22 June 2018
Brazil: Market Profile
- Brazil is a highly diversified economy and one of the largest consumer markets in the world. To foster the competitiveness of Brazilian companies by promoting the internationalisation of their businesses and the attraction of foreign direct investments, Brazil focuses on investments that will contribute to the development of technological innovations and new business models, strengthen industrial supply chains, have a direct impact on national job creation and improve the volume and diversity of Brazilian exports.
- To develop the strategic priority sectors such as automotive, renewable energies and environmental solutions, life sciences, oil and gas and infrastructure, the Brazilian government is offering numerous tax incentives at the municipal, state and federal level. Most of them are granted upon the submission of a project indicating the minimum invested amount, addressing job creation and other relevant matters. More information on the investment environment and the relevant regulations can be found at the APEX-Brasil.
- The inflows of foreign direct investment (FDI) to Brazil exceeded US$58.7 billion in 2016. As of the end of 2016, China’s total stock of FDI to Brazil topped US$2.96 billion, up from US$190 million in 2007. Hong Kong, holding an FDI stock of US$420 million in equity as of end-2015, was the 5th largest Asian investor in Brazil, after Japan, South Korea, the Chinese mainland and Singapore.
- As of 1 June 2017, there were 5 regional offices of Brazilian companies in Hong Kong. Investment from Hong Kong to Brazil, though, is far from significant.
- Hong Kong's total exports to Brazil surged by 25% to US$1.3 billion in the first ten months of 2017, while its imports from Brazil increased by 3% to US$2.0 billion.
Current Economic Situation
Failing to impart much stimulus to the economy from the World Cup and Olympics, the Brazilian economy was stalled by weak commodity prices, shrinking industrial production and ailing productivity and infrastructure. Together with crippling tax structures, an inflexible labour market, accelerating prices and waning popularity of the new government as it attempted to pull the economy out of deep recession, the Brazilian economy shrank by 3.6% in 2016.
Given the prevailing political and economic struggle, the Brazilian economy sees little sign of quick revival in terms of investment amid attempts by the new government to cap public spending and overhaul the outdated, uncompetitive labour laws and overburdened pension system. Looking forward, a cyclical recovery of domestic consumption strengthened by the stabilisation of commodity prices will oil the wheels of economic recovery, while the new government’s low popularity, plus the capital outflow induced by the monetary policy normalisation and tax reforms in the US, will likely put a drag on Brazil’s economic revival. Taken together, the Brazilian economy, after two consecutive years of contraction, is forecast to see a more encouraging expansion in 2018, followed by a mild growth of 0.7% this year.
Import transactions in Brazil are subject to regulation, authorisation and inspection by the Ministry of Finance’s Federal Revenue Secretariat (Secretaria da Receita Federal – SRF) and the Ministry of Development, Industry and Foreign Trade (MDIC)’s Foreign Trade Secretariat (Secretaria do Comércio Exterior – SECEX). To obtain such an authorisation, the importer must follow import procedures, which are currently conducted electronically by means of the Integrated System for International Trade (Sistema Integrado de Comércio Exterior), known as the SISCOMEX – a computerised system through which customs clearance and import licensing operations are processed. Enrolment is automatic upon the execution of the company’s first import transaction. Such a registration will enable the company to directly operate within the SISCOMEX system.
Once registered with SECEX, an importer must obtain an import licence for certain goods prior to the shipment of the goods. Such a licence may be obtained through SISCOMEX. There are three types of import licences – exempt, automatic and non-automatic. Most goods are exempt from import licensing requirements. However, importation of some products, such as spectacles and toys, currently requires import licences. The process and procedure of import licence application, however, are very time-consuming, involving lots of paperwork. Delays in granting of import licences have been widely experienced.
As a new phase for commercial operations, the Brazilian Ministry of Finance launched in April 2014 a single window for international trade operations (Portal Único de Comércio Exterior). The single window will unify all systems involved in the exportation and importation of goods in an effort to cut red tape in half and simplify and streamline international trade operations. Once the new system is fully implemented trade operators will handle a single electronic file. The goal of the Brazilian government is to reduce average processing times for export operations from 13 days currently to eight days by 2016, and average processing times for import operations from 17 days currently to 10 days by 2017.
