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Brazil

Last Verified on Thursday 15th August 2019

    General

    • Brazil

      Project finance emerged more prominently in Brazil in the mid-1990s and has grown exponentially since then. Project financing is mostly used in infrastructure projects (including sanitation, logistics, oil and gas, but mainly power), and less frequently in other sectors such as health (eg, hospitals and pharmaceuticals factories) and hospitality. Brazil’s large infrastructure deficit makes project financing an attractive alternative for its development.

      The Bolsonaro administration has been implementing policies to curb the public accounts disarray left by the Dilma/Temer administrations. As part of these new policies, BNDES is no longer perceived as an alternative for long-term finance and new forms of private and international sources of funding are currently under development. Reserve-based lending is an example that is discussed in more detail in the following questions. 

      The power sector has witnessed a rise in project financings due to a more consolidated regulatory framework and a greater reliability of revenues, especially in relation to transmission lines. Renewables projects, especially in wind and solar power generation continue to attract investments particularly by specialised infrastructure funds. Other infrastructure sectors are also receiving increasing attention, most notably natural gas and sanitation, and should remain prime candidates for future project financing in Brazil.

      Last verified on Thursday 15th August 2019

    • Brazil

      The protagonism of the National and Social Development Bank (BNDES), Caixa Econômica Federal and Banco do Brasil, all state-controlled banks, has been removed by the declared policy of the new administration to limit the presence of the public sector in the infrastructure sector. The main initiatives in the infrastructure sector, as a result, will be to attract international investors, massive privatisation and realign Brazil with the interests of the US government. In July 2019, during Secretary of Commerce Wilbur Ross’s visit to Brazil, the Minister of Infrastructure, Tarcisio Freitas, was emphatic in saying that “we have large concessions to come in all areas that will transform our infrastructure, logistics and competitiveness. We wish to count on the experience, technology and finance provided by the US and for that purpose we are working to build up a business environment to give assurance to and attract foreign investors.” This summarises the new liberal agenda of the country that privileges privatisation, private sector and will direct the country’s attention in the international arena to the policies, practices and agents sponsored by the United States.

      In this context, Chinese investment is expected to continue at a much lesser pace as far as the federal government is concerned. China, however, has a huge stock of investments in Brazil and will continue to be the major player in areas such as electricity, logistics and agribusiness. State governments have not adopted an express policy to distance themselves from China and continue to pursue investors in China for those projects conducted at sub-national level.

      As mentioned above, the subsidies provided by BNDES to the sector were limited by the introduction of the Taxa de Longo Prazo (TLP) in January 2018, and private financiers are expected to come back once the policies are defined and new forms of private finance are successfully tested.

      Sponsors in Brazil are mainly infrastructure companies, infrastructure service providers and, increasingly, private equity funds. Foreign investment funds and infrastructure companies are expected to accelerate their role as sponsors of large infrastructure projects in Brazil.

      Last verified on Thursday 15th August 2019

    • Brazil

      The project structures vary according to the type of asset and sector of the project. In public concessions, the traditional structure adopted is the build, operate and transfer (BOT) or build, own, operate and transfer. Other projects not involving concessions typically use the build, own and operate (BOO) structures. Public–private partnerships (PPP) have also often been used, especially in projects where the remuneration of the project directly by end users is less feasible.

      Financing structures also vary, and may involve elements of corporate finance (by means of a corporate guarantee by a sponsor or a letter of guarantee by a commercial bank) in projects with a greater level of uncertainty regarding future revenue stream, although this is usually in addition to a typical project finance structure.

      More recently, guarantees from export credit agents have been used to fill in the gap left by BNDES’ discontinuation of its project finance appetite. The combination of a credit provided by ECA with funding disbursement by BNDES is one of the new alternatives coming out of the sea change in the role of BNDES in promoting the infrastructure sector.

      Last verified on Thursday 15th August 2019

    • Brazil

      Given that pursuant to the Brazilian Civil Code, foreign companies are only allowed to operate in Brazil through a branch upon authorisation from the Brazilian government, and that is common practice to isolate the project under an SPV, project companies need to be incorporated under the laws of Brazil. 

