how to invest in Brazil
As for investment choices, the most important rule is diversification. However, there are several options to earn high interest rates, some riskier than others. Each requires that you do basic due diligence, understand what it is, how it works, and consult with professionals who work in these areas. With that said, let´s run through the alternatives:
1. Bank CD´s, or Certificados de Deposito Bancário (CBD). These are offered by banks of course. You will need a CPF number to open an account with a bank or brokerage. These CBD´s pay high interest rates, are liquid, easy to understand, and easy to research on the internet, or with a few telephone calls.
2. Certificados de Recebiveis Immobilarios (CBI) are mortgages backed by real estate, that are bought and sold on the secondary market. These are long-term investments, suitable mainly for patient, long-term investors. You can earn higher yields than bank CD´s and the other good news is that they are free of income tax.
3. There also exists something in the field of agro-business called Cédulas de Produto Rural (CPR), which are basically receivables secured by crops. They are considered safe, and offer high yield. They are issued by farmers and agricultural producers to finance their crop. Your money is guaranteed by, and paid back at the harvest. The Banco do Brasil is the principal distributor of CPR´s.
4. Another type of receivable investment is known as Fundos de Investimento em Direitos Creditórios, (or FIDC´s). If you know what factoring is, then you´ll know what this is. The risk is high, because if someone doesn´t pay, you´ll lose not just the interest, but also your investment. You can expect therefore, a very high return, but before you jump into something like this, you need to do some serious due diligence and check the credit rating from one of the agencies like Fitch or Moodys.
5. Another bet involving risk, are hedge funds. The idea behind a hedge fund is to profit from volatility in the market place and to seek out the best opportunity in the market for profit, whether it be in stocks, bonds, foreign exchange, or interest rates. There is a futures market in São Paulo known as BM&F. Some hedge funds have been very successful over the long-term and can add diversification to a portfolio.
6. Of course, if you´re really confident in your own abilities and know what you´re doing, you can open your own account at the Bolsa de Mercadorias & Futuros (BM&F) and do your own trading. You can open an account with 5000 dollars, but you´ll need a CPF number.
7. You can also buy government bonds directly from the Treasury over the internet. This program is called "Tesouro Direto". It´s possible to start with as little as R$200. There are several options and terms you can choose from. For example, you can buy inflation-indexed bonds and bonds indexed to the SELIC. So if inflation or interest rates rise, you won´t suffer a loss. Inflation is something you always have to remain vigilant about. But you can also get good results. Last year long-term bonds, known as NTN´s returned more than 20%.
8. You could also invest in individual stocks or the stock index. At the moment, prices are high, and the trend is up. Personally, I don´t find this attractive right now after a big advance. In emerging markets, high volatility is to be expected, and prices can drop for no apparent reason that only becomes obvious in hindsight. But for the moment, it´s up and away!
9. You could also consider lending money directly to Brazilian companies. see lending to Brazilian companies
10. Finally, you should consider real estate. Well-located real estate, of good quality generally rise over time. With inflation running at 7% per year, you´re not likely to lose money. But problem real estate, or poorly located or ill-conceived projects can lose value. Or if you over-pay, you may lose. So never buy any real estate that you´ve never seen. There are no restrictions on foreigners owning property near the coast like there are in México.
I´m not recommending any of these investments. Nor am I selling anything. I mention them because I found it interesting, and it may be interesting too for some readers as a starting point.
The State of Rio de Janeiro just recently launched na investment network, called the Rede Nacional de Informação sobre Investimentos (RENAI). The web-site can be found at: http://www.governo.rj.gov.br/noticias.asp?N=25114
source: http://www.escapeartist.com/efam/68/Investing_In_Brazil.html
Table of Contents:
Opportunities / Investment ideas in Brazil
Organized by state:
Investing in Brazilian Culture
there are some interesting rules in Brazil that allow companies (and individuals) to invest money in arts and movies, and to deduct that investment from their income taxes. In this way, all investments in Brazilian film is tax deductible, and is why you see companies like Petrobras, Banco do Brasil and others investing heavily in Brazilian film production. This is very similar to how Brazil funded the development of the airline industry (Embraer). Companies that invest benefit because of the good will that these investments create in the community, and since the investment comes off of their taxes...there is no risk, no down side. See more in our discussion on the Brazilian law Rouanet, named after the senator that introduced the bill in 1991.
Investment Stability
Brazil is the largest and most populated country in South American. Brazil is a democracy and has been financially and politically stable for many years. The Currency has been free floating and has remained stable, even showing a gradual strengthening of the R$ (Real; the Brazilian Currency), as indicated below in the graph (note: less R$ per dollar indicates a stronger Brazilian Currency meaning that it takes fewer $R to buy one USD$). Overall, the trend has been one of stability.
