quarta-feira, 12 de abril de 2017

Upcoming changes in purchase of land by foreigners

From my twitter feed;

The President's Chief of Staff Office in Brazil has just finished up a bill that frees the purchase and lease of land to companies with foreign control, without setting area limits as always defended by the forestry sector and farm caucus in Congress. The project is ready for voting in the Chamber of Deputies floor, but there is still a dispute among deputies of President Michel Temer’s allied base about who will sponsor the bill. In the text to which Valor had access, foreign companies or citizens are prevented from owning or leasing together more than 25% of a municipality’s territory. And it forbids foreign companies or persons of the same nationality from owning land that accounts for more than 40% of a city's territory. These rules are not valid if the foreigner marries a Brazilian citizen in communion of goods. There is still no date for the vote.

domingo, 9 de abril de 2017

Brazil: Tax is not the issue. Variations, complexity and indirect cost to manage it it the true grit. | Carlos Frohlich | Pulse | LinkedIn

A very interesting article about the connection between taxation and IT in Brazil.

I`m learning that this is becoming a big thing.  Some of my clients already pick accountacy firms based on the firm`s ability to cope with their ERP systems.

Link to the original source.

Brazil: Tax is not the issue. Variations, complexity and indirect cost to manage it it the true grit.

It has been a while since I have started to work for multinational companies with operations in Brazil.

For IT consultants there is a common ground when the subject is taxes. Goosebumps would describe this feeling. Most of the international teams do not realize how complex Brazilian taxes can be.

 Few tributes… so what?

