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Opportunities and Legal Challenges for Chinese Investments in Brazil
NORONHA ADVOGADOSGLOBAL LAWYERS
Prof. Dr. Durval de Noronha Goyos Jr.President - Noronha Advogados
Dacheng Law Firm
March 15th, 2013
London | Lisbon | Shanghai |Beijing | Miami | Buenos Aires | Johannesburg |New Delhi
São Paulo | Rio de Janeiro | Brasília | Curitiba | Recife | Belo Horizonte | Campo Grande
1. Brazil – Opportunities.
2. Brazil – Legal challenges.
3. Conclusion: Prospects for the Brazil/China Strategic Partnership.
POINTS OF PRESENTATION
Brazil - Opportunities
Map of Brazil
Strategic Advantages
Pop over 100 Millioninhabitants
GDP overUS$ 1 Trillion
GDP,Population,Agriculture
Arable land over20 millions
hectars
ARG
KZT TUR
UKR
AUS
IDN
PKT
NIG
BRAUSA
INDRUS
CHI
BGL
MEX JPN
CAN
GER UK
NLD KOR
SPN
ITA
FRA
Source:Fiesp
2005 – 1.85 million barrels a day
2006 – Brazil achieves self sufficiency in oil
2007 – Discovery of Tupi oilfield with estimated 10 billion of barrels of oil.
The discovery could double the Brazilian reserves.
2008 – Discovery of Carioca oilfield with estimated 70 billion barrels of oil.
Discovery puts Brazil's oil reserves among the world's largest 1
2010 – 2.1 million barrels a day
2011 – 2.6 million barrels a day 2
Fundamentals
Source: 1- Financial Times, July 8 20082- Petrobras, February 2011 estimate
Oil Production
Fundamentals
27 billion liters/year (2009) 70 billion liters/year (2020)* Estimate Increase in cultivated area by 67,000 hectares Creation of 20,000 direct jobs and 60,000 indirect
jobs Investments in production chain estimated at around
USD 1,5 billion for the next years CO2 emission reduction by 3.5 million tons/year
Ethanol Production
Source: Sugar Cane Industry Union - UNICA
Fundamentals
Source: Brazilian Ministry of Mines and Energy
Sources of Energy
86%
14%
55%
45%
Brazil's Social Development: Division by Classes in 2010
Source: FGV
Brazil's Economy
15%
55%
30%
Classes A/BClasse CClasses D/E
Middle Class in % of the Brazilian Population – 1992/2011
Brazil's Economy
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
10
20
30
40
50
60
32.5230.98
36.52 37.39 36.3738.69 37.64
37.64
45.0847.06
49.9653
55
0
5
10
15
20
25
30
35
40
35.03
28.65 28.82
26.8828.14
26.5928.03
22.66
19.1918.11
1615.32
Poverty in % of the Brazilian Population – 1992/2010
1993 1995 1996 1998 1999 2002 2003 2005 2006 2007 2009 2010
Source: CPS/FGV
Brazil's Economy
Brazil's EconomyUnemployment rate in Brazil
Source: Central Bank/Brazilian Institute of Geography and Statistics - IBGE
Brazil’s GDP in US$
Source: Brazilian Institute of Geography and Statistics – IBGE – World Bank
Brazil's Economy
2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP(Billion)
552 663.4 882 1,006 1,300 1,378 1,922 2,090 2,480
Population(Million)
178.9 181.5 185.5 186.7 188.9 190.0 193 195 196
GDP per capita
(Thousand)3,10 3,66 4,77 5,41 6,91 7,252 9,958 10,717 12,653
Economic Growth % (GDP)
Source: Brazilian Institute of Geography and Statistics – IBGE/IEDI * Estimate
Brazil's Economy
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
1
2
3
4
5
6
7
8
1.1
5.7
3.2
4
6.1
5.2
0.0
7.5
4
2
Brazil's EconomyBrazilian International Reserves
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
50
100
150
200
250
300
350
400
49.3 52.9 53.8
85.8
180.3193.78
238.52
288.58
355378.7
Source: Central Bank *September 2012
US$ Billion
Source: Brazilian Institute of Geography and Statistics - IBGE
Brazil's Economy Brazilian Inflation Rates
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
12.53%
9.30%
7.60%
5.69%
3.14%
4.46%
5.90%
4.31%
5.91% 6.01%
5.30%
*Estimate
Foreign TradeBrazil’s Balance of Trade
Source: Development, Industry and Trade Ministry - MDIC
US$ Billion
2004 2005 2006 2007 2008 2009 2010 20110
50
100
150
200
250
300
350
400
450
500
Exports Imports Balance Flow of Trade
Bilateral Trade Brazil ChinaCurrent of Trade US$
Source: Brazilian Secretary of Foreign Trade - SECEX
US$ Billion
2002 2003 2004 2005 2006 2007 2008 2009 2010 20110.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
4.076.68
9.1512.19
16.39
23.37
36.57 36.91
56.38
77.10
Investment Flows - BrazilForeign Direct Investment: Outbound
Source: Central Bank of Brazil
US$ Billion
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
5
10
15
20
25
30
35
3.2 2.8 3.12
11.1
4
29.3 29.6
34.1
22.3
28 27.4
Investment Flows - BrazilForeign Direct Investment: Inflows
Source: Central Bank *Central Bank estimate
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
10
20
30
40
50
60
70
32.8
22.5
16.6
10.1
18.115.1
18.8
34.7
45.1
25.9
50
70
60
Taxes are not competitive;
Interest rates are very high;
Brazilian currency overvalued;
Labour costs;
Excessive bureaucracy; and
Deficient Infrastructure.
