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  • CFO Magazine

Brazil Is Booming (and Maddening)

U.S. companies are keen to expand into Latin America's biggest market, but CFOs report that Brazil poses unique challenges.

As Brazil continues to welcome more foreign companies, and as the country’s own businesses expand abroad, many executives expect eventual reforms to the tax and legal systems. Monaghan notes that there are several proposals currently before Brazil’s congress that aim to simplify the tax code, but action is not likely to be quick, particularly as the country prepares for a Presidential election in the fall.

Harding says that, despite Brazil’s fast growth, the pace of regulatory change has been slower than in some other countries. “The complexities and security concerns that were there 10 years ago are still there,” he says. “What has changed is the strength and stability of the market itself.”

That strength and stability has won over many CFOs, despite the tax and legal headaches they must often endure. “Brazil has its challenges, as all these emerging economies do, but it has a very bright future,” says Hayes. “It’s really one of the key markets for us in the next 5 to 10 years.”

Kate O’Sullivan is senior editor for strategy at CFO.

No Day at the Beach

Brazil’s tax code poses one of the most significant challenges to U.S. CFOs looking to do business there. “Everything in Brazil will tend to have a different applicable tax rate, depending on the type of service or product,” says Larry Harding, president of High Street Partners, an international business-services firm that advises companies on overseas expansion. He outlines two hypothetical examples for companies trying to sell into the market from outside Brazil:

Product invoice scenario:

A U.S. company invoices a Brazilian company for a computer-hardware purchase. Once the buyer in Brazil receives the product and related invoice, the buyer will have to pay taxes on the item as follows:

• Importation tax: 16%
• Industrialization tax: 15%
• Social-integration program contribution tax: 1.7%
• Social Security financing tax: 7.6%
• Tax on circulation of goods and services: 18%

Service invoice scenario:

A U.S. company invoices a Brazilian company for a consulting service. Once the customer in Brazil receives the service and related invoice, the customer will have to pay taxes on the service as follows:

• Withholding tax: 15%
• São Paulo services tax: 5%
• Cross-border royalties and services tax: 10%
• Social-integration program contribution tax: 1.7%

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