Brazil: Interview With Fábio Figueira, Partner, Veirano Advogados Law Firm, Brazil

This week, IFN brings you an exclusive interview with Fábio Figueira, a partner at Brazillian law firm Veirano Advogados, during which we discussed Islamic finance opportunities in Brazil and the country's investment infrastructure.

1. What are the current trends in general investments and what are the opportunities for Islamic finance to spread in Brazil?

Since the Growth Acceleration Program (PAC) was launched in 2007, investments in the infrastructure sector in Brazil have significantly intensified, with a focus on housing, sanitation, transport and energy projects. Whereas several new projects and concessions on ports, airports and roads, as well as in the energy sector, have been granted and developing in the recent years, a large portion of such investments is yet to be done or even in need of further financing to move forward.

The opportunities for investments are not only found in projects to be developed, but also on ongoing finance to support the companies' cash flow. The electricity sector, for instance, in which project finance has dominated the financing transactions on the energy generation side, is now demanding heavy financing for its operational side as well. Due to the current hydrologic situation in Brazil and corresponding rise in energy prices, distribution companies alone have already contracted loans in excess of USD 6.5 billion in 2014, and are currently seeking additional funding to settle energy purchases of 2014. As prices and demand for energy continue to increase, it is expected that both additional investment and financing will be necessary in the upcoming years.

In this scenario, regular loan structures are being replaced for more complex transactions, involving various types of arrangements, from infrastructure bonds to equity deals. As sponsors in the infrastructure sector look for innovative and alternative solutions for their investments, we believe that the opportunities for Islamic investments in this sector will continue to rise. Of course, as discussed below, these alternatives should be carefully reviewed in order to ascertain that they would be Shariah compliant.

2. What are the preferred vehicles to invest in the country? Any local incentives?

Investments in Brazil made by foreign entities usually take place by means of (i) the incorporation of a legal entity in Brazil or (ii) the acquisition of the totality or part of the capital stock of a legal entity already incorporated in Brazil. The most common legal entities in Brazil are the corporation (sociedade anônima or S.A.) and the limited liability company (sociedade limitada or limitada).
A corporation has its capital stock divided into shares and it is governed, essentially, by the Brazilian Corporations Law and its by-laws (estatuto social). A limited liability company has its capital stock divided into quotas and it is governed, essentially, by the Brazilian Civil Code and its articles of association (contrato social).

The main difference to consider when electing for one or the other form of legal entity is what kind of organization is envisaged. Please note that only corporations are entitled to issue shares and other securities (and therefore raise funds) to be publicly traded in the stock exchange. The corporation is also chosen when investors want to set the governance of the entity with the execution of a shareholders' agreement. On the other hand, a limited liability company tends to be a more appropriate vehicle for structuring simpler foreign direct investments in Brazil as the management and other requirements are more flexible than for a corporation (despite the fact that the stockholders of a limited liability company may also execute a stockholders' agreement).

Please note that foreign companies may not operate branches in Brazil unless they submit a special request to the Ministry of Industry and Commerce and receive prior authorization through a Presidential decree. In practice, due to the bureaucratic difficulties in obtaining such authorization, few branches of foreign entities operate in Brazil.

The entering into of joint ventures may be an alternative for foreign investors (which means the acquisition of part of an already existing legal entity or the incorporation of a new entity with a Brazilian partner). Usually, joint ventures take either the form of a corporation or the form of a limited liability company. Please note that, with a presence in Brazil through a participation in a Brazilian legal entity, the foreign investor may indirectly participate in, for example, a consortium agreement, which is generally adopted for certain significant infrastructure projects in Brazil. The consortium agreement is considered a non-incorporated entity.
Furthermore, it is worth noticing that foreign investors may also invest in Brazil by means of the acquisition of quotas of investment funds incorporated in accordance with the Brazilian Securities and Exchange Commission (CVM). Brazil has a growing funds industry, focused in several different fields (real state, bonds, stocks, government bonds, among others).

From a tax perspective, on the day-to-day activities, the choice between a corporation and a limited liability company does not make that much of a difference. However, the option between one and the other may be relevant for tax purposes if the foreign investor will participate in a joint venture with a Brazilian partner and if the agreed equity ownership does not correspond exactly to the amount of cash that is contributed by each. While the corporation usually provides more flexibility for non-taxable disproportionate investments because of the possibility of issuing shares at a premium without adverse tax consequences (and also the issuance of ordinary shares and preferred shares with different values and political rights), the limited liability company, on the other hand, has greater flexibility in what regards disproportionate distribution of profits. 
In any case, dividends are not subject to any taxation in Brazil when distributed to shareholders or quotaholders.

Another fundamental issue is the treatment of capital gain. Brazilian local entities are subject to capital gains taxation at a 34% rate and individuals at a 15% rate, but non-residents are subject to specific rules. Basically, any gains derived from the sale of permanent investments are subject to a 15% withholding income tax (increased to 25% if seller is resident in a favorable tax jurisdiction).

In addition, in the case of portfolio investments there are special regimes and vehicles, such as the FIP (Participation Investment Fund) that under certain conditions will allow the non-resident to invest in Brazil with capital gains exemption. Non-residents will generally also not be subject to tax when investing directly in shares negotiated in the Brazilian stock exchange.

On the incentive side, there are various industry specific incentives (such as for IT and infrastructure projects), Federal regional tax incentives (for companies investing in the Northeastern and Northern Regions) and a great number of benefits for exporters, which is relevant for deciding on Brazil as a hub for the Latin American market.

Finally, it is also important to consider that the political system in Brazil has the country divided into 27 States and more than 5,000 municipalities. Taxes are charged by all three powers (Federal, State and Municipal). This gives rise to the possibility of negotiating special tax benefits with States and Municipalities (primarily VAT, service and real estate taxes) if the permanent investment has the potential to create local jobs and taxable revenue.

3. How do you see the developments of foreign Islamic investments? In which sector particularly? What is the support offered by local authorities?

As mentioned in our answers above, foreign Islamic investments can be made through different vehicles and the infrastructure sector is maybe the one foreign investors should pay attention to and tax incentives were also mentioned above. Brazil unfortunately still does not have specific regulations applicable to Shariah compliant transactions just like one may find in countries with a large muslim community. However, this fact, on the other hand, should not be seen as a barrier or an obstacle to investments in Brazil due to the comments we made above.

We should note that, as publicized last year (please see http://exame.abril.com.br/mercados/noticias/brasil-mira-oriente-medio-com-fundo-com-regras-do-isla), Banco do Brasil S.A., the main commercial bank controlled by the Federal Government, has announced its interest in starting operating in Shariah compliant transactions and it was mentioned that Banco do Brasil S.A. would be evaluating the possibility of launching an investment fund of Brazilian company which would be Shariah compliant.

Previously published in Islamic Finance News

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.