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What is the size of the government tender and procurement market in Brazil?

Including the federal, state and municipal areas, the Brazilian government procures the equivalent of USD 170 billion per year in goods and services. In addition, the 2014 World Cup has a budget initially estimated at USD 56.8 billion, while the 2016 Olympics have a budget initially estimated at USD 19.3 billion and there are other large projects that also require investments in infrastructure, such as the 2013 Confederations Cup and the 2016 Paralympic Games.

Can foreign companies directly participate in public tenders in Brazil?

Yes, provided they meet the requirements through equivalent documents duly consularised and translated. But it is important to determine at the strategic level the best ways to explore the market for government tenders, which has some differences in opportunities between national and international tenders. In this context, consortia and other forms of joint ventures with Brazilian companies can maximise the chances of success and expand opportunities.

In principle, what are the requirements to bid for government contracts?

Brazilian law stipulates that bids must be adapted to the specifications of the products or services tendered and that the price must be compatible with the market price. In terms of qualification, documentation is required as to the legal aspects (memorandum of association and related documents), technical aspects (certificates of technical capacity and related documents), economic and financial aspects (balance sheet and other accounting documents) and aspects of tax compliance (certificates of regularity).

Is it possible to map the market for government contracts by area or sector?

Yes, it is possible to map, for example, the competitors, products offered, brands, prices and names of public bodies purchasing products or contracting for services or public works. In addition, as well as monitoring new tenders that are published, it is possible to assemble a report on market behaviour, for example, for the last year or even longer, if necessary.

How structured is the Brazilian legal system for government procurement and contracts

In principle, there are the general federal standards and the specific rules of the states and municipalities, but they are all very similar. For example, all public entities prefer the principle of open tender (reverse auction) because of the greater competitiveness and economy in price, but also have standards to ensure safe and reliable procurement. In the case of bids made by public companies and joint stock companies, such as Petrobras and Third Parties, as well as in regulated industries such as telecommunications and transport, there are different regulations. In all cases, companies have legal instruments to defend their rights in the courts or accounting tribunals, whether in issues regarding participation in bids or in matters of government contracts.

What is the process for importing products in Brazil? Are there specific requirements? What are they and in what areas?

There are three modes of import in Brazil, "Import on Own Account", "Import to Order" and "Import on Behalf of Third Parties".

Each of these methods provides a different tax treatment, affecting the final price of the product to be marketed in Brazil.

The choice of mode that can best suit a particular importer depends on economic aspects associated with use of the goods to be imported (for example, import of raw materials for manufacture, import and use of material for consumption or import of equipment for fixed assets, finished products ready for resale, etc.).

Also the choice of the right mode varies due to financial aspects of the operation (there are cases where the importer pays for the operation with its own resources and others in which the importer receives advances for handling the import of goods acquired by a third party, etc.).

What import regimes and rules are in force in Brazil? How do they work? Are there special and atypical customs regimes? What and how do they work?

The regimes and import rules in force in Brazil are:

  • Import on Behalf of Third Parties
    In this type of import, the trading company provides a service, handling in its own name the customs clearance of imported goods purchased by another company - the buyer - under a previously signed contract properly notified to the Tax Authority, which can also cover the provision of other services. The trading company (importer) has possession of the goods and the buyer has ownership of them. This import mode is governed, among other statutes, by Normative Instructions no. 225 and 247, both of 2002.
  • Imports to Order
    Imports to Order are imports in which a (trading) company acquires goods abroad with its own resources and handles their customs clearance for import in order to resell them later to a predetermined ordering company, under contract signed between the importer and the ordering company and duly notified to the Tax Authority. The importer has the obligation to resell the imported goods to the predetermined ordering party, and it is he, the importer, who arranges the international purchase and must have the economic capacity to pay for the import in the relevant currency. Import to order is governed in Law no. 11,281/2006 and regulated by Normative Instruction no 634/2006.
  • Import for Own Account
    With Imports for Own Account, the importer acquires goods abroad with its own resources and handles their customs clearance for import in order to resell them later. Unlike import to order, in this case the importer does not know who is the final recipient of the goods, i.e. it performs the import when purchasing the goods from the exporter abroad, ensures their nationalisation and enters the goods in its inventory without previously knowing who it will sell them to. It is the importer himself that concludes the international purchase agreements and must have the economic capacity to pay for the import in the relevant currency. As for the Special Customs Regimes, yes, there are many under Brazilian law, and, among them, we can highlight the following:
  • Bonded Warehouse
    The bonded warehouse procedure for importing allows the storage of goods in a bonded place with suspension of payment of taxes. The goods admitted on this regime may also be subject, under certain conditions, to exhibition, demonstration and test operation; industrialisation; and maintenance or repair.
  • Drawback
    Considered as an incentive to export, the drawback can be applied in the following ways:
    Suspension of payment of taxes on imported goods to be exported after processing or intended for manufacture, completion or other packaging for export.
    Exemption from taxes on imports of goods in quantity and quality equivalent to that used in the processing, manufacturing, complementation or packaging of the exported product; and total or partial refund of taxes paid on the import of goods exported after processing, or used in manufacture, completion or other packaging for export.
  • Temporary admission
    This is the regime that allows the importation of goods that are to remain in the country during a prescribed period, with total suspension of tax payment, or partial suspension in the event of commercial exploitation in the form and conditions established by law.

