Value proposition otherwise you will be lost (without any direction).

4)    Brazilians demand paying in installments interest free. Minimum installment is around R$ 70. Thus when selling discretionary products with ticket value over R$ 140 one must offer the sale in installments option. Number of installments interest-free goes up to 12 months (more common). Differently than in US “credit revolving” is not an option due to the high interest rates charged by credit cards (> 250% p.a.)

5)    It is difficult “selling” the “total cost of ownership” concept. Customers see only the price as their final cost. Challenge is to prove that you can add value to your customers by offering other aspects such as post sales service; packaging or maintenance.

6)    It is a “push” market! Suppliers pledge “support” to customers when taking the purchase order, but after that the buyer is alone in the “rain”.

7)    Distributing products efficiently (go to market) demands an understanding of the available channels: Big retail chains, small retail chains, specialized stores, and distributors. Each one has different margins and costs of serve.


Available Help


We can be an important help for companies either exploring the possibility of entering the Brazilian market or for those already established in the country.

Furthermore our area of expertise is distribution (retail-wholesale), a dimension that can help both companies operating in this space as well as manufacturers that deal with big retailers or considering enter in the retail space.


We provide advisory board, interim management and consulting services.


Contact us before committing…

Contact us:
Rubens Batista
This email address is being protected from spambots. You need JavaScript enabled to view it.
+55 (11) 9 8187 3043