Doing Business in Brazil

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1 Doing Business in Brazil

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3 Contents 1 Fact Sheet 2 2 Business Entities and Accounting Companies Partnerships Businesses Formed by Sole Individuals Branches Joint Ventures Audit and Accounting Requirements Filing Requirements 8 3 Finance and Investment Exchange Control Foreign Investment Foreign Capital Requirements and Restrictions Research and Development (R&D) 10 4 Employment Regulations General Employment Matters Visas and Permits 13 5 Taxation Corporate Income Taxes Personal Taxes Employment Related Costs and Taxes Withholding Taxes Value Added Tax Other Taxes Tax Incentives for Businesses 21 Member Firm Contact Details 23

4 2 1 Fact Sheet Geography Location: Area: Land boundaries: Coastline: Climate: Terrain: South America 8,514,215km² Argentina, Bolivia, Colombia, French Guiana, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela. Atlantic Ocean Time zone: GMT 2-4 Mostly temperate, but tropical in the north Mostly flat to rolling lowlands in north; some plains, hills, mountains, and narrow coastal belt People Population: Ethnic groups: Religion: Language: million. The population is concentrated in the cities of Brasilia, Sao Paulo, Rio de Janeiro, Belo Horizonte and Porto Alegre White 53.7%, Mixed Race 38.5%, Black 6.2%, other (includes Japanese, Arab, Amerindian) 0.9%, unspecified 0.7% Catholic (nominal) 73.6%, Protestant 15.4%, Spiritualist 1.3%, Bantu/voodoo 0.3%, other 1.8%, unspecified 0.2%, none 7.4% Portuguese Government Country name: Government type: Capital: Administrative divisions: Federative Republic of Brazil Federal republic Brasilia The Federative Republic of Brazil has 26 states and one federal district: Acre Alagoas Amapá Amazonas Bahia Ceará

5 Doing Business in Brazil 3 Distrito Federal Espírito Santo Goiás Maranhão Mato Grosso Mato Grosso do Sul Minas Gerais Pará Paraíba Paraná Pernambuco Piauí Rio de Janeiro Rio Grande do Norte Rio Grande do Sul Rondônia Roraima Santa Catarina São Paulo Sergipe Tocantins Political situation Brazil is a federal republic headed by a president and two legislative chambers (the Senate and the House of Representatives). It is a constitutional democracy and its political power is divided into three branches: executive, legislative and judiciary. Economy GDP per capita: US$11,340 (2012) GDP real growth rate: 0.9% (2012) Unemployment: 5.4% (Sep 2013) Currency (code): Real (R$)

6 4 2 Business Entities and Accounting 2.1 Companies There are primarily two types of Brazilian companies the limited company (sociedade limitada, which is a private company similar to a limited liability company) and the corporation (sociedade anônima, which is a public company) Limited company A limited company must have a minimum of two shareholders, referred to as partners. It may by legal exception have only one partner for a period of 180 days (ie in the event one partner leaves the company), but failure to bring in another partner within that period will result in the company being dissolved. The sole partner may, however, be able to re-register the company as an individual limited liability company (empresa individual de responsabilidade limitada see 2.3.3). The partners may constitute a limited company by signing the articles of association and complying with registration requirements in the state in which the head office of the company is located. Non-resident shareholders must have a resident legal representative in Brazil with a power of attorney. There is only one class of ownership, the registered share. Any assignment of shares is made via an amendment to the articles of association. A limited company is the legal structure most often used by foreign investors because of its flexibility and ease of function. For example, it is not required to publish annual financial statements or hold shareholder general meetings, which results in significant cost savings and confidentiality benefits Corporation A corporation must have a minimum of two shareholders and be managed by a minimum of two directors. If at an annual general meeting only one shareholder is recorded, and the minimum number is not reconstituted until the following year, the corporation will be dissolved unless it is converted into a wholly owned subsidiary. Non-resident shareholders must have legal representatives in Brazil. Publicly held corporations are required to appoint independent auditors and submit audited annual accounts and quarterly accounts subject to limited review. A corporation must pay several registration fees and emoluments upon incorporation. A corporation s capital is divided into nominative shares with or without nominal value. Upon incorporation, a deposit of 10% of its capital must be made in a bank. In addition, the corporation must allocate 5% of its annual profits to a legal reserve until the reserve reaches 20% of capital.