 There are indeed few tributes but as you will see bellow, there are a wide range of creative variations and many special categories. Exceptions everywhere. Indeed a quite complex environment to manage but not only. There are also many different mandatory reports to allow the Brazilian government to cross those information clusters. Government considers not only the data from one source but through big data, it crosses data from vendors, customers and similar companies to build the big picture about an industry, about a market segment and even about the company and its peers. This strategy is about not only the source (provided by the company) but also the exchanged data between different companies. The best example is the mandatory NFe (electronic invoice) that allows Brazilian Government to control and track down electronically any fiscal information about goods logistics.
 When the context is about Brazilian legislation within the context of tributes, taxes, and other compulsory fees, we are commonly referring into a very dynamic environment that uses many different rules. While in many countries there is only one "VAT" and few variations around this theme, Brazil has a wide range of rules regarding taxes and tributes and every year many variations are created (and/or extinguished).
 The true cost is about not only the taxes but also the IT and Business Impact cost to arrange information to such complex environment
 Few taxes in numbers: 5570 possible tax rates for ISS, 27 x 2(1) x N combinations for ICMS, IPI have its own set… and keep going
+8100 regulation changes during the year of 2013
 It is not an easy tax to set all those Tax formulas and keep it updated. A purchase order wrongly set will have a huge impact.
 Before proceed within this subject better to explore a bit about the political structure. Brazil exists on a political framework of a federal presidential representative democratic republic therefore the President is both head of state and head of government but Senate regulates his actions. Brazilian electoral systems relies on a multi-party system that requires a major effort to align interests before any political decision.
 The political and administrative organization of Brazil that comprises the federal government, the states, the federal district and the municipalities* therefore three levels of government, often referred in Portuguese as “esferas”: “federal”, “estadual” and “municipal”. (*Cities and its surrounding areas which comprises a unique structure to manage its government/political whereabouts). Federal district feel into a special condition in which is Municipality and State at the same time.
 The federal government exercises control over the central government and separated into three independent branches: executive, legislative and judicial. There are tributes attributed to each ESFERA that allows layers of control over the tax rates and special cases.  
Brazil has 5.570 municipalities, 26 states and 1 federal district, therefore 27x2 possible combinations for ICMS tax rates, 5570 possible tax rates for ISS and so on. Brazilian legislation allows a huge set of possibilities for the tax variations and this complex fiscal environment has been continuously criticized everywhere in the society but without any real movement to change. We are not talking only for ICMS (state of origin and state of destination) but also variations for ICMS for each state which multiplies the combination 27x2 by N of special conditions. As per special condition, we can mention one example: There is a different tax rate for finished product whenever the % of imported raw material (overseas) corresponds to more than X% of the total production cost. Can you imagine the effort to track down the stocks (could have mixed raw material), production orders, BOM and then change the tax during the invoice creation.
Brazilian fiscal regulations have many changes across the year. According to a Brazilian wide publication, it states +8100 regulation changes during the year of 2013. Due this particular characteristic of Brazilian regulations, Fiscal area always requires a great deal of effort to follow up those changes. Of course not all changes will have impact on IT but requires an effort to read, understand and decide whether apply or not to the ERP.
 Because the environment is so diverse and has a wide range of rules, controlling and reporting to the government, Fiscal environment could be considered doomed because to manage such complex environment would easily lead to Chaos. There is a game change. Recently (3 years or so), Brazilian government has been creating more and more serious and automatized controls to avoid fraud and tax evasion using concepts of Big Data. Those electronic controls are demanding more and more from the companies and several “Obrigações Acessórias” which are very specific mandatory reports to be provided to the different government “esferas” which purpose is to cross data therefore provide internal reports leading to the Fiscal department to apply heavy fees to the companies.
 Auditing suddenly got a lot easier meanwhile companies now need to be very careful about the quality of the provided information.  Any GAP could lead into an audit.
 In order to meet those legal requirements, companies are struggling to keep the pace and provide information to the Government. Many of the core reports created in flat files format also have a prior validation by a Brazilian Software before delivery. This software provided by the government cross many of the information in order to guarantee the minimum condition of quality has been set.
 For many big companies, a budget bigger than 500K R$ a year are required only to handle this Brazilian fiscal frenzy. Of course, there are many third part software provided by independent companies that gather the required data from ERP in order to provide cross validations and the presents the report. Choosing carefully this software is a big strategy because whenever an audit team arrives, the document drill down and correct correlation between report and accounting and fiscal data is the key to success and the better way to avoid penalties.
 ECF, SPED and a New age of control
 With effect from 1 January 2008, Brazilian corporate taxpayers are required to record electronically every tax and accounting operation to comply with the “federal”, “estadual” and “municipal” tax authorities: SPED system. Brazilian Digital Bookkeeping System (SPED – Sistema Público de Escrituração Digital) is based on the creation of the Nota Fiscal Eletrônica (Electronic Invoice – NFe), the Escrituração Fiscal Digital (Digital Tax Bookkeeping System) and the Escrituração Contábil Digital (Digital Accounting Bookkeeping) systems. Companies send electronically all related data about those and also other required information (obrigações acessórias) into Government Databases and through those, the Brazilian government can track down the Accounting and Fiscal whereabouts from all companies.
 The actual Brazilian tax model is imposing a considerable volume of duties, that has direct impact in billing, invoice processing and compliance with tax obligations, requiring changes in IT, setting constrains on how to manage business processes. 
 Back to 2011 Brazilian Government imposed more rules regarding digital bookkeeping requirements. Brazilian tax authorities have had shown a roadmap of additional initiatives (few already has a defined due date but there are other yet in progress), such as Electronic Services Invoices (NFS-e), Taxable Income Computation Book (ECF), e-Social (SPED Payroll), Bloco K - SPED Stock (Inventory Manufacturing Control) and so on. Because the Tax scenario is so complex and often there are changes in the regulations/shared model up to few weeks before the obligation delivery, it is hard to keep the solution required at the speed of the changes required by the government. Those changes happens due rules clarification, result of legal interventions and other external factors. For example, for one of those main obligations, ECF**, it happened weeks before the due date. The software in charge to validate the report got 3 different versions 2 weeks before the delivery date. It is an IT nightmare for anyone.
N "Obrigações acessorias": Fiscal control cross check. A retail company present in 15+ states and 40+ cities could have 80+ "obrigações acessórias" reports to provide
SPED Fiscal Bloco K: Need to provide raw material stock, production order and raw material consumption for each order and then finished products
SPED Fiscal: What, when, from where the company did buy at which tax rate
SPED Contábil: Accounting reports
SPED ::: ECF (Escrituração Contábil Fiscal):  It is a new obligation required by law to all companies that have operations in Brazil. ECF is an evolution of previous tax related deliverables replacing the previous reports of DIPJ (Declaração de Informações de Pessoa Jurídica), CSLL (Social Contribution on Profits), LALUR (real/deemed profit - Livro de Apuração do Lucro Real) and others. It also requires an additional handling of a broaden set of information for tax tracking purposes and other outputs generated for other obligations like SPED Contabil (ECD - Escrituração Contábil Digital).

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2017 Ranking of the Best Arbitration Centers in Brazil

The ranking has been published by "Leaders League". 

I basically agree with their evaluation. 

AMCHAM is located in my city (Belo Horizonte) and I know them very well. 

CAM-CCBC (the chamber from the Brazilian-Canadian chamber of commerce) and AMCHAM chamber are also very good. 

They are on the top of the list. This matches the feedback I get from clients and colleagues. 

2017 Ranking of the Best Arbitration Centers in Brazil:

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quarta-feira, 8 de março de 2017

Basic transfer pricing rules in Brazil

Pursuant to Art. 18 of Statute 9.430/96, the Transfer Pricing regime applies to the import and export operations of goods and services between related legal entities.

