International Business Negotiations in Brazil

Brazil, one of the largest countries in the world, with a population exceeding 180 milllion, sometimes surprises business people who go there for the first time. They find highly developed industries, an active, efficient local and international banking system and services sector. They also find a large population in poverty and at a low standard of living.

Brazil is a federal republic of 26 states and a federal district, Brasilia (DF). The country is divided into five regions: North, Northeast, Southeast, South, and Middlewest—with around 4,500 cities. In the Southeast and South regions are concentrated more than 60 percent of the Brazilian economy and gross national product (GNP). Brazilian GNP is around $740 billion a year, the tenth largest in the world.

The federal administration receives more than 50 percent of the country's revenue and has great influence over the economy. The private sector depends very much on government policy.

A former colony of Portugal, the country is traditionally open to foreign relations. For more than a century it has been very attractive to European immigration (Portugal, Italy, Germany and Spain), and also Japanese. Today, immigration is under strict control.

The language spoken in the country is Portuguese, but business people, lawyers, and entrepreneurs normally speak English as a second language, and negotiations with foreign parties commonly are conducted in English.

Business hours are almost the same as in the United States, and lunch time usually takes one hour. Shops and industry facilities normally work from 8 A.M. to 6 P.M. from Monday to Friday and to noon on Saturdays; law firms, auditors, and accountants offices and services are open from Monday to Friday from 8 A.M. to 6 P.M.; banks and financial institutions are open Monday to Friday from 10 A.M. to 4 P.M.

Mid-December, January, and February are school and summer holidays, and this is not the best season to conduct business or negotiations there. People also often have extended holidays during the Carnival and Easter seasons. September 7 (Independence Day), April 21 and May 1st are also national holidays.

NEGOTIATIONS IN BRAZIL

Brazilian companies are more than 80 percent family owned and managed by their owners. In larger companies there are professional executives. Mainly in the South and Southeast region (Sao Paulo, Rio de Janeiro, Minas Gerais, Paraná, and Rio Grande do Sul) there are lawyers, auditors, entrepreneurs, and executives with international experience, graduates of important U.S. or European universities.

Negotiations in Brazil never follow a standard pattern and normally vary on a case-by-case basis. In small and medium-sized companies, owners conduct negotiations, while many larger companies have people trained for that purpose. In significant business negotiations the chief executive officer or chairperson of the board of directors may become involved assisting the company's negotiations team in solving significant issues.

Lawyers in Brazil are not involved in business negotiations as they are in the United States. Entrepreneurs in small and medium-sized businesses usually lead their negotiations and quite often do so without assistance from counsel. Their lawyers are called to prepare the agreements when the transaction is settled.

Lawyers are present from an earlier stage depending upon the nature of the transaction and the size of the Brazilian company, but they do not normally act as negotiators, with the exception of some specialized lawyers from Sao Paulo, Rio de Janeiro, and Belo Horizonte. Foreign business people and lawyers negotiating in Brazil are often assisted by Brazilian lawyers because of local legal issues.

Brazilian negotiators are sometimes impatient with long meetings and heavy-duty bargaining. They usually expect both sides of a transaction to start with fair positions. Dealing with a small or medium-sized Brazilian company, the negotiations may be divided into two phases: definition of general agreement and its basis and terms; and, if there is an agreement, a second phase in which a contract is discussed by lawyers and/or other officers based upon what has been already agreed.

Contracts in Brazil are on a less formal basis than the extensive, signed agreements used in the United States. This is because Brazilian law is based upon the Roman civil law system, which does not require an agreement to repeat what is provided by the law, and the law usually has extensive regulation for all subjects. But Brazilians are also used to the length and complexity of U.S. agreements on international transactions and accent them easily.

LEGAL SYSTEM

The Brazilian legal system is basically modeled on the Roman civil law system and may be compared to the French, Italian, or Spanish legal structures. There is a federal constitution that extensively regulates the entire legal system, defining the powers of the federal, state and municipal administrations, the three levels of parliament, and court jurisdictions.

