LexisNexis® Company Law Guide 2018-2019 1 out 2018

LexisNexis® Company Law Guide 2018-2019

Jurisdiction: Brazil

1. What is the general situation for foreign companies in your jurisdiction? (For example, common presence, difficulty to setup, restrictive system, open and welcoming jurisdiction?

As one of the largest economies in the world, Brazil is a well-known destination for foreign investors. The overall stability of the market, combined with a growing domestic demand for infrastructure, goods and services, provide foreign companies interested in doing business in Brazil with strong and diverse investment opportunities.

Commonly referred to as an open jurisdiction, Brazil welcomes foreign investment. As such, there are no general restrictions on foreign ownership, except in certain specific sectors (for further details regarding such restrictions, please refer to section 7 below).

As in many other jurisdictions, foreign com- panies wishing to invest in Brazil may choose from a range of entry options the one that is most suitable to the intended business model (which should be assessed on a case-by-case basis). Although indirect entry options are available (e.g. execution of agreements with sales agents and distributors), foreign investors usu- ally prefer to establish a direct and permanent presence by means of a subsidiary.

2. What are the key laws and regulations that govern company law in your jurisdiction?

The Brazilian system is based on the civil law tradition and, as such, relies on codified sets of laws to regulate several legal fields. With respect to company law, the relevant provisions are found essentially in the following statutes and regulations:

2.1. Brazilian Civil Code

Implemented by Federal Law No. 10,406 of January 10, 2002, as amended (“Brazilian Civil Code”), the Brazilian Civil Code sets out specific guidelines regarding various types of business organizations, including private limited liability companies and non-profit legal entities (associa- tions, foundations and cooperatives).

2.2. Corporations Law

Federal Law No. 6,404 of December 15, 1976, as amended (“Corporations Law”), applies specif- ically to legal entities incorporated in the form of stock corporations and regulates the forma- tion, organization and dissolution processes related to such entities. The Corporations Law may also be applied in a subsidiary manner to limited liability companies, if the shareholders so decide in the relevant articles of association.

2.3. Specific Regulations

1.  Rules Enacted by Brazilian Securities and Exchange Commission (“CVM”)

Publicly-held corporations are also subject to specific regulations issued by the CVM.

2.  Rules Enacted by the Brazilian Stock Exchange (BM&F Bovespa)

The BM&F Bovespa has created differentiated listing segments, with rules setting out corporate governance practices and transparency requirements in addition to those already established under Brazilian corporate legis- lation. The adherence to the listing segments better advertises the company’s efforts to improve its relationship with its investors and increases the potential for asset value appreci- ation. This adherence is voluntary and must be approved by the BM&F Bovespa.

3. What are the most common types of companies in your jurisdiction?

Brazilian law provides for several corporate forms, of which the most important and widely used are:

a. limited liability companies (“Limitada” or “Ltda.”); and

b. stock corporations (“Sociedade Anonima” or “S.A.”).

Corporations and limited liability companies afford equal protection to their equity holders by limiting their liability to the capital stock they subscribed. Therefore, corporations and limited liability companies always entail limited liability as a general rule.

3.1. Limitada

Limited liability companies are governed by the Brazilian Civil Code. In case of omissions and depending on the language of the com- pany’s articles of association, the rules under the Brazilian Civil Code relating to limited liability companies may be supplemented by the rules in the Brazilian Civil Code relating to the sociedade simples (a corporate type also established by the Brazilian Civil Code) or by the Corporations Law.

The limited liability company structure is usu- ally recommended for companies that envisage a simple governance structure. The legislation grants these types of companies more freedom to organize their internal structure and deci- sion-making process, as well as a lower grade of transparency and disclosure obligations. That is why these corporate entities are mostly used in wholly owned companies.

3.2. Sociedade Anonima

Corporations are governed by the Corporations Law, which provides a more sophisticated legal regime for corporate activities, management and shareholders’ relations, corporate govern- ance structures, decision-making processes, transparency and disclosure obligations, and conflict resolution procedures. This corporate entity is more appropriate for a co-owned equity structure, such as joint ventures, as well as for the participation of various kinds of stakehold- ers, such as financing entities or holders of debt instruments.

