Impeachment, Brazil's Currency, and an Opportunity for Importers...

Port of Santos - Brazil

Port of Santos - Brazil

As pointed out on our prior analysis (TIME TO INVEST IN BRAZIL???), today, August 31rst, Brazil’s senate will most probably sacrament the Impeachment of President Dilma Roussef.  Acting president, Michel Temer, will then be officially conducted to office, for his term of presidency, until 2018.  A ruling by senate to maintain Dilma, would be catastrophic in terms of economic stability and also very surprising, given the political scenario.

Again, according to this same prior analysis, we predicted the valuation of Brazilian assets, including commodities, real Estate, as well as the national currency: the Brazilian Real (BRL).  The strengthening of the local currency opens a window of opportunities for importers in Brazil, along with foreign companies willing to export and distribute products and services, as of now.

In the long term, this will also allow local industries to modernize their production facilities, by purchasing new machineries and technologies from abroad.  For the consumers, this will stimulate competition, allowing efficiency.  Hopefully, there will be more options, with better quality and lower prices.  On the macro-economic perspective, this will help Brazil as another tool to hold back inflation (a major concern).

If you are thinking of exporting to Brazil, there are some thoughts that should be taken into consideration.  This analysis will draw an overview with the essential guidelines.  Let’s begin with the opening of the Brazilian economy, back in President Fernando Collor's administration, who was also impeached (ironically, Dilma’s “PT” labor party, played a major role in that process).

The year was 1990, and Brazil was still a closed economy, with local market protection, and many barriers to block importation.  Through Collor’s plan to modernize the Brazilian market, impose a shock of efficiency, and improve product quality (specially in the automotive sector).  Since then, year after year, there has been an increase of import volume to Brazil.

Depending on the type of product or service, there are specific government branches and regulatory agencies involved in the operation.  The following entities must be cited and briefly described:

a)       Brazilian Central Bank (BACEN):  regulates the banking system and monetary policies

b)      Ministry of Development, Industry, and Trade (MIDIC):  aids market and industry development

c)       Brazilian Customs (Alfândega/Receita Federal): control of Brazilian borders and taxes

d)      Ministry of Agriculture: conducts policies to stimulate agri-business sector

e)      ANVISA: Agency that regulates food, drugs and similar products (like the USA’s FDA)

f)        SISCOMEX: manages and registers all foreign trade operations;

g)       SECEX: determines customs tax treatment

As noted, Brazil has a complex structure for trade operations.  There are many laws, decrees, and regulatory instructions that have to be thoroughly complied, in order to avoid fines, confiscation, and other penalties.  To overcome these obstacles, one must study in details the peculiarities of each product or service being introduced to the Brazilian market.

Such procedures should be complied even before the product or service is shipped or delivered to Brazil.  As a pre-requisite, there are licenses requested before the order can even be placed.  In this situation, the importer or agent ordering the product is obliged to register its fiscal and financial capacity at the SISCOMEX, within a system denominated RADAR.

The import licenses are issued by the SECEX, which will review the Invoice description, to check the product or service corresponding coherence.   Once the license is issued by SECEX, it will determine the tax regime treatment applied, together with the currency exchange rate given by BACEN.

When nationalizing the foreign product or service, there are procedures to be taken. It is requested to take mandatory actions and fulfill proper documentations.  The customs forwarding process (known in Portuguese as “despacho aduaneiro”), begins when the customs clearance declaration (guia de importação) is filed. 

The next stage is the customs clearing process, when products and services are subject to import parameters.  These parameters are defined by the following fiscal channels:

1.       Green: cleared

2.       Yellow: document verification requested

3.       Red: document and product verification requested

4.       Gray: document and product verification to evaluate price fraud and other felonies.

Once the products or services are released, the customs broker is notified.  The proof of release is the Import Certificate (CI), printed by the importer, thorough the SISCOMEX.  There are 3 import models in Brazil:

i. Import by Own Account (Importação Própria)

ii. Import by Order of Third Parties (Importação por Encomenda)

iii. Import on Behalf of Third Parties (Importação por Conta e Ordem de Terceiros)

As most of the laws and regulations, change with a frenetic frequency, the importer must be aware and up to date with these changes.  Errors in the Brazilian import process could cause substantial losses.  Within a country of continental dimensions, logistic planning is also a key factor for a successful import and distribution operation.

In summary, these complexities pointed above require qualified professionals, with knowledge and experience, to deviate from potential bureaucratic turmoil.   

We at HMP attorneys will ensure your import and distribution process complies with regulatory protocols in the consulting and planning stage.  In the event of any contingency, we also have the expertise to litigate on your behalf, to guarantee that your rights are respected.  Pay us a visit!