Federal law regulates civil, commercial, labor, federal tax and some general aspects of state and municipal taxes, criminal, transportation (aviation, railroading, and maritime), environmental, agrarian, and the rules of procedure for all actions. Business negotiations are regulated by the Commercial and Civil Codes, both federal laws.

Brazil has maintained through the years a liberal posture, with minimum restrictions on foreigners and their investment in the country. The first attempt to legislate on foreign investment took place in the constitution of 1891. The only restriction, established at that time on foreign investment, had to do with the exploitation of mines and minerals that were necessary for national security.

In the Brazilian constitutions that followed, this liberal posture was maintained, but some additional restrictions were added, such as a limitation on the extension of land owned by foreigners or participation in companies operating in coastal shipping, the press, broadcasting, domestic airlines, aerospace industry, oil exploration and production, atomic energy production, and post office and telegraph services.

There are also some temporary restrictions to the participation of a foreign company as controlling shareholder of banks.

With these exceptions, all other activities operated by foreigners have legal parity with locally owned activities. Under the current federal administration, there are fewer restrictions within the existing tax and commercial legislation for foreign companies to obtain fiscal incentives and loans at special interest rates from government development agencies. Brazil's federal administration has repeatedly re-assured potential investors of its willingness to encourage the participation of foreign risk capital to help Brazilian development. There is in Brazil a general understanding about the need and opportunity to capture new foreign investment. The moment is very appropriate for those who genuinely intend to make investments in Brazil.

Brazil's internal market has a great poten-tial and strong infrastructure. Energy, raw materials, and labor costs are competitive internationally, allowing the setting up of internal market-oriented projects and export at the same time, greatly decreasing business risk.

INVESTING IN BRAZIL

There are basically five ways to invest in Brazil: (a) if the investor is a company, it can open a branch office; (b) it is also possible to establish a company 100 percent owned by foreign investors; © the investor may invest directly in an existing Brazilian company; (d) the investor may form a joint venture with a Brazilian company; and (e), there is a special kind of investment in the Brazilian securities market.

BRANCHES OF FOREIGN COMPANIES IN BRAZIL

Foreign companies are allowed to operate through branches in Brazil and a previous authorization from the President of Brazil or a Minister of the Federal Administration is required.

After the license is granted, the foreign company can apply for registration directly at the Board of Trade of the state where it intends to have its branch head offices. The company would present its bylaws, a certificate of incorporation issued by its hometown Board of Trade or similar institution, and the original of its corporate resolution creating the branch in Brazil. All documents have to be notarized and the notary's signature must be authenti-cated by the nearest Brazilian Consulate of the foreign company's city. A translation of the legal papers made by a Brazilian official public translator has to be presented to the board of trade together with the documents in English.

When the registration is granted, the foreign company has to present an application to the Internal Revenue Service to obtain a tax-payer registry number. After that, several other applications before state or county administrations may be required, depending on the type of business. When this is done, operations may start. Registration before federal, state, and municipal administrations is routine and normally takes 30 to 45 days, unless the authorization of the President or any Minister is required or there is an environmental issue.

Opening a branch office is probably not the best option in most cases because of the inherent difficulties of running a branch in another country.

ESTABLISHING A SUBSIDARY IN BRAZIL

If a company has enough structure and experience in international business and knows enough about Brazilian business and marketing to operate without a local partner, total ownership of a Brazilian company is viable. One exception is if the type of business requires a prior license or approval of the administration for establishing a wholly owned subsidiary.

Foreign companies are free to come to Brazil, open their subsidiaries, and apply for registration at the commercial registry of the local board of trade. Further registration is required for certain branches of foreign companies.

In Brazil there are several types of companies that may be commercial or civil depending on their objectives and nature. The most frequent type of company, either commercial or civil, is the limited liability company, called a limitada. Around 90 percent of Brazilian legal entities are limited liability companies, most of them medium and small companies. The other significant type of company is the corporation, called an S.A. or sociedade anônima, which is a commercial company.

