Brazil: Improving the climate for business

October 2024

Brazil, a country known for its culture and diversity, is also an attractive destination for businesses investing in the Latin America region. However, the effects of the complex corporate operating environment, known as the ‘Custo Brasil’ or ‘Brazil Cost’, present significant challenges for such investments. For those wanting to do business in Brazil, the good news is that recent reforms are helping to reduce the complexity.

With an area of 8.5 million km² and a population of more than 200 million, Brazil is the largest country in South America and the fifth largest in the world. The nation has 26 states and a federal district, with Brasília as the capital. It has the tenth largest GDP in the world and a vast wealth of natural resources, such as gold, uranium and iron.  It therefore attracts foreign investment due to the size of the market and its growth potential.

According to the World Bank, Brazil’s macroeconomic buffers remain solid, with large international reserves, low external debt, a credible central bank, a resilient financial system, and exchange rate flexibility.

Historically, São Paulo and Rio de Janeiro have been the main business centres, but other cities such as Florianopolis, Porto Alegre and Curitiba have emerged as good places to undertake business.

Brazil participates in several international economic organisations, including Mercosur, UNASUR, G20, WTO and the Cairns Group.  Brazil is also a member of the BRICS trade group.

Complexities of doing business

Bureaucratic is the word that probably best defines the Brazilian market. 

According to the World Bank’s Doing Business report, Brazil ranks low down the table at 124th out of 190 countries for ease of starting and operating a business.

The Brazilian economic system is complex, with the Central Bank regulating foreign exchange transactions and requirements such as national registration of legal entities (CNPJ) for non-residents. Some sectors remain restricted or under government supervision, and bureaucracy and corruption are significant challenges, requiring companies to implement robust compliance measures.

Brazil’s tax system

Brazil has one of the most complex tax systems in the world and its complexity creates a challenging environment for companies, especially those seeking to establish operations in the country.

The tax system has several layers and variations between states and municipalities. It varies according to an organisation’s structure, how it is registered and its revenues. For example, the Corporate Income Tax (IRPJ) rate is currently 15%, plus a 10% surcharge.

Banking is also a challenge. Foreigners need a valid residence permit, in addition to several other documents, just to allow them to open a simple bank account.

Necessary reforms

For Brazil to become an even more attractive environment for international business, it is evident that the country needs to advance in key areas such as tax simplification, digitalisation, cutting bureaucracy and improving communication.

According to the World Bank’s ‘Subnational Doing Business in Brazil’ report, in recent years Brazil has worked to improve its business environment and encourage entrepreneurship.

Recently, the government adopted reforms to facilitate business, such as online portals for registering licences and a new law encouraging mediation in disputes.

Other recent government initiatives have focused on fiscal sustainability and market liberalisation.

Brazil has already initiated the first phase of a long-awaited reform of indirect taxes, with further legislation elaborated in 2024. The indirect tax reform is expected to improve the business environment through tax simplification and to boost productivity.

Infrastructure investments are expected to boost economic growth, generate jobs and improve logistics, making Brazil more attractive to foreign investors.

Seek professional advice

Brazil has the potential to transform its challenges into opportunities, attracting more foreign investment due to its size and growth potential. Recent tax and labour reforms aim to alleviate some of the complexities by promoting a more favourable business environment. Nevertheless, Brazil is bound to remain a country where inward investors will need to count on expert professional advisors, including lawyers and accountants, to help them make the right decisions.

About the author

Bruno Celidonio

Porto Alegre, Brazil

Bruno is responsible for all communications at Russell Bedford Brasil, which encompasses the company's marketing and international relations. As well as managing national and internal marketing activities, he helps to build bridges between Russell Bedford Brasil and other Russell Bedford teams around the world.

Bruno has a degree in Law, as well as International Relations, with an emphasis on marketing and business. He also has a master's degree in Communications with specialisms in law and international negotiation.

internacional@russellbedford.com.br