A corporation can be held either publicly or privately. As a general rule, a publicly held corporation has its securities traded on the stock exchange and/or on the over-the-counter market. A publicly-held corporation, as well as each public placement of securities made by it, must be registered with the CVM.

3.3. Other corporate forms

In addition to corporations and limited liability companies, another type of limited liability company named “EIRELI” was recently regu- lated by the Brazilian Civil Code and is worth mentioning. Please refer to item 3.3.1 below.

Other company forms have not been accepted in practice, especially because most of them provide for unlimited shareholder liability.

3.3.1. EIRELI

The EIRELI is a type of limited liability company which is incorporated by only one individual or legal entity (a national or foreigner), in the capacity of sole-owner of the totality of the company’s corporate capital. In general, the same rules governing the Limitada also apply to the EIRELI, with the following exceptions:

a. the corporate capital of the EIRELI shall be equivalent to at least one hundred minimum wages; and

b. each individual or legal entity can incorpo- rate only one

Considering that the EIRELI was only recently introduced in the Brazilian legal framework, its structure is not consolidated in practice and is still being verified and tested by registry authorities and courts. For this reason, we will focus on the following sections on the analysis of Limitada and S.A.

4. How long does it take to set up a company in your jurisdiction?
(For example, it could be as fast as X amount of time, average setup time and then as slow as Y amount of time based on your experience – are there any mechanisms to fast track setup?)

The process for setting up a company in Brazil involves the following main steps:

a. For both Limitada and A.: granting of powers-of-attorney for representation of the foreign shareholder(s) in Brazil (under Brazilian law all foreign investors (entities or individuals) must indicate an individual resident in Brazil as their representative for both corporate and tax purposes); provide a copy of shareholder(s)’ articles of incorpo- ration or equivalent instrument (statement/ affidavit), as well as a copy of the passport of shareholder(s)’ legal representative. As a general rule, such documents must go through applicable notarization and apos- tille proceedings;

b. For both Limitada and S.A.: registration of the foreign shareholder(s) with the Brazilian Federal Revenue;

c. Only for A.: deposit, in cash, of 10% of the company’s corporate capital in an interim bank account opened on behalf of the Brazilian company in Banco do Brasil S.A;

d. For both Limitada and A.: preparing, filing and registering the Brazilian company incorporation acts (articles of association or by-laws, as the case may be) with the Board of Trade and obtaining the enrolment of the Brazilian company with the Brazilian Federal Revenue;

e. For both Limitada and S.A.: registration of the foreign shareholder(s) and the Brazilian company with the Brazilian Central Bank, so as to enable the inflow and outflow of funds among such persons (such as equity contributions and payment of profits and dividends);

f.Only for A.: publication of the Brazilian company incorporation acts in the press and registration of a copy of such publication with the Board of Trade;

g. Only for A.: opening of the Brazilian company’s shares and corporate books, as required by the Corporations Law;

h. For both Limitada and S.A.: indication to the Brazilian Federal Revenue of the Brazilian company’s and shareholders’ ultimate ben- eficiaries, defined as the individual(s) who ultimately hold(s) a significant control or influence over the entity(ies); and

i. For both Limitada and S.A.: Brazilian enti- ties must also obtain additional enrolments with tax, social security and regulatory authorities at federal, state, and municipal levels (for further details, please refer to section 5 below).

The Brazilian company is considered legally existing upon completion of item (d) above, which usually takes between 30 to 90 days, depending on the efficiency of the foreign share- holder(s) to provide the necessary documents and information to incorporate the company, as well as of the government bodies in charge of analyzing the application documents.

 5. What are the main registration requirements for companies in your jurisdiction? What are the fees?

After registration of the company with the Board of Trade, additional forms must be filed with tax, social security and regulatory authorities at federal, state, and municipal levels, vis-à-vis the location, business type, and activities to be conducted by the company. The main registrations requirements are:

a. enrolment with Brazilian Federal Revenue (CNPJ);

b. enrolment with State and Municipal tax authorities, if so required according to the specific activities conducted by the company;

c. registration before the National Social Security Institute (INSS);

d. registration before the Severance Pay Fund (FGTS);

e. obtainment of the operating license with the Municipality; and

f. obtainment of the necessary permits to operate the company according to its corporate purpose, which may include, for example, environmental licenses and/ or specific authorizations from regulatory agencies

Costs and fees vary according to each registra- tion and/or government body involved, but they usually refer to governmental fees and expenses incurred with public notaries, translators, attor- neys, brokers and external paralegals.