What is the RADAR system? How does it work?

RADAR, the Performance Tracking System for Customs Stakeholders, is an internal system of the Tax Authority, which allows it to grant access to qualified entities to import/export goods. Enabling of legal entities in RADAR must take place in accordance with the provisions of Instruction No. 650/06 of the Tax Authority, by completing specific forms and submission of the documents required for each type of licence, among which we highlight the Ordinary and Simplified conditions.

On enabling in RADAR, the legal responsibility of legal persons must be registered in SISCOMEX (Integrated Foreign Trade System), and the company can then usually perform foreign trade operations (import and export).

The need or not for prior registration for imports of a particular product will depend on the type of product. There are some goods that require prior registration with the competent bodies in order to be imported. This is the situation, for example, in the case of petroleum products, which can be imported only after registration with the ANP (National Petroleum Agency), or indeed in the case of import of drugs, which can only enter the country when properly registered with ANVISA (National Health Surveillance Agency). In this regard, each authorising agency has previously determined rules for the registration of products.

How is it necessary to plan costs for processes of export/import to and from Brazil?

How is it appropriate to calculate the final sales price in the Brazilian market? Are there specific requirements for each sector? If so what? It is possible to get an idea of the overall average costs per sector for a specific amount, depending on the means of transport used.

To be able to assess the costs related to the processes of export/import in Brazil, it is necessary to bear in mind that there are common cost components to these operations regardless of the country where they occur. There are other components attributable to particular aspects of Brazil.

It is necessary to give a quote for transport services (in the country of origin, the international segment and country of destination) and a quote on insurance, allowing for the necessary coverage.

Fairly often, it is necessary to consider possible costs of storage in customs facilities in the country of export and the country of destination. Customs clearance on imports for consumption is a procedure initiated by recording the Import Declaration (DI) and completed with the customs clearance, which corresponds to the issue of the Import Certificate (IC).

This procedure should preferably be performed in the tax jurisdiction where the importer is domiciled. Not infrequently, however, the imported goods will have entered the country by a port, airport or border point different from that where the importer is located. In this case, the costs of removal (usually performed by the Customs Regime and called "Customs transit") must be considered as well as they storage periods incurred in the unloading site and the site where the customs clearance is handled.

It is necessary to consider the costs of customs clearance, the costs of port and wharfage fees, among other itemised in the attached spreadsheet. It should be noted that some products are included in a report, governed by the appropriate provision, for which the procurement of a Import Licence (LI) prior to shipment is required, while for other products such a licence must be obtained prior to the record date of the DI. Most often, the LI is automatic. Depending on the situation, it is necessary to calculate the cost of obtaining the LI. With the registration of the DI and after the tax classification applicable to the product, the collection of taxes takes place. The tax classification can determine a more or less onerous position, with varying rates for taxes on Import (II) and on Industrialized Products (IPI).

Social contributions to PIS and COFINS are also collected in the course of customs clearance. Like the IPI, the social contributions concerned follow a system of noncumulative calculation. For this reason, an adequate cost plan should consider the amounts to be levied as a credit by the importer to reduce the amount owed by the same importer, when it handles the subsequent operation on output (sales).

As a general rule, there will also be a liability to ICMS, the tax on movement of goods, levied by States and to be paid by the importer prior to finalisation of the customs clearance. This is also a tax subject to the noncumulative system. In some states, the marketing rules, for purposes of calculating the GST, are regulated differently. As an example, in the State of Espírito Santo, there is a rule stating the need to determine the GST payable on a subsequent operation to be applied by the buyer to the importer. This is the ICMS-ST (ICMS due for tax substitution), which in this case assumes a hypothetical margin of 64% (regardless of whether this margin is applied or not).

The rules of allocation of noncumulative tax credits and their use for the relevant tax rebate due in a subsequent operation may vary depending on the taxation system elected by the taxpayer. Importers opting for the system of taxable income must submit to the separate treatment appropriate to those taxpayers subject to the presumed income system. For the case of social contributions, we must also observe those taxpayers who are covered by the cumulative system, in whose case cascading contributions are levied. We must also consider the imports made to supplement the fixed assets of the acquirer, for which noncumulative taxes are not recovered at once. Finally, in determining the sale price, it is necessary to observe the legal cases in which the buyer is qualified as industrial (even if performing a pure marketing activity), because in this situation the IPI is reflected in the price.

On this basis, the calculation of the sale price of a particular product should be determined case-by-case by noting the specific features of the product itself and the characteristics of the importer and buyer. It is not possible, except with an immense margin of error, to determine a factor for fixing the average overall cost per product, by industry or activity. There are many variables to consider.

How is it possible to operationalize the process of export/import to and from Brazil with regard to logistics and distribution (transportation solutions, storage of "stocks", distribution, forwarding agents, customs brokers, freight hauliers, etc.).?

Any person wishing to export to the Brazilian market should make sure to sell and ship products in a suitable consolidated batches for loading.

