Opportunities and Challenges for U.S. Businesses in Brazil
Whether it’s the anticipation of the 2014 World Cup or the 2016 Olympic Games, for business owners looking to grow in emerging markets, it’s difficult to ignore Brazil. In 2010, Brazil’s economy grew by a whopping 7.5 percent, and analysts only forecast more GDP growth for the world’s fifth largest country—nearly 4 percent for 2013. Today, with almost 200 million inhabitants, Brazil boasts a booming middle class and a high-flying real estate market, which stand as sufficient evidence that the “country of the future” has transformed into a unique and timely economic market.
Under the second phase of the Growth Acceleration Program (PAC II), the Brazilian government will spend the equivalent of around $470 billion USD (955 billion reais) in development of the country’s energy generation and distribution infrastructure. While energy and technology are two of the most funded areas of expansion within the country, other promising areas of growth for U.S. exports and investment include agriculture, agricultural equipment, building and construction, aerospace and aviation, electrical power, safety and security devices, environmental technologies, retail and transportation.
The World Bank ranks Brazil 120th out of 183 countries for ease of starting up a business. Labor laws involve a high level of state intervention, resulting in disputes that often end up in court as opposed to private arbitration, which is more typical of American labor law. Furthermore, it is common for Brazilian companies to have extensive contracts with its employees, including covering costs for workers’ taxes, health insurance, meal and grocery stipends, transportation stipends, vacation pay and a “thirteenth salary” (an additional month’s pay every December), which can add up to more than 70 percent of an employee’s base pay.
Complicated tax laws cause additional challenges for foreign investors. The World Bank calculates that a typical company that is domestically owned spends approximately 2,600 hours per year to comply with tax regulations, compared to only 187 hours in the United States. By taking this into consideration with the fact that Brazilian companies pay almost 69 percent of their net profits to the government, compared to a total tax rate of 46.8 percent in the U.S., many foreign companies have been slow to invest in this new and growing market.
There are, however, many incentives for foreign investors—namely a reduction on tariffs, and even tax deductions, for imported capital goods (not available locally), and tax suspensions on new machines, instruments and equipment imported by companies. There are also incentives for businesses developing new and innovative technology.
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