6. What are the main post-registration reporting requirements for companies in your jurisdiction? (For example, annual reporting requirements: what to file, to whom, is a company secretary required?)

The main post-registration reporting require- ments for companies in Brazil are as follows: Annual meeting

An annual meeting of shareholders must be held within four months following the end of each corporate year to:

a. Limitadas: (i) review management accounts and deliberate on the balance sheet and the economic result; and (ii) deliberate on managers election, as the case may be; and

b. A.s: (i) review management accounts and examine, discuss and vote on the financial statements; (ii) decide on the uses to which the net profits of the corporate year should be put and on the distribution of dividends; and (iii) elect the officers and the members of the audit committee, if any.

S.As must have their financial statements audited by an auditor registered before the CVM and published in a commercial newspa- per and in the Official Gazette, for purposes of registering the annual resolution with the Board of Trade. Limited liability companies consid- ered as “large entities” for the purposes of Law No. 11.638/2007 may also be required to pre- pare their financial statements in accordance with the Corporations Law, and have such finan- cial statements audited by an external auditor and published.

Reporting to Brazilian Central Bank

All direct foreign investments must be regis- tered in the Electronic Declaratory Registry for Foreign Direct Investments (RDE-IED) of the Brazilian Central Bank, through a specific online system named SISBACEN.

In addition, Brazilian companies with direct foreign investment must comply with the fol- lowing reporting requirements to the Brazilian Central Bank:

a. On a quarterly basis:

i. Brazilian companies with direct foreign investment that have net worth or  total assets equal or higher than BRL 250,000,000.00 (two hundred and fifty million), must submit information regarding their financial statements to the Brazilian Central Bank, through the SISBACEN.

b. On an annual basis:

i. Brazilian companies that do not meet the criteria indicated in (a.i) above must inform their updated corporate struc- ture to the Brazilian Central Bank on an annual basis; and

ii.  A foreign capital annual census must be completed by Brazilian companies receiving foreign investment whenever they have, on the preceding year (i) direct foreign investment (in equity) in any amount, and, simultaneously, net equity equal to, or greater than, US$ 100,000,000.00 (one hundred million); or (ii) outstanding balance of short- term foreign accounts receivable (i.e., due within 360 days) equal to, or greater than, US$ 10,000,000.00 (ten million).

c.  Every five years:

i. a foreign capital five-year census must be completed by Brazilian companies receiving foreign investment whenever they have, on the preceding reference year (i) direct foreign investment (in equity) in any amount; or (ii) out- standing balance of short-term foreign accounts receivable (i.e. due within 360 days) equal to, or greater than, US$ 1,000,000.00 (one million).

Additional reports

Periodic filings regarding the compliance with tax and labor obligations are also required, depending on the business type and activities conducted by the company.

7. Are there any controlling factors or restrictions on foreign companies in your jurisdiction?

Brazil is an open jurisdiction for foreign invest- ment. As such, there are no general restrictions on foreign ownership, except in certain specific sectors.

The Brazilian Federal Constitution provides for the following limitations:

a. Foreign equity ownership of Brazilian journalistic and broadcasting companies is limited to 30%;

b. Foreign equity ownership of aviation com- panies is limited to 20%; and

Nuclear power can only be exploited by the Brazilian government

8. What is the typical structure of directors (or family management structure) and liability issues for companies in your jurisdiction?

The typical management structure of Brazilian companies varies according to the type of busi- ness entity incorporated.

8.1. Limitada

The Brazilian Civil Code does not  establish a formal management structure for limited liability companies. Similarly, the existence of a board in a limited liability company, although possible, is not expressly provided for, since the board is only regulated by the Corporations Law.

The Limitada’s management is carried out by one or more officers (or  managers) resident in Brazil, who may be, but do not have to be, shareholders. Their appointment is made by the shareholders, who may attribute a specific designation to them. The managers’ functions and responsibilities are set out in the applica- ble legislation and the company’s articles of association.