Under Art. 23 of Statute 9.430/96, the following should be considered connected or related to a Brazilian entity:

a)      their headquartes located abroad;
b)      their branch, if located abroad;
c)      the individual or legal entity, resident or domiciled abroad, whose ownership interest in its capital stock characterizes it as its parent or affiliate company, as defined in paragraphs 1 and 2 of art. 243 of Statute 6.404/1976;
d)      a legal entity domiciled abroad that is characterized as its subsidiary or affiliated, as defined in §§ 1 and 2 of art. 243 of Statute 6.404/1976;
 e)      a legal entity domiciled abroad, when it and the company domiciled in Brazil are under common corporate or administrative control or when at least ten percent of the capital stock of each one belongs to the same individual or legal entity;
f)       a natural or juridical person, resident or domiciled abroad, who, jointly with the legal entity domiciled in Brazil, holds a shareholding in the capital of a third legal entity, the sum of which is characterized as controlling companies or affiliates thereof, in the form Defined in §§ 1 and 2 of art. 243 of Law 6404 of December 15, 1976;
g)      the individual or legal entity, resident or domiciled abroad, that is its associate, in the form of a consortium or condominium, as defined in Brazilian law, in any enterprise;
h)      a natural person residing abroad who is related to or related to the third degree, spouse or companion of any of its directors or of its partner or controlling shareholder in direct or indirect participation;
i)       the individual or legal entity, resident or domiciled abroad, that enjoys exclusivity, as its agent, distributor or concessionaire, for the purchase and sale of goods, services or rights;
j)       an individual or legal entity, resident or domiciled abroad, in which the legal entity domiciled in Brazil enjoys exclusivity, as agent, distributor or concessionaire, for the purchase and sale of goods, services or rights

With the measure, the legislator intends to ensure, in particular, that transactions between legal entities belonging to the same economic group are similar to those practiced in the domestic market, avoiding irregular remittances abroad or irregular collection or deduction of income tax.

domingo, 5 de março de 2017

Companies are struggling to keep up with the fast pace of international e-commerce - Trade Ready

This article mentions that one of the main risk in cross-border e-commerce transactions  is

"Loss of revenue from unanticipated fees and fines or improperly calculating the cost of customs"

This is certainly true for Brazil. Exports conducted by mail or courrier to clients in Brazil are subject to heavy taxation. In some case, the cummulative taxes can reach over 100% of the value of the merchandise.  Not to mention that customs procedures can easily take 60-90 days to be performed (there is a lecture with the cost explanation here)

This is why so many companies choose to incorporate in Brazil in order to conduct business here. The taxation does not get that much lower, but at least is becomes more predictable.

Please check the original article: Companies are struggling to keep up with the fast pace of international e-commerce - Trade Ready:

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BritVic completes £56.8m acquisition of Brazil drinks company

BritVic completes £56.8m acquisition of Brazil drinks company:

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Kenneth Rijock's Financial Crime Blog: ODEBRECHT PAID MONTHLY BRIBES TO THE FARC

Kenneth Rijock's Financial Crime Blog: ODEBRECHT PAID MONTHLY BRIBES TO THE FARC:

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sábado, 4 de março de 2017

Monthly expenses of a new Brazilian company

Brazilian companies must all have, from day one, a local accountant and an administrator (director) who lives in Brazil. 

Foreign partners must also have a local representative in Brazil, at all times. This representative may, sometimes, be the director or a Brazilian partner. Other times, he must be hired to perform this job. 

Because of all that, any Brazilian company will face some monthly expenses that are mandatory: 

  • Monthly cost for a nominee administrator is of at least 600.00 USD per month.  A professioal administrator, hired for the job, would cost about 1,500.00 USD. 
  • The admininistrator must collect social security, which is based on the value he receives. The minimum payment is about 90.00 USD.
  • Monthly cost for an accountancy firm starts at 350 USD per month. Average of 500 USD in São Paulo.
  • Monthly cost for a local representative for the foreign investors starts at 350 USD per month

Be prepared!

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sexta-feira, 3 de fevereiro de 2017

Regional court rules Uber drivers are not employees according to Brazilian law

Bildergebnis für uber logo
UPDATE on February 14th: Another ruling from the same court, on a separate case, has declared that Uber drivers are indeed employees. The matter is still highly controversial.

A Federal judge has ruled, in one specific case, that a Uber drives is not entitled to the benefits of Brazilian labour laws. The ruling was based on the fact that the driver enjoyed a high level of independence and autonomy, not being subject to strict schedules or to direct orders from a boss.

This does not create any enforceable precedent (Brazilian law does not work with court precedents, except on a handfew cases).