      Project companies are usually corporations (sociedade por ações). Although it is also possible to organise project companies under a limited liability company (sociedade limitada), and both types provide for limited liability of the shareholders, the corporation has a clearer and more flexible governance and financing legal framework. Both corporate forms are subject to ‘piercing of the corporate veil’. However, misuse of the corporate type must be proven, either from a deviation of its purpose or a co-mingling of assets by the company and the shareholder (among other more specific and sparse cases).

      Although there is no general requirement of local investor ownership, a limitation in foreign equity interest may arise in specific industries or projects, eg, nuclear energy, mass media, aerospace, insurance, telecommunications, health services and projects involving rural property or property.

      The new Bolsonaro administration is promoting economic freedom through an initiative (MP 881/2019 that is currently under discussion in Congress. If confirmed as law by Congress, MP 881 will create additional difficulties to pierce the corporate veil, particularly in the absence of egregious fraud.

      Last verified on Thursday 15th August 2019

  • Foreign Investment

    • Brazil

      Foreign investors are not subject to a broad range of legal restrictions and are allowed to invest in most industries. In 1995, the Sixth Amendment to the Brazilian Constitution eliminated the distinctions between foreign and local capital, terminating preferable treatment in different aspects to companies that used strictly domestic capital.

      Pursuant to Law No. 4.131/64, later regulated by Decree No. 55.762/65, and rules and directives from the Brazilian Central Bank, all foreign exchange transactions in Brazil are carried out in a unified foreign exchange market through authorised financial institutions. This foreign exchange market is subject to market forces and encompasses the following transactions: the purchase and sale of foreign currency, international transfers of Brazilian reais, the purchase and sale of gold instruments, the holding of Brazilian capital abroad and the holding of foreign capital in Brazil. The registration of foreign investment with the Brazilian Central Bank is mandatory and essential to ensure the right to repatriate the capital invested and to make remittances or reinvestments of profits and other forms of remuneration of capital. Foreign debt transactions are also subject to registration with the Brazilian Central Bank. Changes in the terms and conditions are allowed but are also subject to registration. 

      In addition, Brazil’s National Monetary Council (CMN) Resolution No. 4.373 (together with other regulations of the Brazilian Securities Commission and of the Brazilian Central Bank) allows non-residents to invest in local financial and capital markets, comprising generally the same investments available to residents. 

      In each case, foreign investors must be registered at the Brazilian Central Bank, and for investment in financial and capital markets, also at the Brazilian Securities Commission, which entails compliance with information and other accessory obligations. 

      As mentioned in question 4, there are certain restrictions on foreign investment in certain industries or types of property.

      Last verified on Thursday 15th August 2019

    • Brazil

      Foreign capital, duly registered with the Brazilian Central Bank, may be repatriated at any time to its country of origin without the need of any prior authorisation. Payments abroad or repatriation of capital may be subject to specific tax treatment in Brazil, especially depending on (i) the nature of payment or repatriation event; (ii) the location of foreign investors; and (iii) the type of investment (ie, investments carried out under Law No. 4.131 or Resolution No. 4.373).

      Last verified on Thursday 15th August 2019

    • Brazil

      There is no restriction on maintaining or remitting funds to and from offshore accounts. There is also no limitation on the amounts allowed to be remitted or held abroad. In any case, any Brazilian company holding an offshore account must submit information to the Brazilian Central Bank in this respect; for amounts exceeding US$100,000 (or the equivalent in other currencies), information must be supplied annually; for amounts over US$100 million, the obligation to supply information is on a quarterly basis.

      Last verified on Thursday 15th August 2019

    • Brazil

      With the objective of increasing the capital market share in infrastructure financing, the Brazilian government issued Provisional Measure 517 in 2010. It was later converted into Law No. 12.431, which grants tax incentives for foreign investors in Brazilian infrastructure through certain capital market instruments. Two types of such investment have an income tax rate reduced to zero:

      • earnings from bonds and notes acquired as of 1 January 2011, subject to public distribution, issued by legal entities governed by private law, not classified as financial institutions; and
      • earnings from investments in publicly traded project bonds issued by (i) special purpose vehicles (SPV) (and acquired on or after 1 January 2011) or (ii) companies that hold concessions, permissions or authorisations to render public services in the country, with the intent to develop infrastructure projects deemed as federal priorities, pursuant to Decree 7.603 of 9 November 2011.