8.2. Sociedade Anonima

Under the Corporations Law, the management powers are vested in the company’s officers and the board of directors, or only the officers. The existence of a board of directors is mandatory only for publicly held companies, companies with authorized capital and mixed capital companies (that is, companies whose corporate capital is held both by private parties and the state, being the latter, as a general rule, its major- ity shareholder).

Officers and board members are jointly referred to as managers under the Corporations Law. In general, management structure, composition, functions and responsibilities are determined by the Corporations Law and the company’s bylaws.

The board of directors is generally responsible for the strategic direction of the company. The board is a deliberative body only and does not have executive functions. The board members do not have specific titles. However, the board must have a chairman, chosen from among the board members.

The board of executive officers is incumbent upon the corporation’s representation before third parties and the performance of all acts necessary for the exercise of the corporation’s activities. Although officers are not required to have a specific designation, it is common for companies to designate their officers in the bylaws (for example, as chief executive officer (CEO) and chief financial officer (CFO)). An exception is made for publicly held companies that are required to have an investors’ relations officer with specific functions.

A corporation must have at least two officers and, if there is a board, three directors. Generally, up to one-third of the board mem- bers can also serve as officers. Directors may be nationals or foreigners, resident in Brazil or abroad. Officers must be Brazilian residents (nationals or foreigners).

9. What is the minimum number of directors and shareholders required to set up a company in your jurisdiction? Are there any requirements that a director must be a natural person?

9.1. Minimum number of Shareholders

As a general rule, Limitadas and S.As must be  incorporated  and  held  by,  at  least, two  shareholders, who can be individuals or legal entities, whether residents in Brazil or not.

The incorporation and ownership by a single shareholder is allowed for S.A.s, provided that such shareholder is a Brazilian company.

9.2. Minimum number of Directors

Please refer to question 8 above.

10. What are the requirements on how shares are offered in your jurisdiction?

10.1. Limitada

a. General structure: The corporate capital of Limitadas is divided into quotas, which must have an assigned par Company’s subscribed capital and ownership of quotas must be duly reflected in the articles of association;

b. Transferring quotas: quotaholders may transfer their quotas to third parties, subject to the approval of other quotaholders rep- resenting 75% of the company’s corporate Any transfer of quotas is subject to the execution of an amendment to the Company’s articles of association;

c. Issuing new quotas: quotaholders of Limitadas have a preemptive right to subscribe new quotas of the company pro- portionally to their respective participation in the company’s corporate New quotas may only be issued if the company’s original corporate capital has been fully paid up; and

d. Public offer: Limitadas are not allowed to make public offerings.

10.2. Sociedade Anonima

a. General structure: the corporate capital of a A. is divided into shares, which may be common or preferred (divided or not into different classes), depending on the rights and requirements associated with them. Non-voting preferred shares are limited to 50% of the company’s corporate capital. All shares are nominative and registered in the appropriate corporate book and may be issued with or without par value. The bylaws must state the corporation’s subscribed capital and at least 10% of the capital must be paid upon the company’s incorporation;

b. Transferring shares: unless otherwise specified in the company’s bylaws or share- holders agreement, in principle there are no restrictions to the transfer of shares (public- ly-held corporations are subject to specific regulation of the CVM). Such transfer is deemed to be valid upon its registration in the company’s share registry and share transfer books;

c. Issuing new shares: shareholders also have a preemptive right to subscribe new shares of the New shares may only be issued if at least 3/4 of the company’s original cor- porate capital has been paid up; and

d. Public offer: publicly-held corporations are allowed to make public offerings, which are subject to the requirements of specific

Corporate capital of both Limitada and S.A. must be stated in national currency (Brazilian Reais) and may be paid in cash, credit and/or any type of asset that is susceptible of a mone- tary assessment. Contributions in kind must be based on an appraisal report, which must indi- cate the criteria, comparative data and valuation methods used to sustain its conclusions.

11. What are the key laws and regulations on employment in your jurisdiction that companies should be aware of? Are there any aspects of employment law that are heavily regulated?

The Federal Constitution and the Consolidation of Labor Laws (“CLT”), established by Decree- Law 5.452 of May 1st, 1943, as amended, are the key laws regulating labor matters and workers’ fundamental rights in Brazil.