The limited liability company is governed by the Law nr. 3708/79. It is quite simple to form a limitada, and its maintenance is cheaper than the S.A. The limitada requires at least two partners, and both can be foreigners.

The corporation is a more formal model of company, where publicity of its acts, minutes, corporate resolutions, balance sheets, and financial statements is essential. Because of this, the S.A. costs of maintenance are higher than for the limitada. The S.A. is governed by Law nr. 6404/76 and has its capital stock represented by shares. The corporation may be a closely held company or an open company (i.e., one whose shares are negotiated on the stock market). The S.A. does not require more than one shareholder and it may be 100 percent owned by a foreign company.

For both limitada or S.A., no minimum capital amount is required at incorporation. The managers, officers, directors, or members of the board of a Brazilian company have to be Brazilian residents, either Brazilian citizens or foreigners residing permanently in Brazil.

INVESTING IN AN EXISTING BRAZILIAN COMPANY

The foreign investor may acquire equity participation in a Brazilian company. This can be achieved through direct purchase of shares from the Brazilian partner or shareholder or through direct capital subscription and payment (in currency or through imported equipment or technology transfer). If this occurs, the foreign investor has the right to obtain a foreign capital investment certificate, issued by the Central Bank. If the investment is made in foreign currency, no prior approval is required, and the Brazilian company has a 30-day period to inform the Central Bank of the investment and present an application for the certificate of foreign investment in the name of the investor.

Investment in equipment or technology transfer must be previously approved by the Central Bank.

Investment in equipment or technology transfer must be previously approved by the Central Bank.

Evaluation of the Brazilian company for such transactions is a normal procedure and follows international standards concerning the company balance sheets, financial statement figures, and appraisal of goodwill. A due diligence process is also usually undertaken prior to the execution of a definitive agreement, and an auditing for purchase may also take place if the foreign investor requires.

FORMING A JOINT VENTURE

A joint venture is probably the wisest way to go and the easiest way to enter the Brazilian market. Is also an excellent route into the Latin American market because of Brazil's international business treaties with its neighbors, such as MERCOSUR and ALADI countries.

To form a joint venture, a Brazilian partner is needed. The foreign investor can hold majority or minority interest in the partnership because there are no restrictions regarding the control of joint ventures, except for the fields referred to above. It is easier, however, to have tax incentives and loans from the government and its financial institutions if the joint venture is under Brazilian control, i.e., more than 50 percent of voting capital is in Brazilian residents hands. The best partner in Brazil is the one that is already in the targeted area of business. Such a partner knows its way around the market and can readily deal with local laws and regulations with a minimum of unnecessary surprises.

The foreign company can invest directly in the joint venture or it can form a lOO percent subsidiary holding company and invest in the joint venture through it. The best choice depends on each individual case. Normally, the better option for the foreign company with several investments in Brazil is to form a subsidiary holding company that can deal with them all, but sometimes there are tax advantages if the investment is made directly at the joint venture, mainly if there is a non-double taxation treaty between Brazil and the foreign company's country of origin.

The only legal requirement for being a foreign shareholder in a Brazilian company is have an attorney-in-fact who is either Brazilian or a foreigner with a permanent residency visa and who can represent the investor before Brazilian courts and authorities. The shareholder must also prove that it is an existing entity and legally registered, and a certificate of incorporation or individual passport must be presented.

INVESTMENT IN THE SECURITIES MARKET

In the last two years Brazil has opened its securities market to foreign investors,either individuals or legal entities, that cannot invest directly but only through authorized investment companies, investment funds, or managed investment portfolios. This is a high risk investment, but in some U.S. banks there are dealers with great expertise in the Brazilian stock markets.