7 Doing Business in Brazil Partnerships There are several types of partnerships in Brazil, including: Unlimited liability partnerships (sociedade em nome coletivo) Limited liability partnerships (sociedade em comandita simples), and Silent partnerships (sociedade em conta de participação) Unlimited liability partnerships Only individuals can be partners in an unlimited liability partnership (otherwise known as a general partnership); the partners have joint and unlimited responsibility for the partnership s liabilities Limited liability partnerships Two types of partners take part in a limited liability partnership. The first type (called comanditados partners) must always be individuals that have joint and unlimited responsibility for the company s liabilities. The second type (known as comanditários partners) may be an individual or a company and their responsibility is limited to the value of their shares. The articles of organisation must designate the type of each partner Silent partnerships The silent partnership is formed by at least two partners by means of a private instrument executed by the parties interested in carrying out a specific activity. Although it is not vested with legal capacity, the partnership is treated as a legal entity for income tax purposes. Only the ostensible partner, in its own name and account, can perform the activities of the partnership; the silent partners are liable only for their obligations with the ostensible partner, but share in the results of the partnership.

8 6 2.3 Businesses Formed by Sole Individuals Sole proprietorships A sole proprietor (empresário individual) is an individual who owns and operates a business entity either in his own name or a selected trade name. There is no distinction between the proprietor and the business, resulting in unlimited personal liability Sole micro-entrepreneurs A sole micro-entrepreneur (microempreendedor individual MEI) is an individual registered as such on the Commercial Register. Annual revenue cannot exceed R$60,000, and the individual cannot own or hold shares in another company. An MEI can employ other individuals at minimum wage or the prevailing wage of a particular field. Advantages to registering as an MEI include: Easier access to business loans Exemption from federal taxes if structured as a simple company (sociedade simples), resulting in low fixed monthly payments Through the fixed monthly payments, access to social security benefits, including for sick and maternity leave Individual limited liability companies An individual limited liability company (empresa individual de responsabilidade limitada EIRELI) comprises one individual who holds the entire, fully paid-up share capital of at least 100 times the highest monthly minimum wage in Brazil. The individual s liability does not extend to their personal assets. 2.4 Branches A branch is considered an extension of the foreign company operating in Brazil. The establishment of a foreign company s branch depends on a special permit granted by the federal government. Likewise, any amendment to the company s by-laws or articles of association requires the approval of the federal government in order to be valid in Brazil. Setting up branches in Brazil is time consuming and this structure is only recommended in specific cases. A branch can be transformed into a Brazilian legal entity.

9 Doing Business in Brazil 7 The branch s name must be the same as the one adopted by its head office; the expression do Brasil or para o Brasil may be added to the name. The same documents, balance sheet and financial statements published abroad, in accordance with the laws of the domicile of the branch, together with local financial statements, must be published in Brazil. 2.5 Joint Ventures A joint venture may be set up in several ways, but the main type is an equity joint venture. This occasionally involves participation by two or more partners in the equity company, but more frequently involves the incorporation of a new company in which each partner owns a percentage of the equity capital. A joint venture may be established through a corporation or a limited liability company. 2.6 Audit and Accounting Requirements Companies and individuals engaged in commercial activities must maintain proper accounting books and record transactions as required by law. Companies must use the accrual basis of accounting. Financial institutions, including leasing companies, must publish semi-annual audited financial statements. All publicly held companies must prepare and publish audited consolidated financial statements in addition to their own financial statements. General Brazilian accounting principles are set out in the Civil Code and pronouncements by the Federal Board of Accountancy (Conselho Federal de Contabilidade CFC) and the Brazilian Institute of Accountants (Instituto dos Auditores Independentes do Brasil Ibracon). Ibracon issues technical pronouncements and guidelines for generally accepted accounting principles (GAAP). The Securities Commission (Comissão de Valores Mobiliários CVM) is authorised to specify accounting and reporting practices and to establish accounting rules for publicly traded companies.