Because of the strict and protective legal frame- work, parties in the employment relationship (i.e., employer and employee) have limited freedom to negotiate the applicable terms and conditions. Among the rights granted by labor laws to workers, and which cannot be changed by mutual agreement of the parties, we highlight the following:

a. minimum wage (which is annually updated);

b. “13th salary”, corresponding to one time the monthly salary and paid by the end of the year;

c. a work period of up to 8 hours per day and 44 hours per week;

d. overtime compensation;

e. vacations/annual leave of 30 consecutive days, which can be divided in up to three blocks during the year;

f. “vacation bonus”, corresponding to 1/3 of the monthly salary and paid when the emp- loyee leaves on vacation;

g. public transportation voucher; and

g. maternity and paternity

Collective bargaining agreements negotiated by employers’ associations with employee´s unions may also affect the employment agreement by establishing specific rights and conditions to a certain category of workers, all of which must be observed by the employers.

12. What is the nature of the corporate governance regime in effect in your jurisdiction? What agencies or government bodies regulate corporate governance?

The corporate governance regime in Brazil is mainly established by the following statutes and regulations:

a. The Brazilian Civil Code;

b. the Corporations Law;

c. the regulations issued by CVM, which are applicable to publicly-held companies; and

d. the regulations issued by the São Paulo Stock Exchange (BM&F Bovespa), which has differentiated listing segments with specific corporate governance and trans- parency requirements in addition to those given by the Corporations Law and by The most popular listing segment is called Novo Mercado, which has the highest level of corporate governance requirements.

Although not mandatory, the provisions con- tained in the Brazilian Corporate Governance Code are also taken into account by several companies in Brazil.

13. Does establishing a company in your jurisdiction grant any kind of residency rights? Are there any conditions that in order to receive these residency rights (if applicable) one must partner or establish a joint venture with  a  local (e.g. a citizen of your jurisdiction)?

Foreign investors may obtain residency rights by establishing a company in Brazil. There is no specific requirement to partner or establish a joint venture with Brazilian nationals in order to obtain such residency rights.

Residence permits may be obtained for foreign- ers acting as managers, officers or executives of Brazilian companies, provided that the company presents evidence of (a) investment in the Brazilian company of an amount equal

to or higher than BRL 600,000.00 (six hundred thousand) per manager, officer or executive requesting the residence permit; or (b) invest- ment in the Brazilian company of an amount equal to or higher than BRL 150,000.00 (one hundred and fifty thousand) per manager hundred and fifty thousand) per manager.

Residence permits may be obtained for foreign- ers investing in Brazilian companies, provided that they present evidence of investment of (a) an amount equal to or higher than BRL 500,000.00, (five hundred thousand) for business in general; and (b) an amount equal to or higher than BRL 150,000.00 (one hundred and fifty thousand) for business related to innovation and research with a scientific or technologic character.

14. When is a company subject to tax in your jurisdiction? What are the main taxes that may apply to companies in your jurisdiction?

The Brazilian tax system is governed by the Federal Constitution and by the National Tax Code (CTN), which was implemented by Federal Law No. 5.172 of October 25, 1966, as amended. Industry or product-specific tax regimes may also apply.

Competence to tax is divided between federal, state and municipal authorities and encom- passes taxes, improvement fees, contributions, fees and compulsory loans. The most common taxes applicable to companies in Brazil are the following:

a. Corporate Income Tax (IRPJ): Brazilian legal entities are taxed on their worldwide income and capital gains, regardless of their origin. Different methods of taxation may be applied depending on the company’s annual income;

b. Social Contribution on Net Income (CSLL): a social contribution with the purpose of funding the social security system;

c. Tax on Manufactured Products (IPI): applies to the sale and import of manufactured goods;

d. Tax on Financial Transactions (IOF): applies to several types of financial transactions such as (i) intercompany loans; (ii) exchange and insurance transactions; and (iii) securi- ties or gold

e. Economic Intervention Contribution (CIDE): applies to payments made in con- nection with license agreements, acquisition of know-how and agreements involving cross-border transfer of technology;

f. Social Security Financing Contribution (PIS/COFINS): applies to company’s oper- ating revenues. Two different methods may be used: cumulative and non-cumulative methods;

g. Import Duty (II): due upon customs clear- ance of imported products; and

h. Export Duty (IE): applies to the export of certain listed

i. Tax on Distribution of Goods and Services (ICMS): state value-added tax on sales, com- munication and transportation services; and

j. Tax on Services (ISS): applies to payments made in connection with the rendering certain services.

