sexta-feira, 19 de outubro de 2018

Bolsonaro presidency and foreign investors

The election of Jair Bolsonaro as the next Brazilian president is very probable.

In this post, I will describe his base of support and the official documents of his campaign and present some conclusions on how his government will affect foreign investors.

The initial two thirds of the post will review the scenario and the candidate’s proposals. My personal views and forecast follow in the end.



Before ultimately choosing Paulo Guedes as his ministry for economic affairs (he is in the right of the picture) Bolsonaro had a political affair with Mr. Adolfo Sachsida.

Sachsida is a PHD in economics, with a post-doc degree from the University of Alabama. He has kept a blog and a YouTube channel for many years, which he used to defend that Brazil desperately needed more economic freedom. He may be called a classic liberal, in the sense of an advocate for small government and free enterprise (close to a libertarian, definitely not a liberal as in “left-wing”).

Ultimately, Bolsonaro chose Mr. Paulo Guedes, who is also an economist with clear free market inclination. He has a PHD from the University of Chicago and is the founder of a think tank dedicated to free enterprise, called Instituto Millenium, through which he has published many articles criticizing Brazilian excessive bureaucracy, taxes and government intrusion.

Moreover, Mr. Paulo Guedes is a well-know player in the market. He has founded Ibmec, a very successful college that teaches business and economics. He has also worked in the financial market and is one of the founders of Banco Pactual bank.

In short, Bolsonaro has been building relationships with advisors who are unquestionably pro-business.


Undeniably, Bolsonaro enjoys a very high popular approval. This is his real strength. The industries mentioned here should not be understood as hidden puppeteers running the show, but only as lateral supporters.

a)           Agriculture

Agribusiness has been an early adopter of Bolsonaro. This has much to do with the previous government’s support for land expropriations, invasion of land by guerrilla movements and severe environmental restrictions.

b)           Banks

Banks and other financial institutions were, to some extent, comfortable under the worker’s party (PT). The economy had good periods and credit expansion was incentivized. Moreover, the government’s increase in expenses relied heavily on internal loans. Business was good.

In the last 04 years, the severe economic recession damaged the relationship between PT and banks.  

Geraldo Alckmin, the candidate from PSDB party, was supposed to be the candidate of the financial sector. His party is basically favorable to increase in government expenses, although not so radically anti-business as PT.

However, Alckmin’s performance in the pools (and eventually in the actual first round of voting) was dismal. As a result, the financial industry ended up favoring Bolsonaro, who is not n favor of increasing government indebtedness, but who at least offers a pro-business agenda.

c)           Industrial sector

Support from organizations representing the industrial sector has never been enthusiastic. Nevertheless, Bolsonaro was the only candidate to firmly promise to uphold and perfect the labor laws reforms approved recently. So, they joined him.


Some of the non-business entities that support the candidate are the state’s Police Forces, some sector of the Military, most Protestant churches and a relatively small part of the Catholic Church. There have been hints of support from the Freemasonry.


I.             OPENING

The campaign program opens with a bold statement in favor of private property.

People must be free to make choices. The material fruits of those choices, if generated honestly in a free-enterprise economy, have a name: PRIVATE PROPERTY. (…) your car, you land are fruit of your work (…). They are sacred and can’t be stolen, invaded or expropriated.
(the expression “private property” is in all caps in the document)

The program indicates that the rules providing for equal treatment of foreigners and Brazilians will be maintained.

Any person in the national territory, even if he is not a Brazilian citizen, has inalienable rights as a human being, and has the duty to obey the laws of Brazil.


The main issues that the new administration wishes to address are:

a)           Insufficient and deteriorated infrastructure;

b)           Health and education nearing collapse;

c)           High unemployment, as official statistics count 13 million people without work;

d)           Explosive deficit in Federal budget.

This last topic receives considerable attention. The primary deficit (before payment of interests) is described as 139 billion BRL (37,5 billion USD). The team promises to reduce it rapidly, by reducing expenses, mainly by removing political appointees from the Federal structure.