10 8 The consolidated financial statements of publicly traded companies, financial institutions and most insurance companies must be prepared using International Financial Reporting Standards (IFRS). Non-publicly accountable enterprises must prepare financial statements in accordance with GAAP, but can use IFRS for consolidated financial statements. Small and medium-sized enterprises (SMEs) are generally required to use Brazil s equivalent of IFRS for SMEs, but can opt to use full IFRS. For these purposes, an SME has: Total assets not exceeding R$240m in the previous year, or Total gross revenues not exceeding R$300m. Very small enterprises (ie those with gross revenues of less than R$3.6m) can use simplified accounted standards. Companies within the banking, insurance and other specialised business sectors must also comply with the specific accounting practices established by the Brazilian Central Bank and other regulatory agencies with responsibility for their sector(s). 2.7 Filing Requirements Publicly held companies must publish audited financial statements annually, together with an independent auditors report. The financial statements consist of a balance sheet, statements of income, movement on shareholders equity accounts, statement of source and application of funds, and notes to the financial statements. Cash-flow statements are encouraged. Audited financial statements must be filed with the CVM and other regulatory entities related to the activities in which the company is engaged. All corporations must publish two-year comparative financial statements in the Official Gazette and in at least one well-known newspaper.

11 9 3 Finance and Investment 3.1 Exchange Control The exchange rate is allowed to float freely, but only authorised dealers such as commercial banks may participate in currency exchange. Regulations mandate that all foreign currency transactions must be performed through these authorised agents. Other financing or savings societies are allowed to perform only specific exchange transactions. All exchange transactions must be registered at the Central Bank of Brazil by using a special foreign exchange contract form. Both residents and non-residents are allowed to maintain accounts in Brazilian currency in authorised Brazilian banks. Foreign currency accounts are generally not permitted in Brazil. 3.2 Foreign Investment Foreign capital has been of prime importance to the country s industrialisation for several decades. Multinational corporations have played a major and diversified role in fields such as mining, metallurgy, telecommunications, IT, chemicals and petrochemicals, pharmaceuticals, capital goods, and vehicles. In order to boost foreign investment, Brazilian legislation encourages foreign companies setting up in the country. Foreign capital invested in Brazil is governed by Law No. 4131/62. Foreign investment includes goods, trademarks and patents, machinery and equipment for the production of goods and services (which enter Brazil without an initial disbursement of foreign exchange), as well as funds brought into the country to finance economic activities, provided that they belong to individuals or companies resident abroad or with their principal place of business abroad. The following types of foreign investment transactions must be registered at the Central Bank of Brazil if they are to serve as the basis for subsequent remittances of foreign currency: Foreign capital entering the country in the form of direct investment (capital or goods) or indirect investment (loans) Reinvestment of profits as foreign capital Remittances made to other countries for the purpose of repatriation of capital, profits, dividends, interest, amortisation, royalties, payment for technical assistance, or any other operation involving transferring funds out of the country Changes in the value of a company s capital stock. Any foreign capital investment in Brazil must be registered at the Central Bank within 30 days of its introduction into the country. Any reinvestment of profits must be registered within 30 days from the date on which the respective bookkeeping entry is made by the Brazilian company.

12 10 Registration of foreign capital, as well as reinvested profits, must be made in the currency of the country of its origin. Registration certificates are issued simultaneously in Reais and in the currency of the country of origin. Foreign companies may register at the Central Bank rights on trademarks and patents granted to a Brazilian company (by means of execution of the proper agreements) as payment in full of their capital quota. Equipment entering the country as foreign capital is subject to review by the Brazilian Import/Export Department (Secretaria de Comércio Exterior SECEX). SECEX determines if the value attributed in the commercial invoice is not excessive in order to authorise its import and issue the respective Certificate of Registration of Foreign Investment. Reviews are made on a case-by-case basis at SECEX s sole discretion. The amount of registered foreign capital is calculated at the purchase rate of exchange applied to the value of the import documents. 3.3 Foreign Capital Requirements and Restrictions Under the Constitution, foreign capital is prohibited from investing in: Nuclear energy Activities involving oil and gas, and The health services. Foreign investment is allowed with certain restrictions in: The news/media industry The airline industry Financial institutions Mineral rights, and Rural properties. Non-resident foreigners and companies incorporated abroad are not permitted to directly acquire rural real estate located in border areas, as other restrictions may apply. 3.4 Research and Development (R&D) Tax incentives are available for R&D; see