Brazil – Legal Challenges
List of Countries by Tax Revenue as Percentage of GDP
Source: Heritage Foundation 2012
Brazil France India South Africa United States0
5
10
15
20
25
30
35
40
45
34.4
17
44.640.6
17.7
36.9
26.9
39
26.9
Income tax on corporate profits – 15% + 10% over R$240,000;
Social contribution on Net Profits – 9%;
Effective tax rate on profits – 34%;
Basic Taxes in Brazil
A
Capital Gains on FDI;
Taxable at source – 15%;
Tax havens – 25%;
Basic Taxes in Brazil
B
Withholding taxes
Dividends - Zero;
Interest – 15% or 25%
Royalties – 15% or 25%
Service payments – 25%
Basic Taxes in Brazil
C
Taxation on Revenue
COFINS 7.6%
Basic Taxes in Brazil
D
Product value (CIF) = USD 200,000.00 = R$442.560,00 (US$1.00 = R$ 2,2128)
Import Duty (14% over the CIF value) = R$61.958,40 Excise Tax(IPI – 10% over the CIF value plus the Import Duty) =
R$ 50.451,84 ICMS (18% over CIF value plus Import Duty and IPI using the
Inside Calculation Method) = R$121.822,73 PIS (1,65%) = R$ 10.261,50* COFINS (7,6%) = R$ 47.265,11* AFRMM (25%) over the overseas freight (R$20.000,00) = R$
5.000,00 Total Tax Burden = R$ 296.759,58
Simulation re import taxes
World's Interest Rates
Country Nominal Rate Inflation Real Rate
Russia 7,85% 6,6% 1,25%
Brazil 9,57% 5,3% 4,27%
China 3,21,% 1,9% 1,31%
India 8,15% 9,7% -1,55%
South Africa 6,65% 5,0% 1,65%
Euro Area 1,66% 2,40% -0,74%
USA 1,81% 2,10% -0,31%
Brazil's Economy
Exchange Rates of the Real Against the US Dollar
Brazil's Economy39
371
3944
9
3981
2
3999
4
4020
7
4026
8
4032
9
4038
9
4045
1
4051
2
4057
4
4063
3
0
0.5
1
1.5
2
2.5
1.81 1.78 1.77
1.6
2.33 2.31
1.96
1.741.88
1.81 1.78 1.741.82 1.8 1.75 1.76
1.69 1.7 1.72 1.67 1.67 1.66
1.63
2.03
Two shareholders for the company;
A power of Attorney to a resident in Brazil;
Manager resident in Brazil;
Company’s registered address; and
Registration of foreign shareholders with the Brazilian internal revenue
service.
Source: Noronha Advogados
Bureaucracy – Company Formation in Brazil
Previous requirements
Execution of Articles of Incorporation;
Registration of Articles before the Board of Trade;
Enrollment of Company with the Federal Taxpayers registry;
Enrollment of Company with the Municipal Taxpayers registry;
Enrollment of Company with the State Taxpayers registry;
Special enrollments such as Securities and Exchange Commission,
Engineering Council, etc; and
Adequate capitalization – R$ 600.000,00 per visa.
Source: Noronha Advogados
Bureaucracy – Company Formation in Brazil
Incorporation and subsequent filings
Conclusion3. Prospects for the Brazil – China Strategic Partnership in 2013
Biggest Economies - Projected 2012 - GDP US$ TrillionBrazil's Economy
United States
China
Japan
Germany
Brazil
France
Britain
Italy
0 3 6 9 12 15
Brazil risingBiggest economies, 2012 GDPStrn at average exchange rates
Brazil and China will enter 2013 as two of the five largest economies in the
world;
Brazil and China will cooperate very closely in international fora;
China will maintain its position of Brazil’s largest trade partner in the world;
China will maintain its position of Brazil’s largest investor in the world;
Brazil will remain the main destination of Chinese investments in Latin
America;
Brazil will remain China’s main trade partner in Latin America;
Brazilian investments in China will increase substantially;
Brazil and China will continue to work together, for global peace, international
justice and generalized prosperity of all nations.
Prospects for the Brazil China Strategic Partnership in 2013
NORONHA ADVOGADOS