FOREIGN CAPITAL REGULATION

The current legislation on the registration, remittance of dividends, and repatriation of foreign investment in Brazil is the Law nr. 4131/62, which has been in force since 1962. Except for some minor changes in 1964, the law has remained stable and without substantial change. The existing legislation also assures the repatriation, at any time, of up to 100 percent of the capital invested in the country, which has been registered with the Central Bank of Brazil.

The Brazilian company, within the following 30 days after the investment is made in foreign currency, has to apply at the Central Bank for the registration of the amount invested. The Central Bank issues a Certificate of Foreign Capital Registry that allows the foreign investor future repatriation of capital and earnings. The certificate also assures the remittance of all profits and/or dividends that result from the invested capital, without limits, subject only to 25 percent withholding tax.

Brazil has entered into bilateral agreements with several other countries to reduce the amount of taxation on profits that are being repatriated. In cases where these non-double-taxation treaties apply, the withholding on the funds being repatriated drops from 25 percent to between 12 and 18 percent. Brazil does not have a on-double-taxation treaty with United States, but it does with Argentina, Austria, Belgium, Canada, Czechoslovakia, Denmark, Ecuador, Finland, France, Germany, Hungary, Italy, Japan, Luxembourg, Norway, the Netherlands, the Philippines, Portugal, Spain, South Korea, and Sweden.

EXCHANGE CONTROL

Exchange control is a tradition in Brazil. The Central Bank of Brazil regulates the official exchange market that operates on a floating exchange rate basis. It is forbidden for individuals or legal entities not authorized by the Central Bank to deal with foreign currency and exchange, and there are criminal and civil penalties and fines for violators of the prohibition.

There are two types of official exchange rates in Brazil: commercial rates; and the tourism rate. The commercial rate is applicable to any regular trade, investment, or financial transaction, and the tourism rate is applicable to tourist exchange and other transactions as set forth in a special regulation from the Central Bank.

In accordance with the MERCOSUR Treaty, Brazil shall have a free exchange market no later than December 31, 1994, but the alteration of the exchange regulation in Brazil is expected sooner.

ACCOUNTING PRINCIPLES

Accounting principles are regulated in Brazil by the Commercial Code, the Corporation Law nr. 6404/76, the Income Tax Regulation, and several acts of CVM (the Brazilian SEC). All legal entities and corporations must have and maintain proper records and books of account.

The basic Brazilian accounting principles are not different from international standard accounting rules. Nevertheless, there are very special rules such as the monetary correction of financial statements (or rules for indexation based upon the existing inflation) unknown in the rest of the world. Accounting has to be kept by a qualified bookkeeper or accountant, both with certification to work in the field and duly registered at the Regional Council of Accountants. The books of account are kept in Portuguese and in Brazilian currency, but the company may also have unofficial foreign currency equivalents.

An S.A.'s balance sheets and financial statements must be published at the Official Gazette and also in another local newspaper. Balance sheets and financial statements have to be filed at the board of trade together with a corporation's minutes and other corporate resolutions.

EQUAL LEGAL TREATMENT

There is no difference in treatment of foreign companies, from a legal standpoint, in all matters relating to labor rights, social security, or civil or commercial law. A company formed in Brazil is Brazilian. The federal Constitution defines two kinds of Brazilian companies: those of national capital (more than 50 percent of voting capital owned by Brazilian residents) and those of foreign capital.

VISA REQUIREMENTS

Business people, including those from the United States, need previous work permits to work in Brazil or a visa to enter the country. There are different sorts of work visas defined by the Brazilian laws but there are no restric-tions about the nationality of the applicant, spouse, or children under 21 years old.

SHORT-TERM BUSINESS VISITORS AND TOURISTS

Persons from some countries, including the United States, will need a visa to travel to Brazil on short-term business or for tourism. Business visitors traveling on this type of visa must not receive remuneration for services in Brazil. The visa may be obtained at the Brazilian Consulate having jurisdiction over the place of residence of the applicant. If a visa is required for the country to which the applicant is going after Brazil, that visa must already be included in the passport prior to requesting the Brazilian visa.