13 11 4 Employment Regulations For employment tax considerations, see General Employment Matters Labour relations Labour relations are governed by the Federal Constitution, the consolidated labour laws (Consolidação das Leis do Trabalho CLT) and numerous other laws and regulations. The Constitution guarantees employees a large number of labour rights and benefits. An employee is not allowed to waive rights or benefits stated in a law or in an employment contract. Employees basic rights may be increased through collective negotiation between employers and employees, which are generally led by unions or representatives. In certain cases, these negotiations may grant workers broader rights and increase employer expenses. All workers must hold a work booklet (Carteira de Trabalho e Previdência Social CTPS), in which the terms of their employment contract must be recorded. Employers must keep detailed records about each employee that can be reviewed by the labour authorities. There are a number of contract possibilities such as temporary work, traineeships, domestic help and industry-specific contracts that give employers some flexibility. There are no restrictions on an employer terminating an employee s contract provided that the settlement is done according to the law Working contracts The normal working week in Brazil is 44 hours over a six-day period. There is a monthly minimum wage which, for 2013, is R$ (approximately US$344). Salaries are payable at least once a month and cannot be reduced. If an employer makes certain payments regularly, such as bonuses or overtime, these are considered an integral part of the base salary for purposes of the labour laws.

14 Employee benefits Employee benefits are usually free from taxes and contributions normally applied to salaries when added to social security they can amount to 70% 80% of the base salary. Some benefits are mandatory; others though not mandatory are widely used. Parties are free to negotiate new or different benefits. In addition to social security, mandatory benefits are: Approximately 30 days paid vacation after one full year of employment. A mandatory thirteenth salary paid at year-end (Christmas bonus) Compulsory contributions made by employers to the Guarantee Fund for Time of Service (Fundo do Garantia do Tempo de Serviço FGTS). Employees may, under certain circumstances including retirement, withdraw these contributions. The company deposits, in a restricted bank account, an amount corresponding to 8% of the employee s monthly remuneration 120 days maternity leave for female employees. The National Social Security Institute pays the employee s salary during this time. Fathers are entitled to five days paternity leave Public transport vouchers to cover transport expenses from home to work. Employers can deduct the amount paid from income tax A supplementary allowance is given in respect of each child under the age of 14, and each disabled child. This allowance is dependent on salary level and is not subject to social security contributions or income taxes Dismissal or contract termination If it is the employee s decision to leave their place of work, they must give 30 days notice to their employer. If an employee is dismissed by their employer without a valid reason (valid reasons include criminal behaviour, absence, etc.), the dismissed employee has the following rights: 30 days notice or immediate dismissal with 30 days paid salary A thirteenth monthly salary proportional to the number of months worked during the calendar year Unused vacation days and holiday pay proportionate to the number of months the employee worked in the previous 12 months plus one-third of that amount FGTS contributions plus a 40% fine.

15 Doing Business in Brazil 13 The following types of employees have job protection rights: Union leaders Members of the International Commission for Accident Prevention Pregnant employees Employees injured while working Other employees provided for in collective bargaining agreements Foreign work in Brazil To preserve job opportunities for Brazilian citizens, the government requires that two-thirds of employees in any Brazilian company must be Brazilian citizens and that they receive at least two-thirds of total remuneration. Exceptions can be made for skilled workers and technicians. Annually, companies must prepare and forward to the Ministry of Labour a statement showing the proportion of national to foreign employees. This statement must specify employee remuneration and other relevant data. For this purpose, foreigners are deemed to be Brazilian citizens if they meet any of the following criteria: Resident in Brazil for at least 10 years Married to a Brazilian citizen Parent of a Brazilian-born child Of Portuguese citizenship. 4.2 Visas and Permits Any foreigner who wishes to enter Brazil must apply for a visa at the nearest Brazilian consulate or embassy. For short stays in the country, the foreigner may apply for either a tourist visa or a temporary visa. Some countries have bilateral treaties with Brazil that allow their citizens visiting rights as tourists without requiring a visa, such as Argentina and France. A tourist visa is granted to a person who wishes to enter the country for the purpose of recreation or visit. Regulations define recreation or visit as the situation in which the person neither intends to emigrate nor perform remunerated activity. Foreign individuals may only work in Brazil if they have a temporary or permanent residence visa.

