Business Environment of Brazil

1. Business Environment of Brazil Caton Brown HariDhanagopal Joseph Hayes Steve Potter Ram Lakshmanan Rachel Simpson

2. Contents • Business Structure • Capital Markets • Doing Business in Brazil • Taxes • Labor Laws

3. Business Structure • Organizational structure is strictly ‘hierarchical’ • Clearly defined roles and responsibilities within organizations • Leaders required to be decisive, unambiguous in instructions to subordinates • Due respect for merit of the position in the organization • Reduced friction in personal relationships up the chain • Factors like bureaucracy play a huge role in time and nature of business decision making

4. Business Entities • SociedadeAnônima, or S.A • Most Similar to US Corporation • General and Public Shares • Limitada, or Ltda • Similar to US Limited Liability Companies • Equity (Quotas) Divided among orders • Limited Liability only goes so far • Creditor can pursue Managers and Directors

5. Capital Markets • The Securities, Commodities and Futures Exchange • One of the largest in the world in market value • Second largest in the Americas • Leading exchange in Latin America • Cost-efficient trading fees makes it attractive for investors to respond to changes quickly

6. Capital Markets • Projected to become the fourth largest contributor to worldwide growth, behind China, the US, and India • Stock and private bond markets rapid growth • Growth greatly impacted by legal and regulation reform in a positive way • Comissao de ValoresMobiliarios

7. Financial Sector • Financial Institutions – Modern Infrastructure: • All orders performed electronically • Checks issued anywhere in the country cleared and settled within 48 hours • Brazilian banks - leaders in the field of internet banking

8. Doing Business in Brazil Managing Through the Downturn • Keys to minimizing impact • High level of equity held by financial institutions in 2008 • High level of deposits with the Central Bank • Recently implemented institutional changes • Efficient prudential regulation • High level of international reserves • Evolution of the Brazilian financial sector's system of supervision

9. Key Stats for Business in Brazil* - out of 183 countries: Improving due to Eirelis and new local regulations Largest stock exchange in terms of # of listed companies Exorbitant taxes on income, vehicle and profits Cost of exports and imports twice as high for the region Fairs slightly better than rest of LATAM

10. Factors Driving Brazil’s Growth • Improving political situation • Improved stability of currency and the economy • Fifth largest market by population • Fifth largest country by size • Due to newer regulations, improved Foreign Indirect Investments • CustoBrasil

11. Business Regulations • Ranked last by World Economic Forum in Burden of Government Regulation • Starting a business • World bank ranks Brazil 120/183 countries in how easy it is to start a business • Takes average of 119 days (vs. 6 in US and 54 in Latin America/Caribbean) • Eirelis • LLC (SociedadeLimitada) used to requires at least 2 partners • Foreign Owners must find a permanent resident willing to hold power of attorney • Enforcement of contracts long and costly • Almost no arbitration, so always goes to court • On average takes 899 days and 22% of the debt to enforce a contract

12. Corporate Taxes in Brazil • Some of the most complex in the world • Average medium-sized firms spend 10x hours paying taxes • 2600 hours/year compared to average firms • Multiple tax payments to different taxing authorities: • Federal Government • Brazilian states and District of Brasilia • Municipalities

13. Labor Laws • Workers’ rights contained in 900 articles • Termination of employment • Firms pay 8% of an employee’s salary into FGTS account, which follows employee from job to job, • Wrongful termination • Vacation • Can only be taken once or twice per year and must be 10 days or longer • 30 days/year after 1st year • Bonus of 1/3 month’s salary due when vacation is taken • 13thSalary • Mandatory bonus of 1 month’s salary must be paid in November and December • Expatriates • Brazilian labor laws apply to all workers, even expatriates

15. Other Tax Facts • Brazilian-based firms are taxed on all income, even that earned outside of Brazil. • Considered Resident Firm if incorporated in Brazil • Firms choose between being taxed on actual or presumed income • Applies to Federal Income Tax (IPRJ) and Social Security (CSLL) • Actual: Lucro Real method • Based on actual annual or quarterly income • Presumed: LucroPresumido • Optional for firms with gross revenue < BRL 48M in previous year • Based on presumed profits • 32% of services and 8% of product sales (12% for CSLL) • Capital Gains treated same as ordinary profits • Federal Government working to simply filing by moving payments online • Allow one filing instead of multiple • “Super Simples” • Allow small businesses to file single monthly payments • In place since 2007 • President DilmaRouseff pushing to allow larger firms to use

16. BRIC Comparison

17. Inflation • 6.5 % in December 2011 • Averaged 445.98 % from 1980 to 2010 • High of 6821.31% in April 1990 • Attempted to address inflation through currency reform in 1980s and early 1990s, ending with the Real in 1994

18. Government Corruption: A Play by Play • June 2011 : Chief of Staff used position to drive business to a private consulting business (Resigned) • July 2011: Transportation minister accused of charging commissions for contracts (Resigned) • August 2011: Agriculture minister accused of kickbacks throughout organization (Resigned) • September 2011: Tourism minister accused of using public money for personal use (Resigned) • October 2011: Sports minister accused of kickbacks (resigned) • November 2011: Labor minister denies accusations that ministry officials were taking kickbacks (In Office) • January 2012: Head of National Mint, accused of transferring $25m received from kickbacks offshore to the British Virgin Islands (Fired)

19. Organizational traits based on position Leaders Followers