The nominal deficit (which includes expenses with the payment of interests), amounting to 489,3 billion BRL (132,2 billion USD), is described as a great reason for concern. The deficit in the public pension system (around 77 billion USD each year) is also included in the list of problems.


a)    Privatization programs

Aggressive privatization of state-owned companies.

b)   Further relaxation of labor laws

c)    Changes in the forecast of expenses in the yearly budget

The government will adopt zero-based budgeting, as an effort to trim as much unnecessary expenses as possible.

d)   Blending and reduction of ministries

The minister of economic affairs will probably absorb several other ministries, such as the Treasure, Planning, Industry, etc. 


a)    Reduction of import tariffs and trade agreements

There is a proposal to reduce import taxes, eliminate non-tariff barriers and to enter into new bilateral trade agreements.

The program mentions incentives to the importation of high-tech machines to enhance the adoption of “industry 4.0” and the success rate of startups and scale-ups.

b)   Reduction of daily bureaucracy and tightening of compliance

The project proposed by the campaign team is twofold.

One promise is to reduce daily bureaucracy, the infamous need for stamps and certified copies that is so common in Brazil. There is a promise to unify the procedures for incorporation and liquidation of companies.

Another ramification of this topic is the promise to crack down on corruption and tax evasion.

c)    Tax reforms

The projects for this area are:
·      Progressive reduction of overall tax burden;
·      Consolidation of federal taxes in one, or very few;
·      Reduction of Federal tax income and increase in the municipality tax income;

Note: Concentration of tax revenue at the Federal level is a huge problem in Brazil, since it leaves municipalities and states in a very disadvantageous position when negotiating with the Federal government. This may require constitutional reform.

·           Institution of a general system of negative income tax, to replace the limited system of Federal assistance

Note: A system of this kind would reduce the leverage of the Worker’s Party, since direct handling of monetary benefits is a big campaigning point for PT.

d)   Social security reform

For social security, the project is to create a parallel system of individual contribution and to reduce the mandatory withholding of social security tax in the paychecks. The plan is to progressively reduce the current system, which is dependent on complementary funding from taxes, and to shift as many people as possible to the new individual contribution system.

e)    Agribusiness

Bolsonaro’s Project for the area include the blending of the ministries for agriculture and environment protection. Ministries that are connected to agribusiness, such as fishing will also be agglutinated and subject to centralized policies.

f)     Energy

Overall, reduction and simplification of regulation. The program brings heavy criticism of former president Dilma’s policy of mandatory review of rules for the electricity sector.

There is mention of putting an end to the rules demanding minimum percentage of local content for Petrobras’ purchases.

Also, the program mentions a reform in the rules for distribution of natural gas.
g)   Infrastructure

Great emphasis on the need for renovation of railroads, ports and airports.  The cabinet will try to attract private investment for these areas.


Bolsonaro’s assessment of the Brazilian situation is very accurate. And the solutions are on point. I believe that, in economic terms, his government will be very successful.

I.             my forecast for LEGAL AND ECONOMIC DEVELOPMENTS

a)    Restrictions to the purchase of rural land by Chinese investors

Since the Lula presidency, Brazilian law has been tweaked to make it harder for foreigners to purchase rural land. Many lawyers have studied the issue and concluded that the limitations were unconstitutional. But the fact is that severe restrictions are already in place.

Bolsonaro agrees with such restrictions and has openly criticized the purchase of large areas by foreign investors, especially Chinese (but also Arabs and others).

His administration will probably apply measures to make it harder for foreign investors to purchase property titles. Those measures could mean anything from harder administrative control over deeds to an actual constitutional reform.

The practical impact of these restrictions for daily business should be low. The market has already adapted to the current restrictions, by shifting from land purchase to contracts for sale of future crops, joint-ventures and similar arrangements.

b)   Reduction of red tape in environmental licensing for mining and agricultural projects

Bolsonaro has promised to ease environmental restrictions. But, more than waiving legal requirements, which would require legal changes subject to congress, his administration will probably restructure the environmental law enforcement agencies and the procedures for acquiring licenses.