16 Temporary visas Brazil issues temporary residence visas under a number of specific circumstances. They are usually issued for a specific activity and limit the holder s ability to change jobs once in the country. They are usually for two years and can be extended only once for another two years. The main situations in which a foreigner may apply for a temporary residence visa are: For a cultural or study trip As a professional entertainer or sportsman As a student As a scientist, teacher, technician or other professionally qualified person, including a business executive under contract or rendering services to a company or government body As a foreign journalist for a newspaper, magazine, radio, television or news agency As a religious minister, member of a consecrated order or equivalent Permanent visas There are seven situations in which a foreigner can obtain a permanent visa: Researcher or high level specialist Administrator, manager or director of a professional or business corporation Administrator, manager or director of a start-up Investor Pensioner Marriage to a Brazilian citizen Foreign parent to a Brazilian child. Permanent working visas are generally granted to applicants who will perform management activities as administrators or managers of a professional or business corporation.

17 15 5 Taxation 5.1 Corporate Income Taxes Resident companies, defined as companies which are incorporated under Brazilian law, are subject, at the federal level, to corporate income tax (imposto de renda de pessoa jurídica IRPJ) and to a social contribution on net profit (contribuição social sobre o lucro líquido CSLL) based on their worldwide income. Non-resident companies are subject, at the federal level, to IRPJ and CSLL on their income from Brazilian sources. There are no local corporate income taxes in Brazil. IRPJ is charged at 15%, with an additional 10% payable on profits in excess of R$20,000 per month. CSLL is charged at 9%, or 15% for financial institutions. Resident companies are taxable not only on their own profits, but also on the profits of its foreign subsidiaries and branches. Capital gains are generally included in taxable profits. Some companies are permitted to use the presumed profit regime, a simplified tax method under which taxable profits are calculated by reference to a system of percentages applied to total gross income. Losses may generally be carried forward indefinitely for relief against future profits, but relief for brought forward losses may not exceed 30% of net income. Restrictions on loss relief apply if there is a change of control of the company and a change of activity. Relief for losses cannot be claimed against the profits of earlier years. There is no tax consolidation facility for groups of companies. The tax year is generally the calendar year, and corporate tax returns must be filed by the last working day of June following the tax year. A company may adopt a fiscal year for corporate purposes but must file annual income tax returns on a calendar year basis. Electronic filing is mandatory. Corporate income tax (IRPJ) is generally computed and paid on a monthly basis and adjusted annually. IRPJ computed and paid on a quarterly basis is considered definitive. Companies using the presumed profit regime must calculate and pay their taxes quarterly. Other companies may do the same, or they may make monthly payments on account with their tax liability determined annually.

18 Personal Taxes Resident individuals are subject to income tax on their worldwide income. Non-resident individuals are subject to income tax on their income from sources in Brazil. Resident individuals are taxed at the following rates for income earned in 2013: Taxable Income Tax Rate R$0 R$20, Nil R$20, R$30, % R$30, R$41, % R$41, R$51, % Over R$51, % Non-resident individuals pay flat rate income tax of 25% on earned income, and 15% on investment income. Employees, including self-employed people, pay social security contributions on their salary (see Social security costs below). Dividends received from Brazilian companies are exempt from tax. Individual states within the Federal Republic of Brazil may impose taxes on inheritances and gifts, generally on people resident within the state but also on others owning real estate within the state. The rate of tax varies depending on the state. There is no wealth tax.

