header_logo
cancel1

Brazil

Last Verified on Thursday 27th April 2017

    • Brazil

      There is no specific information about the subject compiled or published by official or reliable organisations. However, there is information available indicating that the technology sector had the highest number of transactions in 2016. With respect to the volume of investments (based on some information available, since a significant part of the M&A transaction values are not revealed in Brazil), the sectors of energy, mining, food, beverage, tobacco and financial should be highlighted.

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      The data published on the subject in recent years has indicated a predominance of Brazilian investors. In 2016, especially in view of the turbulent Brazilian political scene, there was a retraction of foreign investments. Although the involvement of financial investors in the Brazilian market has increased in recent years, there is still a preponderance of strategic investors in relation to financial investors. 

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      Over the past few years, there has been an increase in debt-financed mergers and acquisitions. Bonds, such as debentures are the most widely used instruments. Nevertheless, we also see most commonly bilateral credit facilities and, to a lesser extent, syndicated loans. We should also highlight the role of the Brazilian Development Bank – BNDES – a public development bank that acts as an important instrument of the federal government – as source of financing for long-term financing and which funds many M&A transactions in Brazil, including direct investment, by means of BNDES Participações SA – BNDESPAR, its equity branch. Acquisitions between local parties are generally made in Brazilian currency (BRL), especially considering that there is a legal restriction on agreement for payments in foreign currency (subject to some legal exceptions). When the financing party is a foreign entity, the transactions are usually denominated in US dollars. 

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      The maturities and amortisation profiles are usually greater than one year, especially in the case of funding by public banks. Due to the dynamics of the Brazilian market, debentures and bonds in general are commonly issued with maturities not exceeding three or four years. If credit is raised abroad, due to more favourable rates and conditions, the terms may be longer.

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      With respect to the subject, an example is that the Tax on Financial Transactions (IOF) is not levied on the credit arising out of debentures, which encourages its use. Regarding other important tax aspects, please see question 6. In general, the law does not differentiate Brazilian investors from foreign investors, except with respect to specific issues such as, for example, transactions involving the acquisition of rural real estate, in which there are restrictions. It is also noteworthy that the procedures related to foreign capital registration have been quite simplified over the last decade, promoting the investment environment in the country.

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      Payments of interest to non-residents are generally subject to a 15 per cent withholding income tax (WHT). Such rate may be reduced due to a provision of a Double Tax Treaty entered into between Brazil and the country in which the foreign investor is located in and increased to 25 per cent in case of remittances to tax havens.

      Investments made in Brazil by non-residents (such as bonds) are generally subject to taxation in Brazil according to the rules applicable to individuals residing in Brazil. However, WHT rate reductions (in some cases, to zero per cent) and exemptions apply to certain payments made to non-residents related to investments that comply with the conditions set out in Brazilian legislation (eg, bonds with fixed rates, minimum average term of four years, among other conditions; investment funds composed solely by foreign investors), including non-traditional debt investments such as foreign sovereign wealth funds.

      In terms of changes of law in 2016, we may mention the new progressive rates applicable to capital gains. It is expected that M&A and related financing deal activity shall be mainly affected by the levy of income tax on capital gains accrued by individuals residing in Brazil (and arguably by non-residents) at progressive rates ranging from 15 per cent (applicable to gains of up to 5 million reais) to 22.5 per cent (applicable to gains higher than 30 million reais) as of 1 January 2017 (income tax was previously levied at a 15 per cent rate). Other factors that could also affect M&A and related financing deal activity are the tax authorities’ special attention in 2017 to transactions involving funding by means of direct investments through funds (instead of loans) and payment of goodwill, as well as the increasing compliance obligations required from Brazilian taxpayers.

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      There is no express legal prohibition from choosing a foreign governing law. However, Decree-Law 4657/42 (Law of Introduction to the Brazilian Law Rules) establishes some rules on the subject, among which we mention, for example: (i) obligations shall be qualified and governed by the law of the country in which they were established (article 9); (ii) if the obligation is to be performed in Brazil and is subject to a required form, such obligation shall be observed, accepting the specificities of the foreign law as to the extrinsic requirements of the act (article 9, paragraph 1); (iii) the obligation resulting from the contract is established on the proponent’s place of residence. The same law also brings some rules regarding the jurisdiction, among which we also selected the following examples: (x) the Brazilian judicial authority is competent when defendant is domiciled in Brazil or the obligation must be complied with here (article 12); (y) only the Brazilian judicial authority is entitled to hear actions related to real estate located in Brazil (article 12, paragraph 1). In contracts with Brazilian parties, related to goods located in Brazil or providing for obligations that can be met in Brazil, the convenience of choosing the applicable law – whether foreign or of foreign jurisdiction – to resolve disputes should be evaluated on a case by case basis, considering if there is an option for arbitration or if the disputes will be solved judicially. In fact, for the purposes of Law 9307/96 (Arbitration Law), the parties are free to choose the applicable law and the place of arbitration. In other words, the parties have more freedom to choose when they submit disputes to arbitration. Additionally, it is worth mentioning that foreign judgments and arbitration awards must be submitted to validation (homologação) by the Superior Court of Justice before they are enforced in Brazil. 

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      The insolvency law in Brazil treats lenders under an unsecured credit facility as general creditors on a pari passu basis with other unsecured creditors (without any privilege).

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      Generally, the posting of bonds is made by means of written documents (eg, mortgage, pledge, chattel mortgage, surety); in some cases, a public deed or a legally equivalent document is required (eg, mortgage). The constitution of guarantees, such as mortgages and pledges, depends on the registration of the corresponding instrument, and the law establishes where such registration must occur (for example, the registration of common pledges must be made at the Registry of Deeds and Documents, and the registration of mortgage must be attached to the real estate registration of the mortgaged property, at the competent Real Estate Registry Office). The registration is essential for this type of guarantee to take effect vis-à-vis third parties. There is no guarantee that encumbers, in general terms, all the debtor's assets; to encumber each one of the assets it is necessary to provide a guarantee on each of them. Nevertheless, a personal guarantor will be liable for the debt with all his or her assets, except if otherwise agreed. The joint and several liability between debtor and guarantor or guarantors is usually not presumed and must be established in writing.

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      The classification of the credits in the order of payment set forth by the insolvency law depends on the nature of the credit. Therefore, it is not possible to change the classification of credits, by means on agreement among creditors or any other agreement. Additionally, the assignment of credit or any other transaction involving the credit does not affect the material and procedural rights related to such credit and the assignee subrogates in all rights of the original creditor.

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      There is no special treatment for debt financing provided by equity investors, the only preference set forth in the insolvency law in Brazil is to credits granted during a judicial process of recovery, in case the company was not able to recover and its bankruptcy was declared.  

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      The foreign debt-investor should also be aware that the declaration of the bankruptcy causes the immediate maturity of all debts of the company, and that the debts in foreign currency shall be converted into national currency based on the exchange rate of the date of the bankruptcy declaration is made.

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

    • Brazil

      The forecast is that the market will warm up in the second half of 2017. It is expected an increase in the participation of foreign investors due to the depreciation of our currency, and an increase in M&A transactions in the infrastructure sector because of the corruption scandals and the economic crisis, this sector has been severely affected and some economic groups have to sell their assets or receive investments to ensure the maintenance of their business.

      Answer contributed by Rochelle Ricci from Machado Associados

      Last verified on Thursday 27th April 2017

Latin Lawyer gives you a fantastic platform to promote your legal expertise to our extensive readership base

Become an author

Contributing editors

Authors