15. How does the competition law in your jurisdiction regulate companies?

Federal Law No. 12,529 of November 30, 2011, as amended, sets forth the main rules and prin- ciples governing the antitrust system in Brazil (“Brazilian Antitrust Law”). Responsibility for enforcing the Brazilian Antitrust Law rests with the Administrative Council for Economic Defense (CADE), a governmental agency in charge of analyzing mergers and anticompeti- tive/monopolistic behavior.

Pre-merger analysis

The Brazilian Antitrust Law establishes that a pre-merger review shall be conducted by CADE in relation to any corporate transaction meeting certain thresholds.

CADE’s clearance must be  attained  prior to the closing of the transaction. Failure to comply with this provision may entail severe consequences, including: (a) gun jumping fines between BRL 60,000.00 (sixty thousand and BRL 60,000,000.00 (sixty million); (b) the initiation of an Administrative Proceeding against the undertakings; and (c) the deal can be declared null and void.

Anticompetitive behavior

According to the Brazilian Antitrust Law, an anticompetitive behavior is characterized as an act able to (a) limit, falsify or in any way restrain competition; (b) control a relevant market of certain products or services; (c) increase profits on a discretionary basis; or (d) exert market power in an abusive way.

In case of breach, companies may face fines ranging from 0.1% up to 20% of gross revenues in the year preceding the initiation of the pro- ceeding. Individuals engaged in the practice may be liable to fines ranging from 1% up to 20% of the one applied against the company and criminal prosecution.

16. What are the main intellectual property rights companies should be aware of in your jurisdiction?

Intellectual property rights in Brazil are regu- lated by Federal Law No. 9.276 of May 14, 1996, as amended, and by international treaties such as the Paris Convention for the Protection of Industrial Property. The Brazilian Industrial Property Institute (INPI) is the national author- ity in charge of registering intellectual property rights and supervising the enforcement of the applicable rules.

The following intellectual property rights are protected by the Brazilian legal framework:

a. Trademarks: can be obtained by individuals or legal entities (national or foreign) with the purpose of distinguishing certain products or services related to their business activ- ities, according to the Nice International Classification System;

b. Patents: are granted to inventions meeting the requirements of novelty, presence of an inventive step and industrial applicability;

c. Utility models: are granted to parts of inven- tions capable of industrial use, with a new shape or layout and which have an inventive act involved; and

d. Industrial designs: can be obtained by indi- viduals or legal entities (national or foreign)with the purpose of protecting the external ornamental shape of an object or the set of lines and colors applied to a product.

Copyrights are also protected by the Brazilian legislation without the need to obtain any specific registration, under the terms of Federal Law No. 9.610 of February 19, 1998, as amended.

17. Does your jurisdiction have laws or regulations that govern data privacy?

Although still not subject to specific regulation in Brazil, data privacy has been significantly discussed by scholars and practitioners over the past years. While a specific regulation is not approved, the protection of data privacy

is conferred by the general principles and provisions of the Federal Constitution, which establishes that:

a. intimacy, private life, honor and image of persons are inviolable; and

b. correspondence and telegraphic, data and telephone communications are deemed

Data privacy is also generally regulated by the Brazilian Civil Code and by laws and regulations that address particular types of relationships (e.g. Consumer Protection Code and labor laws), particular sectors (e.g. financial institutions, health industry, telecommunica- tions, etc.), and particular professional activities (e.g. medicine and law).

Federal Law No. 12.965 of April 23, 2014 (the “Brazilian Internet Act”), and its regulating Decree No. 8.771 of May 11, 2016, establishes general principles, rights and obligations for the use of the Internet, and introduced provisions concerning the storage, use, treatment and disclosure of data collected on-line. Also, the Decree has brought first legal definition of per- sonal data. There are also laws on the collection, treatment and safeguarding of documents and information, which have privacy implications (e.g. Tax Code, concerning tax secrecy).