However, it is one of the first decisions on the matter and it certainly  will have an impact in future cases, specially in Minas Gerais state, where the court is located.

This has been a total surprise to me. I was betting that the Brazilian courts, which are always over protective of workers, would use this opportunity to extend its claws over Uber and other apps.

I`m glad for being wrong on this matter. Brazil needs a lot more freedom for entrepreneurs.

By the way: I`m not a big fan of Uber`s legal standing in Brazil, generally speaking. But I will leave this topic for another time. 

quarta-feira, 1 de fevereiro de 2017

Dropshipping models in Brazil

Bildergebnis für dropshippingA reader has written me, asking if his dropshipping operation in the US would be able to serve Brazilian costumers.

The products would be paid for by credit card, and delivered to Brazil through Fedex.

I have actually given a lecture about this topic in London, during the Ecommerce Expo, a few years ago.

Here is my short reply to this complicated topic:

This project will face a lot of trouble. The most difficult one is that, in theory, Brazilians cannot import products through mail or Fedex without paying taxes. 

Because of that, all such packages are inspected by the Brazilian customs,  usually at Viracopos airport.  This process is unpredictable and may take 30 to 180 days. 

On top of that, total taxation over the goods may reach 100% of the value, and sometimes more (the goods may be evaluated as having a higher value than what is stated in the invoice). This tax is either paid upfront by Fedex and then charged from the final customer at the time of delivery, or must be paid by the final customer before the goods reach his hands. 

This is always a stressful process. 

A more reliable way to work would be to send the goods to a Brazilian importing company (trading company), who would import them through the more formal channels and deliver them in Brazil. 

I do this kind of corporate structuring often. Let`s discuss this in more detail. 

segunda-feira, 30 de janeiro de 2017

Israeli defense company Elbit signs deal worth $100 with Brazilian military

Bildergebnis für brasil israel amizade

In a major defense industry deal it was recently announced that the Israeli company Elbit Systems has won a tender worth $100 million to supply the Brazilian military with state of the art remote-controlled weapon stations, also known as REMAX (Reparo de Metralhadora automatizada X).  The work will actually be carried out by a Brazilian subsidiary company owned by Elbit Systems called Ares. Apparently the work is already underway with a $7.5 million production order already delivered to the Brazilian military.

What is REMAX?

REMAX is an advanced type of remote controlled weapons station built for machine guns mounted on logistical and armored vehicles. The REMAX systems produced by Elbit and Ares were created to meet the exacting standards of the Brazilian military and to be compatible with the Brazlilain army’s Gurani 6x6 vehicles. When the new weapon stations are installed the vehicles that are equipped with REMAX systems will be used for a variety of purposed including troop transportation, peacekeeping, and border patrol.

Who are Elbit Systems?

Elbit Systems is one of the largest Israeli registered companies involved in the defense and aerospace industries. The company was established in 1966 and since that time has become a large publicly traded company with subsidiaries in Europe, North America, and South America. With over 12,000 employees the company is a leader in new military technologies, especially drones and unmanned aerial vehicles (UAV).

Elbit Systems in Brazil

In 2001 Elbit entered the Brazlian market by purchasing Aeroeletronica (AEL). Then in 2011 Elbit acquired two additional Brazilian companies: Periscopio Equipamentos Optronicos and Ares Aeroespecial e Defesa. However, the potentially biggest development in regards to Elbit’s activity with the Brazilain market was a strategic agreement signed in April 2011 with Embraer S.A., the large Brazilian headquartered aerospace conglomerate. This agreement has led Embrarer and Elbit to work jointly on developing new technologies for unmanned aerial vehicles for military applications. The Brazilian air force now has several Elbit Systems Hermes 450 UAVs in service and performing operational duties. This same model of drone has reportedly been used in Israel during its conflict with Hamas in the Gaza Strip. In other countries it has been used for border patrol and reconnaissance missions.

Brazilian Israel Relations

While it is certain that this $100 million dollar deal was carried out after an extensive due diligence process, it remains to be seen if it will lead to warmer Israel – Brazil relations in other areas of the government. For the past year and a half, Israel has had no ambassador in Brazil due to the fact that Israeli Prime Minister Benjamin Netanyahu appointed the controversial Israeli settler leader Dani Dayan to the post. Thankfully the impass was resolved a week ago when the Israeli government decided to appoint a different candidate to the ambassadorship, Yossi Shelly. However, he is also a controversial figure for having a checkered past with questionable ethical violations. He also has no experience as a diplomat. However, as he has now already been approved by the Brazilian government he can focus on getting to work on improving relations between the two countries.

Guest post by Aaron Huber, Founder of  www.kycisrael.com