by Florent Michel, Managing Partner, Latina Finance & Co.
The growth of cross-border funds in and out of Brazil is a first in the country's history.
Busy, busy, busy Brazil - downtown Sao Paulo is a honey-pot full of bees. Luxury cars, traffic jams, designer outlets, packed business restaurants, the heat is on, there is a flurry of IPOs on the BOVESPA stock exchange, business is everywhere… One can feel the growth and the country’s booming economic power right down in the streets and the cafes. The financial sector is no exception. Brazilian companies go international and international companies go Brazilian. The growth of cross-border funds in and out of Brazil is a first in the country’s history. Political stability and strict fiscal policy governance is paying off. Brazil attracts a wealth of investors sometimes disappointed by China, Russia or India. However, bureaucracy has not disappeared and the country is developing a strong market-driven economy alongside an important public sector.
This article will provide an insight to treasury and cash management in Brazil and the latest trends in the market. But first we need to look at one important topic: taxes. Taxes are key in Brazil as in other countries in the region, but taxes are a true Brazilian specificity and as such, tax has to be one of the key drivers of any financial decision that any CFO or treasurer makes in Brazil.
Tax, tax, tax…
The Brazilian tax system is relatively complex. First because there are three levels of tax collection: federal, state and municipal. Second because while tax rates and their applications seem to be relatively well defined in the books, they are full of exceptions and rulings, depending for example on your industrial sector or on the financial situation of your company. The recommendation is therefore to appoint first a reliable tax adviser. It is also interesting to note that indirect taxes represent on average 40% to 50% of a company’s operational revenues, so it is far from being a benign item on your balance sheet.