      Law 12.431 extends this beneficial tax treatment to gains obtained through specific investment funds held exclusively by foreign investors and which invest at least 85 per cent of the fund’s assets in publicly traded bonds and notes issued by non-financial corporations with the purpose of financing infrastructure projects. Since 2013, the minimum mentioned in this paragraph shall be 67 per cent of the fund's assets during the first two years of the investment fund.

      In addition, CVM Instruction 606, published on 25 March 2019, promoted changes in the regulation of investment funds in Brazil (CVM Instruction 555) to create the Incentivised Infrastructure Investment Funds (FI-Infra) under the terms of Law No. 12.431.

      Among other changes, the new Instruction (i) relaxed the FI-Infra investment limits in other types of funds and assets – the limit per issuer went from 20 per cent to 40 per cent for funds for qualified investors (with more than 1 million reais invested) and there will be no limits for professional investors (more than 10 million reais) and (ii) allowed the FI-Infra to be targeted also to non-qualified or professional investors, according to specific regulations.

      The main goal of the measure was to incentivise the participation of the capital markets in the financing of infrastructure projects.

      Last verified on Thursday 15th August 2019

  • Project and financing documents

    • Brazil

      As a general rule, financing or project agreements governed by Brazilian law and executed in Brazil, other than security agreements, do not need to be registered to be valid and enforceable in Brazil, although some lenders (notably BNDES) may sometimes require registration of the financing agreement to give them publicity to third parties. However, loan agreements that include a corporate guarantee may have to be registered for the guarantee to be effective.

      Agreements and other documents executed abroad must have the signatures notarised and apostilled or recognised by a Brazilian consular officer in the country of their signature; furthermore, documents in foreign language have to be translated into Portuguese by an official translator and registered with a Registry of Deeds and Documents to be enforceable before Brazilian courts and other authorities.

      Last verified on Thursday 15th August 2019

    • Brazil

      The promissory notes issued in accordance with the Brazilian laws are considered extrajudicial enforceable titles, which allows for speedier enforcement of the credit by means of an enforcement proceeding. A credit agreement or any other document governed by foreign law must be enforced abroad and the foreign decision has to undergo certain procedures before being recognised and enforced in Brazil, which may take longer than a direct enforcement proceeding.

      Last verified on Thursday 15th August 2019

    • Brazil

      There is no general legal restriction on financial or project agreements being governed by foreign legislation, although agreements with public authorities, documents creating an interest over real estate, and collateral agreements related to assets located in Brazil may need to be governed by Brazilian law. Brazilian lenders and other parties involved in a project typically execute the related agreements under Brazilian law (local financing, EPC and O&M agreements). This is especially the case in small and mid-size projects, due to the incentives given to services and equipment to be supplied locally.

      It is common for foreign lenders, including banks and multilaterals, to require that financing agreements and security over assets located abroad be governed by foreign law (most notably New York or English law).

      Last verified on Thursday 15th August 2019

  • Collateral security

    • Brazil

      Under Brazilian law, the security interest must be created in favour of the lenders, but a collateral agent may be appointed and granted a power-of-attorney to represent their interest and act on their behalf.

      Last verified on Thursday 15th August 2019

    • Brazil

      Although there is no general restriction on creating a security interest over all of a project company’s assets, certain liens may be subject to prior authorisation from regulatory authorities of the company’s sector. Encumbrance and foreclosure may also be limited in cases where an asset is deemed as necessary for the continuing provision of essential public services, or under a concession where the asset must be returned to public authorities at the end of the concession period.

      More recently, courts have also limited foreclosure of security that is considered critical to a company’s continuity, if and when the continuity of the company is deemed viable, most notably under recovery proceedings.

      Even when foreclosure may be limited, however, it is common practice of lenders to constitute a lien over all assets to pre-empt encumbrance by third parties, whenever feasible.