19 Doing Business in Brazil Employment Related Costs and Taxes Social security costs Employers must generally pay social security contributions at a rate of 20% of payroll costs (22.5% for the banking and financial sector). Employees are liable to progressive social security contributions on salary up to a limit of R$4,159 per month (for 2013), as follows: Salary per month Social security contribution rate Up to R$1, % R$1, R$2, % R$2, R$4, % Profit-sharing Payments From 1 January 2013, profit-sharing payments (PLR) received by employees from employers are subject to a withholding tax. This operates separately from the personal income tax regime. Employed persons may receive up to R$6,000 free from the withholding tax with a progressive set of rates in place of up to 27.5% for PLR received in excess of this amount each year Industrial Association Contribution Employers must pay an industrial association contribution in January each year. The contribution varies according to the industry type. Employees pay the contribution, equivalent to one day s salary, in April each year Guarantee Fund for Time of Service The Guarantee Fund for Time of Service (Fundo de Garantia do Tempo de Serviço-FGTS) is a kind of severance pay fund ruled and managed by the federal government. Employers (both individual and corporate) must pay 8% of payroll into Guarantee Fund account for the benefit of employees who may withdraw amounts from the fund on being dismissed without just cause (wrongful dismissal), and in a few other cases set out in legislation.

20 Withholding Taxes Domestic payments The general withholding tax rates on interest payments vary depending on the type of investment and the period held. There is no withholding tax on dividend and royalty payments Payments abroad The rates of withholding tax on payments made abroad by companies are set out below. There is no withholding tax on dividends. Interest and commissions on loans 15 Royalties 15 Where the above payments are made to a recipient located in a low tax jurisdiction In certain cases, royalties are subject to an additional 10% CIDE (see Other Taxes Contribution for intervention on the economic domain below). For payments made to recipients in countries with which Brazil has a double tax treaty, the rates of withholding tax may be reduced under the terms of the treaty. % Value Added Tax The tax on industrialised products (imposto sobre produtos industrializados IPI) is a federal value added tax levied on transactions involving manufactured goods meant for the domestic market, including their importation. The noncumulative principle applies in which credit is given for the IPI due on previous transactions in the manufacturing process. The rate of IPI varies according to the nature of the goods, with rates ranging between 0% and 300%. The standard state value added tax (imposto sobre operações relativas à circulação de mercadorias e sobre prestação de serviços de transporte interestadual e intermunicipal e de comunicação ICMS) is levied on a number of activities including the circulation of goods, on transportation between states and municipalities, and on communication services. Again the non-cumulative principle applies. ICMS applies also to the importation of goods and services. In general, the rate of ICMS varies between states from approximately 7% to 25%, depending on the state and the kind of goods.

21 Doing Business in Brazil Other Taxes PIS on gross operational income PIS (Programa de Integração Social Social Integration Programme) is a tax generally assessed on monthly corporate gross operational income. Companies can opt to pay PIS on a cumulative or non-cumulative payment basis (although financial institutions and some specific industrial sectors must pay on a cumulative basis), at the following rates: Cumulative payment basis 0.65% of the company s total monthly invoicing Non-cumulative payment basis (under which PIS operates as a VAT) 1.65% of the company s total monthly invoicing COFINS on gross invoicing of goods and services COFINS (Contribuição para Financiamento da Seguridade Social Contribution for Financing of Social Security) is a tax assessed on monthly gross invoicing of goods and services. Companies can opt to pay COFINS on a cumulative or noncumulative payment basis, at the following rates: Cumulative payment basis 3% of the company s total monthly invoicing Non-cumulative payment basis (under which COFINS operates as a VAT) 7.6% of the company s total monthly invoicing. The rate for financial institutions is 4% Import taxes Imported goods and services are subject to PIS and COFINS rates of 1.65% and 7.6%, respectively. If the non-cumulative payment basis is chosen (see above), PIS/ COFINS import tax can in some instances be deducted from the PIS/COFINS tax levied on sales revenue.