Visas are generally issued within 24 hours, are valid for a period of 90 days from the date of first arrival in Brazil, and may be used for multiple entries during that period. An extension for a further three months may be obtained from the immigration authorities in Brazil. prior to expiration of the visa.

TEMORARY EMPLOYMENT VISAS

For persons coming to Brazil on a temporary basis for employment purposes, there are three primary visa categories. First is the short-term business visitor visa described above, which only may be utilized when the individual will not be paid from a Brazilian source, pro-vided he or she will remain for less than 180 days. The second category is for artists and sportspersons, and thus is not pertinent to most company's requirements. The request for this visa must be submitted to the Brazilian employment ministry by the Brazilian organi-zation which is sponsoring the event for that the individual's services will be required.

The third category, known as the temporary work visa, is available to individuals coming to Brazil to work for a temporary period of not more than two years initially, and may be renewed for an additional two year period. This type of visa is available to foreign nationals who will be temporarily employed at a Brazilian company in a position requiring special knowledge and expertise that is not locally available. To obtain this visa, the Brazilian company must first apply for an employment authorization on behalf of the foreign national, by submitting an application to the Ministry of Labor.

Upon approval, the employment authori-zation will be forwarded to the employer, and the designated Consulate will be notified, so that the foreign national may apply for issuance of the visa.

PERMANENT EMPLOYMENT VISA

This permanent visa is only issued in the case of a foreign company that has a branch or subsidiary in Brazil and transfers a statutory Director or manager to the Brazilian company. Individuals who will be permanently transferred to Brazil to work for a subsidiary or branch of a foreign owned company in the capacity of director or manager may apply for a permanent employment visa. In addition, persons who have been employed in Brazil in a temporary capacity (regardless of whether the company is Brazilian or foreign owned) for four years may apply to convert their status to permanent. To obtain permanent employment authorization for an individual not presently working in Brazil on a temporary basis, appli-cation must first be made to the Ministry of Labor by submitting an application.

REGISTRATION UPON ENTRY INTO BRAZIL

Certain visitors must register with the Federal Police within 30 days of arriving in Brazil. This applies to alien residents of Brazil, immigrants, and temporary residents coming for employment (except for those admitted as artists, sportspersons, or short-term business persons). The individual must present his or her passport.

TRAVEL IN ADVANCE OF PERMANENT OR TWO YEAR EMPLOYMENT

Persons needing to conduct business in Brazil prior to obtaining employment authorization and the appropriate visa may do so by obtaining a short-term business visa. However, they may not be paid locally until the employment authorization and visa are issued. Furthermore, the individual must apply for a permanent or two-year visa outside of Brazil.

EMPLOYMENT OF SPOUSES OR CHILDREN

Accompanying spouses and children are not permitted to engage in employment while residing temporarily in Brazil, but will be authorized for employment if converted to permanent resident status. These are the most common work visas defined in the Brazilian laws, but there are also situations where the candidate is married to a Brazilian or has a Brazilian child. Under these circumstances, a candidate may apply for a permanent visa at the Brazilian Consulate before coming into the country, or at the Justice Ministry if the candidate is already in the country. A short visa application through the Brazilian Consulate should not take more than a week and an application through the Labor or Justice Ministries in Brazil would take normally about 90 days.

MERCOSUR

In 1991 Argentine, Paraguay, Uruguay, and Brazil signed the Treaty of Asuncion forming a common market called MERCOSUR. The economic integration of the South Cone is a long journey that started with the ALADI Treaty in l 980. The MERCOSUR is supposed to be completed and operating on December 31, 1994. There are several treaties, agreements, and protocols between the four countries already in torce. Brazil and Argentina are ahead in economic integration, because they started early. The MERCOSUR comprises an area without internal frontiers in which the free movement of persons, goods, services, and capital is ensured. The MERCOSUR objectives are more extensive than NAFTA, for instance, because of its common market-oriented policy.