      Financing documents and security agreements often contain provisions related to granting liens over after-acquired assets, in which case the applicable collateral agreement must be amended and undergo the same procedures of registration of the original agreement for the collateral to be effective over these assets.

      Last verified on Thursday 15th August 2019

    • Brazil

      Security documents undergoing registration are subject to filing fees that vary according to the amount of the secured obligation, length of the agreement (in number of pages), type of security and the state where registration must take place.

      Last verified on Thursday 15th August 2019

    • Brazil

      Except for security over real estate property by means of fiduciary assignment, which requires that the value of the property (in Brazilian official currency) and the appraisal criteria be expressly stipulated, there is no legal requirement regarding value of collateral. There are, however, requirements related to describing certain specific information on the financing and secured obligations for the collateral to be effective, namely: the debt amount, the term for payment, the interest rate, the description of the asset granted as collateral.

      Upon foreclosure, if the amount of the security exceeds the amount owed under the financing, the difference must be returned to the borrower (after payment of all secured obligations, which may include expenses and other charges).

      Last verified on Thursday 15th August 2019

    • Brazil

      Brazilian law requires the accurate and specific description of each asset granted as collateral, which means that the items must be individually identified for the security to be effective. Provided this requirement is complied with, a collateral over a variable set of assets may also be possible.

      Last verified on Thursday 15th August 2019

    • Brazil

      Confirming the absence of other liens on given collateral can be a challenging exercise as liens are not centrally recorded. It is necessary to search for liens in the Registry of Deeds and Documents or other registries, depending on the nature of the collateral in places where the collateral is located and in the company’s head offices.

      Borrowers are usually subject to a legal and financial due diligence process in which the project company provides statements and presents certificates issued by state and federal courts, regulatory entities and other competent public bodies with respect to civil, tax, criminal, labour and environmental matters. Additionally, Registries of Deeds and Documents and Real Estate Registry Offices in Brazil hold public records of all liens granted over registered assets and, therefore, it is possible to request certificates stating whether an asset free of liens. There is, however, no central record of all applicable liens.

      Because there is no central record and the various public records are not integrated, the standard due diligence investigation procedure is to request all the applicable certificates for the location where the project company is headquartered, the locations of its branches, subsidiaries and controlling companies, as well as the location of the assets.

      There are no specific provisions in Brazilian law with respect to mechanic liens, but pursuant to the Civil Code, claims from suppliers of materials, funds or services in connection with an insolvent company’s construction will have special priority over the applicable buildings or materials supplied (which is not equivalent or prior to a lien).

      Last verified on Thursday 15th August 2019

    • Brazil

      Several specific procedures, which will vary according with the type of security and other private contractual obligations, must be observed for a lender to foreclose on a collateral. Collateral granted by means of fiduciary assignment or pledge, for example, may be judicially or extrajudicially enforced whereas the sale of assets that are associated with essential public services (eg, energy transmission lines) must be carried out by public bidding or by judicial decision.

      Self-help remedies are not available under Brazilian law. The assets granted as collateral must be sold and the amount received applied towards payment of the secured obligations. In some cases, after all proceedings have been exhausted and the sale of the assets has not occurred, or upon an agreement between borrower and lender at the time of foreclosure, the lender may receive the assets as payment.

      In the context of project financing transactions, the most direct collateral to be accessed by lenders are receivables of the project company and project accounts (commonly assigned to the lenders). The efficiency of the foreclosure of ownership interests of the project company as regards the individual assets will vary from one sector to another, where regulatory approval may be needed for the sale of specific assets or for the change of control of the project company. In any case, the viability of the project company will also be a factor in considering whether the ownership interests are more valuable and/or liquid from the lender’s standpoint.

      Last verified on Thursday 15th August 2019

    • Brazil

      According to Brazilian Bankruptcy Law, in a bankruptcy proceeding creditors are classified according to the nature of their claims and existence of collateral. The following claims have priority over the secured lenders:

      • post-bankruptcy debts; and
      • labour claims limited to the amount equivalent to 150 times the effective minimum wage per employee, and claims from accidents in the workplace.

