Brazil: Brazilian Navigation Company And The Requirements For Its Incorporation

Brazil is a an extremely favored country for the navigation activity considering its natural conditions and demographic characteristics. Although in recent years the Brazilian legislation has undergone under a process to flexible the navigation market, there is still a protectionism in certain navigation activities.

The activities of long-distance voyages, cabotage, maritime support and port support, as a general rule, shall only be developed by a Brazilian Navigation Company ("EBN").The incorporation of EBNshall observe the specific Brazilian legislation, with its own requirements and procedures, especially the technical, economic and financial requirements.

EBN is a legal entity which has as its purpose to accomplish the water transport in the desired navigation type, duly organized and existing under Brazilian legislation, with headquarters and administration in Brazil. Also, EBN shall be previously authorized by National Agency of Waterways Transportation ("ANTAQ") through an Authorization Term/ Resolution to operate of long-distance voyages, cabotage, maritime support and port support, pursuant to Resolution ANTAQ 2510/2012.

As of a technical requirements for the granting of authorization by ANTAQ, EBN shall: (i) own at least one Brazilian flag vessel that is not chartered as bareboat to third parties, appropriate to the desired navigation and commercial operation condition by the claimant, as well as obtain the applicable registries and civil liability insurance; or, (ii) present charter contract of Brazilian flag vessel, as a bareboat, that is adequate to the desired navigation for a period equal to or greater than one year, celebrated with the owner of the vessel; or, (iii) present contract, physical and financial schedule of construction or renovation of its property and of Brazilian flag, adequate to the desired navigation, in Brazilian shipyard.

The delay of more than 25% of the construction period on schedule set forth in item "iii" mentioned above, but limited to 36 (thirty six) months, should cause the cancellation of the authorization and the consequent interruption of the operation of vessels chartered, except in cases of force majeure or unforeseeable circumstances duly proven.

In relation to the economic and financial requirements in order to obtain the authorization to operate in the desired navigation, it will be necessary to establish good economic and financial situation, and should introduce minimum equity: (i) R$ 8,000,000.00 (eight million reais), for the long-distance navigation; (ii) R$ 6,000,000.00 (six million reais), to cabotage navigation; (iii) R$ 2,500,000.00 (two million, five hundred thousand reais), to maritime support navigation; (iv) R$ 1,250,000.00 (one million, two hundred and fifty thousand reais), to port support navigation.

The Brazilian company duly authorized to operate long-distance navigation must accomplish prior accreditation before ANTAQ for transportation in bilateral agreements.

The application for authorization to operate on long-distance navigation, cabotage, maritime support and port support should be made against the presentation of application and required documents, in which it should be presented documents proving the regularity of the company before the Federal, State and local Treasury where the headquarter is located, as well as it is regular before the National Social Security Institute-INSS, the Severance Fund Time Service-FGTS, as well as proof that the company does not have any record of bankruptcy or judicial and extrajudicial recovery and proof of regularity of union dues.

After accomplish the requirements for incorporation above mentioned, EBN may charter foreign vessels under a voyage charter, time charter or bareboat charter.

In order to protect the Brazilian vessels, the foreign vessel chartering by an EBN can only occur: (i) when verified absence or unavailability of the Brazilian flag vessel type and size suitable for transport or intended support; (ii) when verified public interest, duly justified; or (iii) when replacing the boats under construction in the country, in Brazilian shipyard, with an effectiveness contract, for the duration of the construction, for a maximum period of 36 months, up to the limit of: (a) the tonnage of deadweight tonnage contracted, for cargo vessels; (b) the gross tonnage contracted, to vessels support.

Additionally, EBN can charter a foreign bareboat, with suspension of the originated flag, to operate in the short sea shipping, inland waterway transport of national route navigation and maritime support, but must be limited to the double of the deadweight tonnage of the vessels, of similar type, as ordered to Brazilian shipyard installed in the Country, with a construction contract in force, added with half of the deadweight tonnage of the Brazilian vessels that the company owns, except the right to charter at least an equivalent-sized vessel.

In the same context, Brazilian vessels operated by Brazilian companies of navigation may request a Brazilian Special Registry ("REB"), whichis a type of registry of the Brazilian flag vessels (including, therefore, foreign vessels chartered on a bareboat basis, once they have the right to fly the Brazilian flag) operated by EBN and executed before the Brazilian Maritime Court, in order to have support of the development of the merchant marine. This registry is complementary to the maritime property and does not replace it, and it is not compulsory. Thereby, the Maritime Court shall issue, in the case of vessels included in the REB, the Brazilian Special Registration Certificate. Vessels registered in the REB must necessarily have Brazilian captain and engineer chief.

The REB grants the registered company some benefits, such as: (i) funding through an official financial agent, to the EBN that possesses a pre-registered vessel in the REB, through interest rates similar to those of the vessels for export, equalized by the Merchant Marine Fund; (ii) provision of insurance and reinsurance of shells, machinery and civil liability in the international market for registered and pre-registered vessels in REB, if the domestic market does not offer such coverage or prices consistent with the international market; (iii) the construction, maintenance, modernization and repair of registered or pre-registered vessels in the REB will be for all legal effects, treated as an export operation. For example, they will be exempt from PIS and COFINS taxes.

The term estimated to the approval of EBN registration before ANTAQ usually takes around 2 (two) months, upon the presentation of all documents requested. Nevertheless, ANTAQ may require the submission of additional documents, at its own discretion, in order to confirm the attendance of the necessary requirements; which can cause an elongation of this term initially estimated.

Although it is a challenging sector for new investors (specially due to the high costs with manpower, taxes and operation), it is an attractive market due to the large demand in Brazil, the new port legislation and the few players existing in the market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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