Brazil - Market Challenges (2024)

Doing business in Brazil requires in-depth knowledge of the local environment, including the high direct and indirect costs of doing business, commonly referred to in Portuguese as the “Custo Brasil” or “Brazil Cost.” Brazil has been working to enact reforms that will improve the business climate.Recent reforms include a 2021“Doing Business” law, that seeks to simplify the process to open a business, facilitate foreign trade, and expand the powers of minority shareholders in private companies. In June 2023 the country enacted new transfer pricing regulations that will reduce the likelihood of double taxation on multinational firms repatriating profits. This reform will go into effect in 2024. Additionally, the Brazilian Congress is considering a reform measure that would greatly simplify the Brazilian tax structure and align it with international standards. While these new laws move Brazil in a positive direction towards economic integration, further reform is needed to address Brazil’s restrictive labor laws.Companies seeking to enter the Brazilian market should identify local partners and customs brokers to help navigate Brazil’s complex legal, regulatory, and tax systems.

Some of the challenges that U.S. companies in Brazil may face include:

Complicated Tax System: Without a free trade agreement, Brazil imposes high taxes and tariffs on imported goods and services coming from the United States and other markets. Moreover, Brazil applies federal, state, and local taxes and charges to imports that can effectively double the cost of imported products in Brazil. While tax simplification legislation is expected to be approved by the Brazilian Congress later this year, until it is implemented the tax system will remain incredibly complex. The implementation phase would likely begin in 2026 and continue through 2032.It is important to note, that if passed, the tax reform will significantly simplify tax regulations for all companies doing business in Brazil.

However, the current complexities of Brazil’s domestic tax system, including multiple cascading taxes and tax disputes among the various states, pose challenges for all companies operating in and exporting to Brazil, even the most experienced ones. The U.S. Commercial Service has numerous industry specialists and a host of other contacts that are equipped with tools to help U.S. exporters succeed when met with the bewildering bureaucracy surrounding taxes and tariffs.

Other Non-tariff Barriers: U.S. exporters can expect to encounter a complicated regulatory system, inadequate or ineffective intellectual property protection and enforcement, and unique standards with limited recognition of the international standards commonly used in the United States.Companies must navigate a complex web of federal, state, and local regulations affecting their products, and frequently must be prepared to meet different standards and technical requirements from those used in the United States. This means that even if a company has already tested its products and successfully met technical requirements in the United States, it may still be necessary to re-test and re-certify those products to meet the technical requirements used in Brazil.

Logistical Costs and Delays: Poor infrastructure and inefficient customs processes mean getting products to a destination can often be a lengthier process than exporters are accustomed to experiencing. Companies should be prepared to face fees and delays in getting goods into the market. However, Brazil has taken steps to improve its infrastructure and bureaucratic inefficiencies over the past several years; and as a result, product clearance time and costs are falling. In September 2022, the customs administrations in the United States and Brazil signed aMutual Recognition Arrangement which enhances cooperation on security and trade and will reduce wait times at the border for trusted traders.

Non-transparent Public Procurement Processes: Government tenders often favor domestic players due to local content requirements. While the Government of Brazil (GOB) is the largest buyer of goods and services in Brazil, navigating the government procurement process can prove challenging if companies are not equipped with the proper contacts and information. In order to make the procurement market more open to international bidders, Brazil passed a new government procurement law in April 2021 which more closely follows global procurement practices for government contracts, including eliminating some of the regulations that favored local companies. The law which was expected to be fully implemented in April 2023, will now be implemented in 2024. However, U.S. exporters may still find themselves at a competitive disadvantage if they do not have an in-country presence, either through established partnerships with Brazilian entities or a Brazilian representative, along with endurance and financial resources to respond to legal challenges and bureaucratic issues. The U.S. Commercial Service in Brazil (CS Brazil) can help U.S. companies find trusted local partners through ourmatchmakinganddue diligenceservices.

There are a number of things that companies can do to familiarize themselves with the local market and overcome these challenges. First and foremost, work with theU.S. and Foreign Commercial Servicewhen considering doing business in the market, and with ourAdvocacy Centerwhen bidding on public procurements. Companies should be prepared to make a long-term commitment to the market, as it will take time to establish and build relationships locally. Given that imported U.S. products will likely be more expensive than local products, your company will need to be prepared to make the case for your product’s overall quality and value.

U.S. companies may also wish to work with our team to identify potential tools that can help to mitigate Brazil’s high tariffs and taxes. These include programs such as ex-tarifario, which grants a temporary waiver of import duties on some products not produced in Brazil. Finally, if you do encounter a trade barrier, make sure to report it either through the Commercial Service or the Department of Commerce’s Office ofTrade Agreements, Negotiations and Compliance website.