Apart from registration and licensing, Brazil applies import duties as well as a wide range of indirect taxes on imports. Import duties are Brazil’s primary instrument to regulate imports. As a Mercosur member, Brazil utilises the Mercosur Common Nomenclature (NCM) classification, which is consistent with the Harmonised System (HS) classification. In general, the customs value of goods is determined on a CIF (cost, insurance and freight) basis. Most imports from non-Mercosur members are subject to Mercosur’s Common External Tariff (CET) which ranges from zero to 35%. Brazil has adopted a July 2015 decision by the Common Market Council to extend the mechanism that allows Mercosur countries to have a national list of exceptions to the CET through 31 December 2021. The new mechanism is limited to a maximum of 100 tariff lines at the eight-digit level, down from 200 tariff lines under the mechanism that expired at the end of 2015.
Import duties aside, products imported and/or circulated in Brazil are essentially subject to Industrial Product Tax (IPI), Merchandise Circulation Tax (ICMS), Social Integration Tax (PIS) and Social Contribution Tax (COFINS). The Industrial Product Tax (IPI) is a federal tax levied on most domestic and imported manufactured products. The IPI rates range from 5 to 35%, and the same rates apply for domestically produced and imported goods. On the other hand, ICMS is a state government value-added tax applicable to both imports and domestic products. Currently, ICMS rates range from zero to 25%, but are generally levied at a rate of 18%. In addition, social contributions are levied at the federal level. They include the contribution for the social integration programme (PIS) and the social security contribution (COFINS). These contributions are levied at a combined rate of 9.25%. All these duties and taxes are levied ad valorem on the CIF value of the imports on an accumulative basis.
In November 2004, Brazil granted market economy status to the Chinese mainland for purposes of anti-dumping (AD) and countervailing (CV) duty investigations. This means that cost and pricing structures in the Chinese market are regarded as reliable and used for calculating dumping margins. The Brazilian government has recently issued a decree that revamps effective from 1 October 2013 the country's regulatory framework for conducting anti-dumping investigations, seeking, among others, to issue preliminary determinations on average within 120 days from the start of a proceeding, down from a current average of 240 days. As it now stands, Brazil applies no CV measures on imports from the Chinese mainland or Hong Kong, but several AD measures on imports from the mainland, including vacuum flasks, table fans, loudspeakers, garlics, eyeglass frames, padlocks, footwear, hairbrushes, ballpoint pens, porcelain/glass tableware, tyres for cars, motorcycles, bicycles and trucks and cutlery, as well as pre-sensitised offset aluminium printing plates from both the Chinese mainland and Hong Kong.
However, to foster and modernise the Brazilian industrial production, Brazilian authorities has created the Ex-Tarifário regime since 3 April 2012 to promote the imports of capital goods and IT goods with no similar domestic production in Brazil. Under the regime, the import tax (II) can be temporarily reduced, usually to 2%, for a period of 2 years, and the Foreign Trade Chamber (CAMEX) will publish quarterly the products to which the Ex-tarifário incentive was granted. For example, a total of 275 items have been added to a list of foreign capital goods and information technology and telecommunications goods that benefit from reduced duty or duty-free treatment under the Ex-Tarifario regime. Of this total, 251 items are capital goods (229 new and 22 renewals) and the remaining 24 are IT and telecom goods (14 new and 10 renewals). Classified in HS chapters 73, 84, 85, 87 and 90, the capital goods will benefit from a reduced duty of 2% through 31 December 2017 (down from a duty of 14%), with the exception of two items that will benefit from such treatment through 31 December 2016. The IT/telecom goods, which are classified in HS chapters 84, 85 and 90, will also benefit from a reduced duty of 2% (down from 16%) through 31 December 2017.