The greater the value to be transported (exported/imported) to Brazil, the greater the expenses that the product could incur in its operation because some expenses in the import process are fixed, regardless of the quantity and value of the batch, like some charges of the port and customs broker. The consolidation of cargoes in suitable batches also allows the exporter to pay the lowest rates of storage and insurance premiums as well as to get the best freight rates.

For those with regular and large volumes to be exported to Brazil the best approach is to hire a company that offers an integrated solution in international trade, hiring and managing all the service providers involved in the chain.

Companies that are not regular exporters and/or cannot work with suitable volumes have difficulties in being competitive.

What types of companies are commonly used by investors in connection with carrying out direct investment in Brazil?

Despite the existence of other corporate forms, the legal types most frequently adopted by both national and foreign businesses are the limited company and the joint stock company. So, because of their economic importance, these are the only legal types covered by our publication.

What are the main features of the limited company and joint stock company?

The limited company has its capital divided into shares. The liability of each shareholder is limited to the value of the shares subscribed, but all partners are jointly liable for full payment of the share capital. The joint stock company also has its share capital divided into shares and the liability of shareholders is accordingly limited to the amount of shares subscribed.

A limited company is formed by at least two shareholders and changes to the Memorandum of Association require acceptance by shareholders representing at least 75% of the capital. In turn, the joint stock company may have only one shareholder, provided that the shareholder is a Brazilian company, when it is considered a wholly-owned subsidiary. In the joint stock company, as a rule, amendments to the Bylaws must be approved by an absolute majority (50% + 1) of the shares entitled to vote.

What should be considered in choosing the type of the company to be formed by the foreign investor?

Investors should consider the type of relationship existing between the shareholders of the company to be formed, the value of the investment to be made and whether they have an interest in the issue of securities.

The limited company has some practical advantages over the joint stock company in terms of simplified corporate structure, reduced maintenance costs and fewer formalities. This is the most appropriate type of company for foreign partners belonging to the same economic group.

On the other hand, if the foreign partners belong to different economic groups and/or have an interest in the issue of debentures, commercial paper or any other type of security, the structure of the joint stock company would be the most appropriate. Moreover, it is noteworthy that, depending on the business activity to be carried out by the new company in Brazil, the use of the joint stock company may be mandatory.

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Is there a minimum amount of capital to be invested in setting up a company? How can this investment be carried out?

Brazilian law does not require a minimum investment. In reality, the value of the investment will depend on the resources required to implement the activities to be undertaken by the company in Brazil. The investment can be made in cash or through the transfer of other assets susceptible of monetary evaluation and is subject to registration with the Central Bank of Brazil, is also its repatriation and the payment of dividends.

How is the repatriation of the investment carried out?

The procedure to be adopted for repatriation is the same as used for the inflow of funds. The investor must register the relevant memorandum of association with the competent Commercial Registry and ensure its registration in the System of the Central Bank of Brazil. Once it is successfully registered, the investor may remit the values by concluding an exchange contract.

What types of police are there in Brazil?

In Brazil there are the Federal Police, Civil Police, Military Police and City Guard. All, within their respective spheres of action, may provide the necessary support for security companies seeking to prevent any criminal actions.

What are the procedures that security companies in Brazil have to observe when hiring an employee?

As a requirement of the federal police itself, as the entity responsible for monitoring the activity of Private Security, professionals working in the area must undergo a training course before being deployed to their jobs, as well as periodic professional refresher courses and a thorough criminal background search.

What requirements should be borne in mind when hiring a security company in Brazil?

There are 10 essential items when choosing a security company. They are:

  • Legality. Certain documents are essential for the legalisation of the company, including the Certificate of Security of the Federal Police and the Operating Permit issued by the Ministry of Justice.
  • Operation. Make sure that the company has been operating at least for more than 10 years in the market and has the technical qualifications to provide the service. History. The business owners and professionals who work directly on the activity order must not have a criminal record.
  • Customers. Good references are an important indicator of quality. Having in their portfolio clients of major importance in the market, who are known to apply a strict selection process of suppliers, should be considered as a benchmark for quality of service.
  • Workforce. Professionals who work in security must possess authorisation to perform the activity, be up-to-date with their refresher training and have their documentation in order. Updated uniforms and identification badges are a sign of good organisation.
  • Weapons. The legislation regulating the carrying of weapons and other equipment used in surveillance activities imposes additional obligations and significant costs for small businesses. Guards who are unarmed and with no protective equipment cannot always prevent a criminal act, and it is also the company's responsibility to ensure the safety of its employees.
  • Equipment. Integration between man and technology is one of the most important assets for private security. Official vehicles, radios and professional training materials are also important differentiators.
  • Facilities. Visit the company's office to know the status of the facilities. A provider of security services must have a modern office which emphasises the importance of using technology for security, besides having good organisation and information on the Internet.
  • Planning. Ask for a security plan in advance. It should contain the number of guards deployed and, if applicable, a schedule of the alarm system to be used on your property. Investment. The amount to be invested in the service depends on the customer's needs, but is also related to the level of training of the guards and to the price of armaments and employee safety equipment, etc..

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