IS IT SUPER EASY TO IMPORT FROM CHINA TO BRAZIL? WHY DOES IT HAPPEN SO MUCH?

Note: you might also want to read: Why do they invest in Brazil if importing seems so cheap right now?

Dear Adler,

How can a blooming trade between China and Brazil be explained, given all the import barriers, and troublesome bureaucracy in Brazil?

Are there special agreements, or perhaps deregulations apply as far as imports from China are concerned?

It has been impossible for me to find information that confirms so. Perhaps you could help me.

Thank you in advance.

Best regards

Konstantina

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Dear Konstantina, 

I'm flattered that you would ask me that. How did you find me? Through the blog?

The answer is, indeed, very simple: China is cheap. 

Actually, in my opinion Brazil should be importing a lot more from China, is spite of the import taxes and bureaucracy. I think the Brazilian entrepreneurs are still shy and not very prone to international trade, specially in states other than São Paulo and Rio. 

Few Brazilians participate in trade fairs in China (Canton fair, etc.). They usually wait until the foreign sellers comes to Brazil in order to present they products. 

In pure economic terms, it makes little sense to produce anything in Brazil at all. Everything should be imported. 

I'm hearing a lot of people talking about importing from Vietnam and Malaysia, too. 

I hope this helps. May I post this in my blog? It is a very interesting subject. 

Regards, 

Adler

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Dear Adler,

Thank you very much for your prompt response.

Yes, I got to know you through your blog and was impressed by the responsible, qualified answers you give.

I work for a company in Denmark and we are currently evaluating how attractive the Brazilian market is for our machines. 

Part of my market analysis involves trade barriers and your blog resulted in my search. I then read plenty about the fast growing trade economy between the two countries and curiosity stepped in.

Now I understand that China is cheap, import taxes are cumulative so even though taxes might reach 100% on top of invoiced price it will still be cheaper than importing from a not so cheap country to begin with. 

It explains it very clearly.

Thank you again Adler.

I'm flattered that you found my question interesting, you may certainly post it on your blog :)

Konstantina

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Dear Konstantina, 

Thank you very much for the compliments. 

You are the third Danish client I have helped this year. Maybe I should visit Denmark. 

Regards, 

Adler

How to calculate Brazilian import costs

You must also read: Common doubts about creating a Brazilian Import Company

UPDATE FROM APRIL, 2013: There has been a slight decrease in Brazilian import costs. Please check: How much cheaper are Brazilian imports after the supreme court tax decision. Otherwise, the info below is still valid.

UPDATE FROM FEBRUARY, 2015: There has been a general increase in taxes. The info below does not reflect that. 

Every now and then people ask me how to calculate Brazilian import costs

Unfortunately, there is no easy answer for that.

Basically, the main costs are due to a series of additive taxes, namely:

Import Tax (II) - Which goes over the CIF price. To find the exact rate, one should check the HS code of the goods, according to the Mercosul tax classification, called NCM. The classification is basically the same, but there may be important differences. The full table may be downloaded at http://www.desenvolvimento.gov.br/portalmdic/arquivos/dwnl_1301080792.xls

Tax over industrialized products (IPI) - Which goes over CIF + II

The full Table of IPI rates may be found at http://www.receita.fazenda.gov.br/aliquotas/downloadarqtipi.htm

State Tax over the circulation of products (ICMS)

This is a kind of VAT, stablished by the estates. The  estate to which the goods are being imported will set the exact rate. The maximum rate, however, is 18%.  It is calculated over CIF + II + IPI + PIS/Cofins.

PIS and Cofins on import operations .

Those are federal contributions to the social security system. The usual rates are, respectively, 1,65% and 7,6%, although subject to many exceptions, both upward and downward. The calculation base is CIF + II + IPI + ICMS. The calculation of this tax is specially tricky and demands a mathematical formula.

IOF - This tax does not apply properly to import operations, but to all currency exchange agreements. Since most import operations will result in a currency exchange contract (e.g. Dollars to reais, or Euros to reais) , this tax will eventually be noticed by the importer. The usual rate is 0,38% of the contract value.

AFRMM.

Finally, apart from the taxes above, there is the contribution over the international freight, for the renovation of the merchant marine corps, or AFRMM.

As the name says, this contribution is calculated over the cost of the international freight, always at the rate of 25%. This contribution is unrelated to the other ones listed above.

To give readers a more solid idea of how to calculate these taxes I have made an automated spredsheet available at https://spreadsheets.google.com/ccc?key=0Ak-

xhn4MLJ9ldFR3TTNvRnVhNWNwQTZzOVoydjJ1YVE&hl=en#gid=1. 

 Please note that its purpose is to serve as a reference and not as a legal consultation. Also, keep in mind that I have not taken into consideration any of the tax exemptions or bureaucratic  pitfalls that may happen in a real life situation.

I hope you may contribute with your comments, so that I can go further in this theme.

UPDATE FROM APRIL, 2013: There has been a slight decrease in Brazilian import costs. Please check: How much cheaper are Brazilian imports after the supreme court tax decision. Otherwise, the info below is still valid. 

Please also check: Exemption of import tax for machinery - Import permits for electronics and drugs