18. Are there any incentives to attract foreign companies to your jurisdiction?

Brazil has established a variety of tax incentives to attract national and foreign investment to less developed sectors of the economy (e.g. infrastructure and technology, as detailed below) and locations (notably the North and Northeast regions, where specific development agencies were created).

Among such tax incentives, governmental authorities may grant tax credits, tariff reduc- tions or exemptions and subsidized credit from governmental banks, especially the National Bank for Economic and Social Development (BNDES).

Special tax regimes can also be negotiated and granted on a case-by-case basis, to establish specific conditions for the operation of the company in each location and the expansion of its business activities in certain markets.

On the infrastructure and technology sectors, for example, foreign investors may benefit from several incentives, such as:

a. REIDI – Special Regime of Incentives for the Development of Infrastructure;

b. REPORTO – Special Tax Regime for Modernization and Expansion of the Port Structure;

c. REPENEC – Special Incentive Regime for Infrastructure Development of the Oil In- dustry in the North, Northeast and Midwest Regions;

d. Exemption of the Tax on Financial Tran- sactions (IOF) on the financing of road and rail infrastructure projects; and

e. REPES – Special Tax Regime for Information Technology Export

Besides the tax benefits mentioned above, it is also noteworthy:

a. distributions paid by a Brazilian legal entity to its shareholders are treated as tax-free dividends;

b. Depending on the corporate income tax regime adopted by the company, net oper- ating losses generated in a given period/year can be used to offset up to 30% of the taxable income accrued on the subsequent period/ year; and

c. recognition of gains or losses in reorganiza- tions can be deferred and goodwill can be amortized, provided that certain thresholds are met.

19. What is the law on corporate insolvency in your jurisdiction?

Corporate insolvency is regulated in Brazil by Federal Law No. 11.101 of February 9, 2005 (“Brazilian Bankruptcy and Restructuring Law”), which establishes the legal framework for judicial recovery, extrajudicial recovery and bankruptcy.

The main objective of judicial or extrajudicial recovery is to enable the reorganization of the company while maintaining the production source and protecting employees and creditors. A judicial recovery may be requested by debt- ors facing financial difficulties if the following requirements are met:

a. debtor has been conducting its activities for more than two years;

b. debtor has not been declared insolvent or, in case debtor has been declared insolvent, the responsibilities arising out of the lawsuit are ceased;

c. debtor has not been subject to judicial recov- ery in the past five years;

d. debtor has not been subject to special judi- cial recovery in the past five years; and

e. debtor and any of its managers and share- holders has not been convicted of any crimes set forth in the Brazilian Bankruptcy and Restructuring

The same requirements apply to debtors wanting to propose and negotiate an extrajudicial recov- ery plan with its creditors.

Companies that do not meet the requirements of the judicial recovery must request their own forced liquidation a bankruptcy court. Upon acceptance of the liquidation request, the debtor is removed from its activities with the purpose of preserving and optimizing the productive use of assets and productive resources, including intangible asset. Forced liquidation may also be requested by creditors upon fulfilment of additional requirements.

20. Have there been any recent proposals for reforms or regulatory changes that will impact company law in your jurisdiction?

Important changes to the Brazilian labor legis- lation were recently approved by the Congress, in an attempt to modernize and adapt the legal framework to the constant evolution of the labor market. By introducing less restrictive rules, such changes are expected to have a positive impact on the development of the business environment and on the creation of new jobs.

21. Are there any features regarding company law in your jurisdictionor in Asia that you wish to highlight?

Investment opportunities in Brazil keep rising

every day. Largely driven by the need to develop certain sectors of the economy and absorb international technology and know-how, the Brazilian government continues to welcome investors with a fertile soil to conduct business and a receptive legal framework (including from a company law standpoint). The growth poten- tial of the domestic market and the appetite for consumption of an emerging middle class also contribute to attract foreign companies wishing to internationalize the offer of new products and services in different segments of the economy.

CONTACTS:

Fabiano Gallo – Partner
fabiano.gallo@cmalaw.com

Carolina Marcondes Sant’Angelo – Partner
carolina.santangelo@cmalaw.com

Rafaella Chiachio – Lawyer
rafaella.chiachio@cmalaw.com

Adriana Kupper Pagés – Lawyer
adriana.pages@cmalaw.com

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