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OPPORTUNITIES AND LEGAL CHALLENGES FOR
CHINESE INVESTMENTS IN BRAZIL
PROF. DR. DURVAL DE NORONHA GOYOS JR.
PRESIDENT - NORONHA ADVOGADOS
SHANGHAI JUSTICE BUREAU
OCTOBER 30, 2012.
London | Lisbon | Shanghai |Beijing | Miami | Buenos Aires | Johannesburg | NEW DELHI
São Paulo | Rio de Janeiro | Brasília | Curitiba | Recife | Belo Horizonte | Campo Grande
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1. Brazil – Opportunities.
2. Brazil – Legal challenges.
3. Conclusion: Prospects for the Brazil/China Strategic
Partnership.
POINTS OF PRESENTATION
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Brazil - Opportunities
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Map of Brazil
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Strategic Advantages
Pop over 100 Million
inhabitants
GDP over
US$ 1 Trillion
GDP,
Population,
Agriculture
Arable land over
20 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
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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
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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
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Fundamentals
Source: Brazilian Ministry of Mines and Energy
Sources of Energy
86%
14%
55%
45%
0
20
40
60
80
World Brazil
Renewable Non-Renewable
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Brazil's Social Development: Division by Classes in 2010
Source: FGV
Brazil's Economy
15%
55%
30%
Classes A/B
Classe C
Classes D/E
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Middle Class in % of the Brazilian Population – 1992/2011
Brazil's Economy
32,52
30,98
36,5237,39
36,37
38,69
37,6437,64
45,08
47,06
49,9653
55
0
10
20
30
40
50
60
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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35,03
28,6528,82
26,8828,14
26,59
28,03
22,66
19,19
18,11
16,0015,32
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
40,00
1 2 3 4 5 6 7 8 9 10 11 12
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
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Brazil's EconomyUnemployment rate in Brazil
Source: Central Bank/Brazilian Institute of Geography and Statistics - IBGE
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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
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Economic Growth % (GDP)
Source: Brazilian Institute of Geography and Statistics – IBGE/IEDI * Estimate
Brazil's Economy
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
8,00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
1,1
5,7
3,2
4,0
6,1
5,2
0,0
7,5
4,0
2.0*
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Brazil's EconomyBrazilian International Reserves
0,0
50,0
100,0
150,0
200,0
250,0
300,0
350,0
400,0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
49,3 52,9 53,8
85,8
180,3193,8
238,5288,6
355,0 378.7*
Source: Central Bank *September 2012
US$ Billion
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Source: Brazilian Institute of Geography and Statistics - IBGE
Brazil's Economy Brazilian Inflation Rates
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
12,53%
9,30%
7,60%
5,69%
3,14%
4,46%
5,90%
4,31%
5,91% 6,01%
5.30%*
*Estimate
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Foreign TradeBrazil’s Balance of Trade
Source: Development, Industry and Trade Ministry - MDIC
US$ Billion
0
50
100
150
200
250
300
350
400
450
500
2004 2005 2006 2007 2008 2009 2010 2011
Exports Imports Balance Flow of Trade
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Bilateral Trade Brazil ChinaCurrent of Trade US$
Source: Brazilian Secretary of Foreign Trade - SECEX
US$ Billion
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
4,076,68
9,1512,19
16,39
23,37
36,57 36,91
56,38
77,10
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Investment Flows - BrazilForeign Direct Investment: Outbound
Source: Central Bank of Brazil
US$ Billion
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
3,20 2,80 3,102,00
11,10
4,00
29,30 29,60
34,10
22,30
28,00 27,40
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Investment Flows - BrazilForeign Direct Investment: Inflows
Source: Central Bank *Central Bank estimate
0,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
32,80
22,50
16,60
10,10
18,1015,10
18,80
34,70
45,10
25,90
50,00
70,00
60.00*
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Taxes are not competitive;
Interest rates are very high;
Brazilian currency
overvalued;
Labour costs;
Excessive bureaucracy; and
Deficient Infrastructure.
Brazil – Legal Challenges
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List of Countries by Tax Revenue as Percentage of GDP
Source: Heritage Foundation 2012
0
20
40
60
34,4
17
44,640,6
17,7
36,9
26,9
39
26,9
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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
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Capital Gains on FDI;
Taxable at source – 15%;
Tax havens – 25%;
Basic Taxes in Brazil
B
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Withholding taxes
Dividends - Zero;
Interest – 15% or 25%
Royalties – 15% or 25%
Service payments – 25%
Basic Taxes in Brazil
C
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Taxation on Revenue
COFINS 7.6%
Basic Taxes in Brazil
D
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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
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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
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Exchange Rates of the Real Against the US Dollar
Brazil's Economy
1,813 1,775
1,770
1,595
2,332
2,312 1,961
1,741
1,883 1,805 1,779 1,736
1,819 1,802
1,754 1,755 1,690 1,701
1,715
1,665
1,673
1,660
1,628
2,030
-
0,500
1,000
1,500
2,000
2,500
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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
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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
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Conclusion3. Prospects for the Brazil – China Strategic Partnership in 2013
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Biggest Economies - Projected 2012 - GDP US$ Trillion
Brazil's Economy
0 3 6 9 12 15
United States
China
Japan
Germany
Brazil
France
Britain
Italy
Brazil rising
Biggest economies, 2012 GDP
Strn at average exchange rates
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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
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NORONHA ADVOGADOS