Economic Landscape in Brazil: What The Industry Will Find When Incorporating Companies Here
Today I decided to bring some insights into our economic landscape, and what the industry will find when it’s eventually time to incorporate companies in the country.
All kinds of regulations ventilated would impose the incorporation of the companies in Brazil, which may be a lot more confusing and problematic than most executives in the first world usually anticipate, unless they have experience dealing with Brazilian enterprises.
Bureaucracy: A Big Issue
Dealing with the government in terms of tax collection, as well as the banking system and general structure of notary public services as well as the justice system are immensely more complicated than in America and Europe.
This could consume large amounts of legal fees as the lawyers aren’t to blame and just have to fight long hours to get simple things done.
This little warning may be better expanded into an entire edition of this publication. But for now, let’s jump into the economy.
Difficult to Transfer Capital into Brazil
Brazil is only indirectly linked to the SWIFT system. You can’t keep BRL, Brazilian Real, the local currency, in a bank in New York, Geneva or London. You just can’t. Every operation involving BRL requires a secondary bank, an intermediate institution.
Anyone dealing with FOREX and receiving payments from foreign countries that is based in Brazil has had problems in the past. It’s a confusing system, with slow liquidation, and tellers across the globe have problems to understand the unusual need for two SWIFT codes to send money to and from Brazil.
Difficult to Obtain Capital in Brazil
The Brazilian population is used to impressive interest rates. The Brazilian government bonds start at 13.75% per annum, although with smart investments, it’s easy to obtain a gross interest rate of over 16% with simple, relatively safe bank investments like bonds of private banks.
That said, private citizens hardly can get bank loans with interest rates below 2% per month, and usually pay 5% or 8% in interest rate per month depending on the credit line in question.
Companies hardly get to obtain cash below the 1.5% per month mark due to the same reasons.
That said, the capital to invest in Brazil will have to be essentially imported, in the form of direct foreign investment. Brazil is not a place where you can Wire some capital and expect to stretch it at the local banks.
Liabilities and Passive money will have to be used only for emergencies, which may surprise a lot of investors. The liabilities of local operators will be essentially the bettors balances.
Political Instability
The new Presidential Administration is close to reaching the 100 days mark, with very little accomplished, and very confusing measures in terms of the economy. The government claims to want to be responsible with government spending, but all that is mentioned by the staff of Lula is a burning desire to spend tax payer money.
The financial markets obviously aren’t fond of this situation, and Brazil is now living some sad state of ‘eternal soft crisis’ due to the rivalry between the left and the right, a situation that is somewhat similar to what happened in the radicalization of politics in America in the last years.
Summary: Lots of Challenges
Operating from abroad, using online servers outside Brazil, and wiring the money back and forth can be a lot easier and less complicated than trying to operate with a company incorporated in Brazil.
The industry will face immense challenges in Brazil once the regulations issue is tackled. But with experienced consultants based here, anything is possible, and that’s why SCCG has brought its flag to Brazil, which I proudly carry over here, waiting for our partners to call us and help whenever necessary!