FDI rules in Brazil
Foreign Direct Investment Rules in Brazil: FDI
Foreign capital may freely enter Brazil and is treated like local capital. Legally registered companies, foreign or domestic, enjoy the same rights and privileges, and they compete on an equal footing when bidding on contracts or seeking government financing. Expatriating profits out of the country is not an issue in Brazil.
The present Company Law 6404 was passed in 1976, the same year the Securities Commission (Comissão de Valores Mobiliários.CVM) was created. Both were designed to protect minority shareholders, strengthen stock markets and facilitate the formation of conglomerates. The law introduced new corporate concepts to Brazil, including those of a controlling shareholder and the mandatory distribution of dividends.
According to the central bank, FDI flows climbed to US$21.52bn during 2005, up from US$20.27bn in 2004 and just US$12.90bn in 2003. The central bank reports that the largest sources of FDI in 2005 were the United States (US$4.64bn), the Netherlands (US$3.22bn) and Mexico (US$1.66bn). The sectors receiving the highest inflows during 2005 were services (US$2.98bn), retail (US$2.10bn), and food and beverages (US$2.07bn).
Incentives to Invest in Brazil
Incentives:
FDI in Brazil is normally accompanied by multiple incentives offered by the state and local governments. For example, Brazil is famous for its “guerra fiscal” (or “tax reduction wars”) in which the states compete with each other to offer the largest tax-incentives to foreign companies. If you are willing to invest in a technology sector in particular, you can expect the Brazilian government to offer very appealing financial incentives.
As Brazil’s economy has boomed and the government has proved its fiscal responsibility, several new incentive programs targeting special sectors have recently been created. Law 11,196, published on November 22nd 2005, gives special tax breaks and other incentives to export firms and to investments geared to technology. Research-and-development projects and information technology also qualify for some direct assistance and tax relief
It is typical for investments in technology infrastructure to be accompanied by a co-investment by one of these development banks. During our investment research phase, we will be in contact with a number of development agencies to investigate the possibility of investment insurance and co-investment.
Establishing a local company in Brazil:
Foreign firms may engage in business in Brazil by acquiring an existing company or by forming a local subsidiary. Many foreign firms that choose the latter route prefer to establish a limited-liability company, or limitada. This form is easy to set up, has fewer formalities and less public disclosure requirements than the other options. Other types of organization are less suited to foreign investment. The limitada is formed through a simpler procedure and involves the same taxes, but expenses are generally lower since the limitada does not require external auditing. Moreover, little disclosure is required; limitadas rarely reveal basic financial information, such as operating expenses or year-end profits. A limitada need not be registered on a stock exchange, and no minimum amount of capital must be deposited in a bank. A limitada can be established in about two weeks.
In this section, we will profile some of the larger banks in Brazil
Portfolio investing in Brazil
ETF's Brazil
Venture Capital / Private Equity in Brazil
private equity in Brazil
Companies in Brazil
Brazil: Companies
Invest in software to avoid paying taxes:
In Brazil, there is a law to encourage the software industry, where a company can avoid paying ICMS taxes if they invest in software development in Brazil. This could be marketed to multinationals operating in Brazil as a way to lower their tax burdon if they shift software development to Brazil. Clever. This is a form of trade barrier that encourages local infant industry development (strategic industry). Similar as what Brazil did with airplane industtry and film (see law Rouanet)
Links:
External Links:
GENERAL
Government and independent websites that provide an overview of the issues involved in investing in Brazil.
ECONOMY
Links to resources that provide a wide range of economic statistics.
Sources of international trade statistics are listed in the “Exporting” sections of this website.
LAWS & REGULATIONS
Resources that provide an overview of the Canadian and Brazilian regulations for doing business in Brazil. More specific regulations, for example concerning Standards or Immigration, are listed under those specific headings.
FORMING A COMPANY
Guides to starting a business in Brazil.
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STANDARDS, LABELLING
Resources that cover product labeling, product standards, and advertising standards in Brazil.
TAX
Guides to the regulations relating to business taxation in Brazil.
EMPLOYMENT
Resources that cover employment regulations in Brazil, plus links to associations of human resources professionals.
INTELLECTUAL PROPERTY
Guides and databases of trademarks, patents and industrial designs, and directories of patent and trademark agents in Brazil.
REAL ESTATE
Websites that provide listings of available commercial, industrial and investment properties, as well as directories of real estate professionals in Brazil.
IMMIGRATION
Official sources relating to business immigration.
FINANCIAL INSTITUTIONS
Guides to financial institutions in Brazil.
Directories of financial consultants are listed in the “Exporting” sections of this website.
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