Environmental licensing is partially managed by states and partially managed by the Federal Government. The productive sector has accused the agencies involved in the process of being slow, ideologically biases and, at times, corrupt.
It is an absolute certainty that they are slow. Licensing takes years.

I must note that similar programs to reduce bureaucracy have been adopted by the Temer government in several specific areas, such as in the customs, with very good and fast results.

c)           Mercosul will lose prestige

Bilateral agreements will be favoured. 

d)           More demanding tax and legal compliance

One can anticipate stricter tax penalties and enforcement of anti-corruption controls.

e)           Petrobras will not be privatized, yet

Bolsonaro’s cabinet should include several military advisors, who will act as a counter-balance to Mr. Guedes’ libertarian views. Companies that are deemed essential to national security, such as the nuclear energy companies and Petrobras, will probably remain under Federal control.

f)            Legalization of ownership of guns for personal use

This is a huge campaigning point. Brazil allows the ownership of guns, in theory, but administrative and importation restrictions make them available only to the upper middle-class or to people with connections.

The stocks of Forjas Taurus, the main arms manufacturer in Brazil, have increased in value significantly during 2018, in anticipation of a surge in sales.

g)           Purchase of military and defense equipment

The military and the state police forces will receive special attention. The arms industry, including not only pistols and offensive equipment, but also intelligence technology and vehicles, should keep an eye in Brazil.

h)           Banks and the financial market

My clients who work in the financial market are very excited and expect an increase in foreign investment, mergers & acquisitions and in the general economic activity.


As I’m writing this article, about 10 days from the 2nd round of the election, there are many manifestos, declarations and articles, mostly from left-wing thinkers, that condemn Bolsonaro’s economic plans, or that suggest that, despite his plans, his government will turn to dictatorship and eventually ruin Brazilian institutions and international credibility.

There are too many of them. But names such as Piketty and media outlets such as The Economist will give the reader an idea of what I’m talking about.

Plainly speaking, I deem this kind of criticism utter nonsense. I have read all the material I could find and perceived that there has been very little analysis of Bolsonaro’s actual plans.

Most criticism is based on ideology or is, simply put, propaganda. There is no analysis of his actual cabinet members, political base or economic policies.

The people who studied the plan and that have skin in the game, such as financial firms, stock brokers and Brazilian banks, approved the proposals and do react positively each time a pool shows that the chances of the candidate are increasing.

segunda-feira, 30 de julho de 2018

Evento OAB/MG sobre Internacionalização de Empresas

A Comissão de Direito Internacional da OAB-MG, da qual faço parte, se mobilizou para fazer um evento sobre aspectos práticos do Direito Internacional.

Todo mundo associa Direito Internacional a temas um pouco vagos, de fim de noticiário. Alguma coisa envolvendo a ONU, uma guerra num canto distante da Europa já beirando a Rússia, etc.

Mas o Direito Internacional, hoje, é base para solução de problemas muito urgentes. As pessoas que saem (fogem) do Brasil precisam do Direito International. Da mesma forma, as empresas de tecnologia que buscam abrir sede em Miami e qualquer empresa que faça venda pela internet para clientes no exterior.

Os temas do evento são muito chamativos e os palestrantes, a maioria meus colegas, são excelentes.
Anotem aí. Dia 09 de agosto, quinta-feira, às 09h da manhã. 

Eu vou palestrar sobre contratos de câmbio relacionados à internacionalização de empresas.

A inscrição é gratuita e pode ser feita pelo site da OAB/MG.

terça-feira, 5 de junho de 2018

Opening of branch in Brazil - Official guide

The Brazilian government has published a manual  explaining how a foreign corporation can set up a branch in Brazil. 

Unfortunately, it is terrible. 

The problem is that the investment via branches was designed for a different era. The two basic acts that regulate it are respectively from 1916 and 1962. 

It was the time of huge factories shipped in blocks to poor countries, but totally controlled and administered from headquarters back in the UK or Germany. 