CONTRACTING IN BRAZIL

Foreigners doing business in Brazil have to be careful with domestic regulation of certain special private contracts and government intervention in the parties' agreement.

TECHNOLOGY OR KNOW-HOW TRANSFER; TECHNICAL ASSISTANCE, FRANCHISE, LICENSE OF TRADEMARKS OR PATENTS

Due to existing exchange control rules and income tax regulation, according to the National Code of Industrial Property, Law nr. 5772/71, several private agreements must have prior approval to be considered valid and in force.

Contracts involving payment of royalties or fees for technical assistance or transfer of technology or know-how, or international franchise or license of trademark or patents must be registered with and subject to the prior control of the National Institute of Industrial Property (INPI). A draft of the intended agreement has to be previously presented to INPI, which formally examines and approves it. After approval, an application must be presented to the Central Bank, which examines the financial covenants and authorizes the remittance of royalties and/or fees by the Brazilian party to the foreign party.

The INPI has discretionary powers to analyze the entire proposed agreement and its convenience in accordance with the country's needs. Even contractual dispositions like term, territory, the amount of fees, or the percentage of royalties may be altered or disapproved. The same is true of the Central Bank regarding the financial covenants of the agreements.

International leasing and loan agreements must be submitted as well to prior examination of the Central Bank. The Central Bank exam-ines all financial aspects and has discretionary powers to interfere and not approve the agreed-upon interest rate, fees, commissions, and term of the agreement. When an approval is granted by the Central Bank, the Brazilian party is allowed to pay principal, interest, fees, and commissions in hard currency and remit them to the foreign party.

Brazil is signatory of the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty (PCT), the Strasbourg Agreement of International Patent Classification, the Universal Convention of Copyright and Protocol, and the Berne Convention for Protection of Literary and Artistic Works. It also has several bilateral agreements with foreign countries regarding industrial property, including one made in 1957 with the United States.

INTERNATIONAL SALE OF GOODS AGREEMENTS

Sale of goods agreements in Brazil are regulated by the Commercial and Civil Codes. The sale of software is regulated by Law nr. 7476/ 88. Brazil is a member of the General Agreement on Tariffs and Trade (GATT), but is not signatory of the United Nations Convention on Contracts for the International Sale of Goods.

International trade in the country is open and the federal administration is implementing a program of deregulation to have no restrictions on importing and exporting goods, equipment, components, raw materials, and spare parts. Exportation is free, but requires an exporting license granted regularly to companies previously registered at DECEX, the fortrade department. Importation is also free, but an importation license is also required, and DECEX issues these licenses within five days through authorized banks. The federal administration controls importation through duties and taxation rate levels. Taxation and duties on imports are being reduced to an average of 20 percent by January 1995.

The sale and commercialization of such products as chemicals, pharmaceuticals, medicines, dairy products and foods, among others, require previous analysis and approval of federal administration sanitary, security, or health departments. Any foreign trader, before starting to export its products to Brazil must check to see if a previous license, as mentioned above, is required.

Brazil is a signatory of the ISO International Treaty and also has its own standards, following the ISO model.

Brazil has a severe Consumers Protection Code, Law nr. 8078/90. Companies with products that trade in the Brazilian market, including those imported, have to provide full guaranty and warranty to their customers or clients and are liable, in accordance to the Consumers Protection Code, in cases of product defect.

INTERNATIONAL DISTRIBUTION AGREEMENTS

Brazil does not have a special law for distribution agreements, except the Software Law nr. 7646/87 that regulates software distribution agreements. Generally speaking there is the Commercial Code, which has some rules for distribution. The Code regulates the relationship between the parties in distribution, agency, representation, and similar agreements, but is almost useless for international distribution agreements, because it is based upon the old-fashioned relationship between the manufacturer and the individual representative.

According to several laws in force in Brazil applicable to international distribution agreements, all Brazilian companies and individuals are free to make international distribution agreements. Except for some specific products, any foreign company directly, or through a subsidiary formed in Brazil (which may be wholly owned by the mother company), may distribute its own products within the country or may contract a Brazilian company or an individual to do it.