Aside from duties and taxes, certain specific products must comply with applicable standards and certification requirements as required by the corresponding national regulatory agency, including ANVISA, ANP, IBAMA, INMETRO and MAPA. The certifications will depend on the type of product imported. There is a certification of quality from INMETRO, a sanitary certification from MAPA, and a plague-control certification from ANVISA, among others. In general, most of the above mentioned standards and certificates are in line with US and Australian standards so that Hong Kong companies can have their products tested and certified in Hong Kong or the Chinese mainland. An example in point is lighting products. When selling lighting products to Brazil, Hong Kong companies can use CB test certificates/reports which can be obtained from Hong Kong testing laboratories or agencies.
Brazilian legislation requires that the name of the country of origin on each imported article be included on the product’s label, packaging and brand. Products for domestic consumption must also comply with specific requirements established by the Consumer Defence Code, which requires any product that could cause harm to consumer health or safety to include a clear and exhaustive description of any potential hazards. Brazil also has specific labelling requirements for a range of products, regulated by various agencies. For instance, Mercosur has issued final technical regulations establishing labelling requirements for textile and apparel products produced in or imported for consumption into a Mercosur member country. These regulations have to be incorporated by member countries into their national legislation by 1 July 2008. Under the new labelling regulations, subject merchandise will have to include the following information in a label, stamp, decal, print or similar means that is permanent, indelible, legible and clearly visible: (i) name or registered brand and tax identification of the domestic producer or importer; (ii) country of origin; (iii) fibre content (fibres accounting for less than 10% of the total may be listed as “other fibre(s)”); (iv) care labelling instructions; and (v) size or dimensions, as applicable. This information will have to be presented in the language of the country of consumption but could also be presented in another language(s).
Regarding exchange control, the Brazilian Central Bank does not impose any limit on the amount of currency bought by Brazilian importers. In fact, the regulation establishes that any individual or company can buy or sell foreign currency, or transfer national currency to any country, with no amount limit, for any licit business transaction, in accordance with the Brazilian tax legislation.
Brazil’s free trade zone, namely the Manaus Free Trade Zone, is among the largest and most extensively developed free trade zones in Latin America. The free trade zone status implies that goods of foreign origins may enter into Manaus without payment of customs or other federal, state or local import taxes. The procedures for importing goods into the Manaus Free Trade Zone are similar to shipping to other points in Brazil, except that additional licences are required. The issuance of the additional licences is administrated by SUFRAMA. In addition, commercial invoices and Bills of Lading must have “Free Zone of Manaus” and one of the following statements – “Zona Franca de Manaus para Consumo (Manaus Free Trade Zone for Consumption)” or “Zona Franca de Manaus para Reexportao (Manaus Free Trade Zone for Re-export)” printed on them.
On 17 October 2014, the Brazilian government ratified the United Nations Convention on Contracts for the International Sale of Goods, which is an international treaty promoting the harmonisation of rights and obligations by the parties in contracts for international sales made by companies located in different countries. Decree 8327/2014 adopts this agreement with the aim to provide greater legal certainty and predictability on international transactions, which may result in a reduction of cumbersome litigation and associated costs for companies that are involved in international trade.
Hong Kong's Trade with Brazil 
Brazil was Hong Kong’s 2nd largest export market in Latin America in the first ten months of 2017, behind only Mexico. Hong Kong's total exports to Brazil surged by 25% to US$1.3 billion in the first ten months of 2017, after decreasing by 8% to US$1.3 billion in 2016. Major exports to Brazil in January-October 2017 included telecommunications equipment & parts (shared 26% of the total), semi-conductors, electronic valves & tubes (16%), parts & accessories of office machines/computers (9%), electrical machinery & apparatus (7%), electrical apparatus for electrical circuits (6%), watches and clocks (6%), electric power machinery & parts (4%) and computers (3%).
On the other hand, Brazil was Hong Kong’s largest source of imports in Latin America in the first ten months of 2017. Hong Kong’s total imports from Brazil increased by 3% to US$2.0 billion in the first ten months of 2017, after growing by 10% to US$2.3 billion in 2016. Leading import items in January-October 2017 included fresh, chilled or frozen meat & edible meat offal (shared 52% of the total), fresh, chilled or frozen meat of bovine animals (33%), leather (4%) and fish, dried, salted or in brine; smoked fish; flours, meals & pellets of fish (3%).
 Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.