Nowadays, any big business will have a local board in Brazil which is trained in Brazilian taxation and that understands the Brazilian market. 

Moreover, under the old rules the branches were forced to publish the balance sheets of the worldwid eoperations in Brazilian newspapwers. Nobody is going to spend money on this kind of bureacracy nowadays. 

I`m saying this because I think the guide should have focused on the few exceptional cases in which using a branch is still fine. For example, if you are a trading company operating between Brazil and Uruguai. 

Without this context, the guide is actually boring and intimidating. 

The documetn missed the opportunity to display how incorporating a new company in Brazil has become a much quickers and smarter investment route than opening a branch. 

On the plus side, the guide brings some templates that can be very useful. The image on this post is an example. 

There is a Spanish version too. 

If you want to read the guides, you may download the English one here and the Spanish one here

For a more positive view on how to incorporate in Brazil you may check any of the links below: 

sexta-feira, 1 de junho de 2018

Tributação de empréstimos tomados no exterior por quem mora no Brasil

Em resumo, a tributação sobre empréstimos de longo prazo obtidos no exterior é de: 

IOF:  zero (mas o IOF pode mudar a qualquer momento, por isso é preciso conferir sempre);

IR:    15%, somente sobre o valor dos juros. A devolução do montante principal não paga imposto de renda.

É bom lembrar que a simples contratação do empréstimo não gera Imposto de Renda no Brasil. Não se paga IR sobre o dinheiro emprestado “que entra”.

A maior dificuldade é que o empréstimo deve ser registrado perante o Banco Central e a taxa de juros contratada deve seguir algumas regras. Especialmente, a taxa de juros não deve estar longe da média que se cobra no mercado internacional.
Recomendo que a operação de entrada do dinheiro seja feita por meio de bancos especializados em câmbio.

Sempre será necessário um contrato internacional, devidamente assinado

Você precisará dele para registrar o empréstimo no Banco Central e também par conseguir liberar a remessa junto à mesa de câmbio.

quinta-feira, 31 de maio de 2018

Amendment to Double Taxation Agreement with Norway

The Brazilian senate has approved changes to the Double Tax Agreement with Norway, reflecting a Protocol signed in 2014.

The changes are destined to allow the exchange of information between the tax authorities of each country.  The text can be found here (in Portuguese).

The protocol is pending presidential sanction to become valid in Brazil.

We will probably see a lot of amendments to old DTAs, following the new UN model tax treaties from 2017 and the OCDE updated rules on transfer pricing and other issues.

Link to the Senate page:
Plenário aprova acordo com Noruega para evitar dupla tributação e sonegação — Senado Notícias:

sábado, 19 de maio de 2018

Bitcoin arbitrage in Brazil - how to do it

Brazil has been a good market for Bitcon/cryptocurrency arbitrage. Although the last weeks have been rough, prices spikes always occur and specialists have pointed out to me that, if one can keep costs down, it is possible to set up a stable and recurring arbitration business.

The restrictions faced by entrepreneurs are more due to bureaucracy and business culture than to legal regulation. Brazilian law is relatively welcoming of bitcoins and other cryptocoins.

In this article I will explain both the theory and the practice behind it.

Note: I`m using Bitcons as the general term for cryptocurrencies.


Bitcoins did not receive a specific legal classification in Brazil, as of yet. So far, they are subsumed under the general class of “intangible goods”, but without any special designation such as software, services, intellectual property, etc.

This turns out to be very consequential. The broad definition prevents bitcoin from being taxed as a license subject to royalties, or as an off-the-shelf software code.

In a sense, cryptocurrencies are similar to shares or financial options. Intangible property that is worth money, but that is not subject to import tax or other customs duties.

This mean that they can be openly called bitcoins in legal documents, which is a plus. Several other countries require traders to conceal the nature of the operation by calling bitcoins “software”, “special services”, “special customers points in a promotion system” and all sorts of understated or generalized terms.