If a Brazilian company contracts for the distribution of its products abroad and there is a commission not included in the product's price, the Brazilian company must remit fees in hard currency. Further, a previous consultation must be presented to the Central Bank of Brazil to have a license to remit the amount of the commission.

Since the MERCOSUR is becoming a real-ity, all foreign companies are making distribution agreements having South Cone countries (Brazil, Argentine, Uruguay, Paraguay, and possibly Chile) as a unique territory and having only one distributor. Otherwise, there may be competition among several distributors for the same product (as a Brazilian company, for example, is already free to market its products in Argentina and vice versa).

An international software distribution agreement must follow the requirements of Law nr. 7646/87 and a copy of the agreement has to be filed at SEPIN-MCT, the information-sciences department. Exclusive distribution of software is not allowed by law and software under the Copyright Law nr. 5988/73 is pro-tected for a 25-year period if the foreign coun-try of origin grants the same rights. There is a registry of software at INPI, but application is optional.

AGENCY AND REPRESENTATION AGREEMENTS

There is a special law regulating agency and representation agreements in Brazil, Law nr. 4.886/65. A foreign company that wants to hire an agent or representative in Brazil has to be careful because of labor law requirements and liabilities and must follow the Law nr. 4886/65.

Individual independent agents or representatives should be avoided. The foreign company should hire a company as agent or representative. A subsidiary of the foreign company may be its agent or representative in Brazil, as can any Brazilian agent or representative corporation. There are companies in Brazil whose purpose is to represent or act as agent. Those companies are registered at the Brazilian Com-mercial Representatives Council. Any foreign owned representative or agent company may also be registered with the Council as a formality. Thereafter it will be entitled to act within the country. Registration takes one or two weeks.

If the foreign company decides to form a subsidiary to be its agent or representative, the incorporation of the firm does not require any previous governmental approval or license. If the company intends to hire a Brazilian corpo-ration or an individual as its agent or representative an agreement is required. The agreement may be for a determined or undetermined period of time. Remuneration settlement is free and there is no minimum amount fixed by the law if the agent or representative is a corporation. There is a minimum salary for individuals adjusted according to the past month's inflation rate. The minimum salary also varies depending upon the region where the agent or representative works. Normally, individuals are hired as employees by companies, in accordance with the labor law, and they are paid a fixed amount as salary plus commission on a percentage basis over monthly sales, but this also may vary, and commissions can be also agreed upon.

Labor contracts may be for an undetermined or determined (maximum two-year term) period, and the undetermined period contract can be terminated with previous notice. The term of the previous notice is normally 30 days, but additional days may be required, depending on whether there is a Labor General convention with the regional union. Several additional compensation benefits are paid by the company when an employee is dismissed without cause.

If the termination of the representation or agency agreement is decided by the company, the agent or representative corporation will receive additional compensation between one-twentieth to one-fifteenth of the total commissions received during its period of work. The agreement may previously set forth the amount of this indemnification.

Exclusivity and territory have to be carefully considered by the hiring company, because any future changes may be considered null and void. Limits on full exclusivity representation clauses or reduction of the unlimited territory by the company may not be valid or even accepted by either corporate or individual representatives or agents. The company may, on the other hand, have the agent or representative as an exclusive. This has to be previously agreed in the agreement. No del credere clause is allowed in representation or agency agreements in Brazil.

Taxes on salaries and commissions are paid by the agent or representative, never by the represented company unless otherwise agreed upon. Remittances of fees, salaries, or commissions from foreign companies to their representatives or agents in Brazil are free and are taxable as normal wages or salaries, and taxes are paid by the representative. No withholding tax is required for these remittances, but the representative has to report monthly to the Brazilian Income Tax Federal Agency the amount received in the past month and has to pay 25 percent in income tax.