22 Contribution for intervention on the economic domain Brazilian companies paying foreign suppliers for technical services, including the licensing of trademarks and patents, must pay a contribution (contribuição de intervenção no domínio econômico CIDE) of 10% of the consideration Municipal services tax Municipalities impose a tax (imposto sobre serviços ISS) on the supply of services other than those which are subject to ICMS. Imported services are also subject to ISS. Rates range from 2% to 5%, depending on the type of service and location of the company or individual rendering the service Financial transactions tax A financial transactions tax (imposto sobre operações de crédito, câmbio e seguro, ou relativas a títulos ou valores mobiliários IOF) is charged on bank loans and similar transactions, purchases and sales of foreign currency, purchases and sales of securities, and insurance premiums. Rates vary and range from 0% to 25%. The government can adjust these rates by decree as it has done in 2013 with respect to share purchases in real estate investment trusts (REITs), currency derivatives, and foreign fixed income assets Real estate taxes The municipal urban property tax (imposto sobre a propriedade predial e territorial urbana IPTU) is levied annually on the value of urban real estate. Applicable tax rates are assessed on a yearly basis. The tax is generally paid in monthly instalments and calculated on the basis of the arbitrated value of the land and buildings, adjusted according to formulae prescribed by legislation. A federal tax (imposto sobre a propriedade territorial rural ITR) is charged on the ownership, domain or possession of rural estates not located within the urban zone of any municipality. Rates vary from 0.03% to 20% of the declared value of the buildings and the degree of utilisation of the land Transfer taxes Municipalities charge local taxes (imposto sobre transmissão de bens imóveis ITBI) at varying rates on transfers of real estate. There are no transfer taxes on transfers of securities (although note that IOF may apply see Financial transactions tax above).

23 Doing Business in Brazil Tax Incentives for Businesses Research and development (R&D) expenditure Tax incentives available for R&D expenditure include the following: A deduction of up to 60% of R&D expenses against income tax and CSLL A reduction of up to 50% of the IPI due on the purchase of equipment used for R&D purposes Accelerated depreciation for tangible and intangible new fixed assets used for R&D purposes A tax credit of up to 10% for the withholding tax (imposto de renda retido na fonte IRF) paid to companies or individuals residing outside Brazil for royalties, technical assistance and special services if the contract has been approved by the Brazilian Patent Office (Instituto Nacional da Propridade Industrial INPI), and Tax exemption for the IRF withholding tax due for payments to register trademarks or patents abroad. Additionally, R&D expenditure can qualify for accelerated depreciation, and products resulting from the expenditure may be attributed a reduced rate of IPI Social security contributions exemption Until 31 December 2014, a number of labour-intensive businesses are exempt from the 20% social security contributions (see Social security costs above); instead, they pay a tax of 1% or 2% on gross income (after excluding cancelled sales and unconditional discounts), depending on the type of business or the type of goods produced. These include information technology and telecommunications, retail, civil construction, clothing and footwear, hotels, call centres, medical and dental equipment, and ovens and refrigerators.

24 Free-Trade Zones (FTZs) Incentives offered in the Manaus FTZ (subject to local authority approval) include: Import duty and federal tax exemptions for foreign goods used for consumption, manufacturing or finishing, and goods imported for storage and re-export In some cases, exemption from ICMS, and PIS and COFINS rate reductions (down to 3.6% compared with the usual combined rate of 9.35%). Legislation has been introduced to establish an FTZ in Paraíba Regional tax incentives Regional tax incentives apply for selected activities in the north and northeast of Brazil to encourage development of certain areas and industries Automotive sector Eligible companies in the sector can qualify for tax credits against IPI on condition they conduct a minimum number of manufacturing steps (out of a total of 14 steps set out in the legislation) in each of the tax years until (and including) Additionally, companies must comply with two of the following three requirements: An investment of at least 0.15% of the company s gross income from sales in 2013 (increasing to 0.30% in 2014 and 0.50% in 2015 to 2017) must be made into Brazilian-based R&D An investment of 0.5% gross income from sales in 2013 (0.75% in 2014 and 1% in 2015 to 2017) must be made in Brazilian engineering or industrial technology, or Key components of the business must meet National Institute of Metrology, Quality and Technology (Inmetro) quality standards Other incentives Additional tax incentives available include: Certain broadband expansion projects filed with the Ministry of Communications by 30 June 2013, and completed by 31 December 2016 (PIS and COFINS payment suspension) IPI, PIS and COFINS exemptions for the defence industry IPI, import duty and PIS/COFINS import charges for goods and services imported until 31 December 2017 to be used in the organisation or execution of the 2016 Olympic and Paralympic Games, and 0% withholding tax on income, interest, royalties and capital gains related to investments in the 2014 World Cup infrastructure projects.

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