Keeping this line of reasoning, a hypothetical purchase of bitcoins abroad, made by a Brazilian company, would play out like this:

  • The Brazilian company would make an international transference of funds to the seller. This purchase is not taxed in itself, however the FX transaction is taxed at 0,38 by the tax over financial operations (IOF);
  • Bitcoins are transferred to the buyer`s wallet;
  • Bitcoins are sold inside of Brazil. This sale will be taxed according to the company`s tax regime in Brazil and will probably be considered a “Non-operational” gain, taxed at 34%.
  • Profits of the operation can be used to purchase more bitcoins.

However simple, this operation is rarely performed, due to the problems listed next.


The first problem is that few banks are bitcoin friendly, specially among the big retail banks. The situation in Brazil is not as bad as in other countries, though, because middle banks specialized in FX transactions are more willing to engage in operations involving bitcoins.

A second obstacle is that the local sale of bitcoins does not generate a formal invoice for tax purposes (nota fiscal). This tends to put the company in a tough spot when it is required to prove the origin of its profits to the bank compliance officers. A solution for this will be discussed in the next section.

The business practices of bitcoin exchanges also present a challenge. Exchanges in the US or Europe don`t generally accept deposits made directly by a foreign entity located in South America. It is not uncommon for an exchange to only accept deposits made from a bank based in the same country as the exchange.

Finally, the processing time. Sending money abroad through banks or exchange houses is not a continuous process. From time to time the compliance procedures will eat up a couple days. Moreover, retail banks will seldom perform transactions in the same day. D+2 is likely the standard. If the operation is not correctly timed, a week can go by before the funds reach the other party.


After meditating on this problem and after discussions with a good number of banks and compliance officers I conceived a model that is compatible with Brazilian regulations and that is agile enough to work according to the timing of the arbitrage business.

1. First step is to incorporate a Brazilian company, owned by a foreign company that is engaged in the purchase of bitcoins.

  You may find more details about it in this post.

2. The owners of the Brazilian company must inject funds in the Brazilian entity through increase or pay-up of equity (loans can be used, but are not recommended in this case)

The funds available to the company should be enough to purchase bitcoins abroad in large scale.

The controlling company, based abroad, will purchase bitcoins in local              exchanges.

3. The controlling company must perform a direct sale (over the counter sale) to the Brazilian subsidiary

This is extremely important. Bitcoins cannot be transferred directly to the Brazilian subsidiary, without a proper purchase and sale agreement. The price described in the contract should be somewhat of an “arm’s length” price. Brazil does have transfer pricing rules and will not accept a direct transference of assets from the controlling company, unless this transference is backed by commercial reasons.

On the bright side, Brazilian transfer pricing regulations are not detailed when it come to financial products or intangibles. This means that the controlling company can opt to sell the bitcoins with the slightest overprice.

The sale contract should be precise when describing the term of payment. Terms of up to 30 days wold be considered normal and give enough time for the Brazilian entity to resell the assets in the Brazilian market, hopefully for a profit.

4. The Brazilian entity will receive the bitcoins in it wallet and will sell them in Brazil.

    The sale can be performed directly to individual or through an exchange. If a sale is made directly to a buyer, a full purchase and sale agreement should be executed. In case the sale is performed through an exchange, the company must be very meticulous in detailing which exchange was used and, if possible, the company should try to obtain info on who the buyer is. The more detailed the records, the easier it will be to complete the next step of the process.

5. Remittance of the payment to the controlling company, through an exchange agreement.

    When performing the payment, the Brazilian company should be able to point out the origin of the funds. That is, it should demonstrate financial books and, if possible, executed agreements with buyer/ or a log of transactions performed in an exchange. Good records will allow the exchange to be processed quickly, maybe in the same day.


This template is very simplified. A realistic model should take into account the exchange rate variation and other details.

This model can be also expanded to a more financial profile. For example, the foreign investor can make the Brazilian company overfunded, through loans or other means, so that it will be able to purchase several batches and only have to perform a FX transaction once every 60 days. This may allow the group to take advantage of variation in the USD/BRL rate.

Please feel free to get in touch if you need recommendations for bitcoin friendly banks, or if you would like to explore this model in more detail.