SUBMISSION TO JURISDICTION;
CHOICE OF LAW

The jurisdiction and governing law for business transactions in Brazil are regulated by the Introductory Law to the Civil Code, the Civil Code and the Code of Civil Procedure, all of which are federal laws and applicable throughout the country.

In principle, according to the introductory law to the Civil Code, for contracts made in Brazil the applicable law is Brazilian law and for contracts made abroad the applicable law is the law of the jurisdiction where the agreement was executed. But the Code of Civil Procedure contains provisions stipulating Brazilian court jurisdiction on international matters when the defendant, of whatever nationality, resides in Brazil; when the accomplishment of the obligation would take place in Brazil; or when the dispute relates to facts that occurred or to acts committed in Brazil.

It is also common to encounter international contracts made in Brazil, in which at least one of the parties is a foreigner residing abroad, that contain provisions which stipulate that the parties thereto consent to have the laws of another jurisdiction govern the agreement. It is also common for parties in some international agreements to consent to the jurisdiction of the courts of one or more jurisdictions. Although there are precedents in some Brazilian courts restricting these provisions, they are generally considered enforceable.

If the transaction is related to real estate, the jurisdiction cannot be chosen by the parties thereto, because the Code of Civil Procedure fixes the exclusive jurisdiction of Brazilian courts to resolve disputes related to real estate located in the country.

DISPUTE RESOLUTION MECHANISMS

The courts are the most used contractual dispute resolution mechanism in Brazil. The judiciary system is trustworthy but in some parts of the country slow to decide legal suits.

There are state and federal courts whose jurisdictions are regulated by the federal Constitution and applicable laws. A dispute resolution is presented to a federal or a state court, depending on the matter involved in the dispute or the parties thereto. The parties in an agreement cannot consent to the jurisdiction of a federal or state court different from that required by the applicable law and the Constitution. In general, the parties can only make a choice of territorial jurisdiction in Brazil, but they are never allowed to choose a federal court, for example, instead of a state court. The Code of Civil Procedure is a federal law, used in both federal and state courts, and provides complete regulation covering the entire procedure.

There are Labor Courts that specialize in resolving disputes related to labor contracts. The Labor Consolidation Act regulates the labor procedure before these courts.

Arbitration in Brazil is not an efficient mechanism to resolve contractual disputes. The country is not a signatory to either the New York Convention or UNCITRAL. The Civil Code and the Code of Civil Procedure regulate arbitration, but the difficulties on the enforcement of arbitration awards and the existing legal possibility of nonsubmission of one of the parties in an agreement to an arbitration clause have made arbitration less used in Brazil. Nevertheless, there are arbitration associations in Sao Paulo, Rio de Janeiro, and Minas Gerais. The most active one is the Arbitration Committee of the International Chamber of Commerce of Brazil, located in Belo Horizonte, state of Minas Gerais.

ENFORCEMENT OF FOREIGN JUDGMENTS AND ARBITRATION AWARDS

The federal Constitution in Brazil, through an exequatur system, grants enforcement to any foreign judgment or foreign arbitration award that has been examined and confirmed by the Supreme Court of Brazil, located in Brasilia, DF.

The Introductory Law to the Civil Code, the Code of Civil Procedure and the internal regulation of the Supreme Court have provisions governing the proceedings that have to be followed by the foreign plaintiff to obtain the Supreme Court exequatur order to enforce a foreign judgment or a foreign arbitration award. Normally, the Supreme Court considers whether formal procedural aspects have been attended by the foreign decision, and confirmation is granted in a short period of time if all requirements are fulfilled through a summary proceeding.

The arbitration award itself is not directly confirmed by the Supreme Court in Brazil, but rather by a foreign court. The Supreme Court only gives an exequatur order to an arbitration award if it was previously confirmed by a court in its jurisdiction of origin. This requirement normally makes it difficult to obtain the exequatur order, because the required confirmation sometimes does not exist in the country of origin of the award.

Azevedo Sette Advogados