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The benefits and challenges of doing business in BrazilPosted 26/05/2023
With the GDP strengthened by agribusiness, startups and the mining sector, among others, Brazil is a great storehouse of opportunities for investors. A foreigner can open a company in Brazil in any of the aforementioned sectors and will certainly have many benefits ahead of him.
However, the challenges for those who want to open a company in Brazil are enormous. Bureaucracy, the high complexity of the tax system and market competition are obstacles to be overcome.
Putting the pros and cons on the scale, let us get to know the advantages and challenges of those who want to undertake in Brazil and generate good business opportunities! So keep reading this Europartner article and see how to succeed despite adversity!
Challenges for foreigners to open a company in Brazil
To set up a company in Brazil, it is recommended for foreign investors to survey the Brazilian market and all its potentials, as well as possible threats. But if the company fails to consider any of these factors, the experience could be detrimental to its success.
Among the biggest mistakes made by companies wishing to establish themselves in the South American country are:
- Absence of correct assessment on the market and its target public;
- Lack of knowledge about the country’s culture and the way of consumption;
- Mistakes in the adoption of the most common business practices in Brazil.
In fact, all this negatively affects the organization’s entry strategy in the Brazilian market. Therefore, we have listed the three main risks of doing business in Brazil.
Brazilian legislation has not kept pace with the rapid growth of the economy. This presents many risks for foreign companies trying to do business in Brazil.
The World Bank’s Doing Business Executive Report is a document that evaluates countries in accordance with aspects such as ease of doing business, property record and payment of taxes. Currently, Brazil occupies the 124th position among 190 countries. That is, the data show that there are considerable improvements to be made to laws and regulations in order to make them more attractive to foreign companies.
2. Barriers to export and import
Brazil is the 21st largest exporter in the world, an apparently encouraging index for foreigners who want to invest in the country. However, the fees and restrictions are not favorable at all.
Imports decreased annually by almost 20%. Customs barriers are also a frequent problem for companies. In general, high customs duties make exports very expensive for the Brazilian market to pay.
Additionally, containers are held at the port for up to 71 hours to ensure that all documentation and processes are completed.
3. Local workforce
Labor unions in Brazil are numerous and may present obstacles to flexibility in the hiring of labor. Therefore, companies should pay attention to the mode of contract, as the Consolidation of Labor Laws (CLT) requires compliance with various labor standards. For example, payment for maternity leave, paid vacations and 13th month salary.
Despite these and other challenges, there are opportunities in Brazil, although many are latent!
What are the benefits of doing business in Brazil?
1. Economic growth
Brazil belongs to BRICS’ economies, an acronym associated with the current five major emerging economies, also composed of Russia, India, China and South Africa. Together, the countries had an average growth rate of around 8% from 2008 to 2017. These numbers are compared with a worldwide growth rate of around 1%.
After facing an economic crisis during the COVID-19 pandemic, the country resumed growth and ended 2022 with a GDP of BRL 9.9 trillion. Certainly, this economic recovery shows its substantial presence as an emerging power.
2. Expanding consumer market
As the most populous country in Latin America and the seventh most populous nation in the world, Brazil represents a great business opportunity. After all, the South American country has a wide and diversified consumer market.
Currently, Brazil has a population of over 207.8 million inhabitants, according to the IBGE (Brazilian Institute of Geography and Statistics).
Furthermore, Brazil presents a wide range of commercial opportunities — with a great demand for services and goods — since its population is considered mostly middle class, living in urban areas.
3. Commercial alliances in export and import
If you are looking for a strategic international trade, Brazil guarantees easy access to other Latin American countries through MERCOSUR. With this commercial agreement, it is possible to use partnerships with countries such as Paraguay, Argentina and Uruguay.
Furthermore, the European Union (EU) has currently negotiated a bilateral association agreement with MERCOSUR members, creating a very attractive commercial opportunity.
Therefore, it is worth taking advantage of the opportunities of investing in business in Brazil and allowing Europartner‘s team of accounting specialists to take care of all the entire bureaucratic part for your company and optimizes its implementation when creating your company and determining your tax regime. So get in touch with our consultants and see how we can help your company to grow!Author's post: Europartner Accounting