      Thereafter, secured lenders have priority over the amounts obtained from the liquidation of the assets granted, up to the amount of the asset – if the value of the debt exceeds the amount of the collateral, the claim, with respect to the excess amount, will be subject to the general order according to the nature of the debt.

      Assets secured by fiduciary assignment are not subject to the Bankruptcy Law procedures and may be enforced in separate proceedings, given that they effectively result in a legal transfer of the title over the assets from borrower to lender.

      Last verified on Thursday 15th August 2019

    • Brazil

      Foreclosure of collateral relating to the project, either the assets or the ownership interests, by the lenders does not result in specific liabilities for the lenders, provided there is no misconduct, abuse, fraud or bad faith in conducting such foreclosure.

      Last verified on Thursday 15th August 2019

    • Brazil

      There are no specific legal restrictions for the operation of the post-foreclosure project by the lenders or their representatives. There may be limitations related to foreclosure, depending on the sector, requiring prior authorisation from regulators. A post-foreclosure sale of ownership interests or assets may be subject to the same restrictions referred to in question 18, and direct ownership and operation by foreign lenders may be limited in some industries or types of property, as explained in question 4.

      Last verified on Thursday 15th August 2019

    • Brazil

      The use of equity support agreements, as these commitments from the equity holders are known, in project finance transactions in Brazil is commonplace. However, these agreements do not have the nature of a guarantee or a collateral, being atypical contracts that constitute an affirmative covenant. Therefore, enforceability is less direct and may be more cumbersome than in the case of corporate guarantees and foreclosure of collateral. 

      There is also no case law on the enforcement of these agreements, but as with any valid and effective contract they are enforceable before Brazilian courts. A bankruptcy proceeding may complicate enforcement, given that if the contribution is made to the project company that is under bankruptcy, the payment of these amounts to creditors would be subject to the statutory order of claims. The effectiveness of the enforcement, and the direct flow of funds to the lenders will depend on how the agreement is set up. Although a third party may be granted the power to enforce a contract, it is advisable that lenders be party to the agreements to avoid any discussion on this matter.

      Last verified on Thursday 15th August 2019

  • Dispute resolution

    • Brazil

      Project companies organised under Brazilian law may validly submit to the jurisdiction of a foreign court or arbitration tribunal, provided that the submission is not related to a matter subject to exclusive jurisdiction by Brazilian courts, which are: (i) those related to real estate property located in Brazil, (ii) succession involving assets located in Brazil, and (iii) divorce or separation involving assets located in Brazil.

      In matters subject to concurrent jurisdiction of Brazilian courts, although it is possible to submit to foreign courts, lawsuits may also be brought before Brazilian courts and it may not be possible to stay such proceedings, appointment of foreign courts as applicable jurisdiction notwithstanding – conversely, the existence of such a proceeding before a Brazilian court is not an impediment to the enforcement of a foreign court decision on the same matter. Concurrent jurisdiction is applicable to proceedings

      • involving a defendant domiciled in Brazil;
      • in connection with obligations that have to be performed in Brazil;
      • based on actions performed or facts occurred in Brazil;
      • related to alimony and child support, if the creditor is domiciled in Brazil or the defendant has a connection with Brazil, such as assets located in the country or earnings in Brazil;
      • resulting from consumer relations when the consumer is domiciled in Brazil; and
      • when the parties have expressly or implicitly submitted to Brazilian courts.

      Last verified on Thursday 15th August 2019

    • Brazil

      Service of process in Brazil must be made by mail, by a court official, a court clerk, public notice or electronically (as regulated by specific legislation). Foreclosure proceedings must be served by a court official.

      Foreign companies or non-residents must appoint a legal representative in Brazil, with a power-of-attorney, to receive service of process in their behalf, but companies organised under Brazilian law receive service of process directly in their corporate address.

      Last verified on Thursday 15th August 2019

    • Brazil

      Foreign judgments are enforceable in the courts of Brazil if (a) there is no other legal proceeding involving the same parties, cause of action and claim brought in Brazil that has reached the status of res judicata, and (b) is previously confirmed by the Superior Court of Justice in Brazil, such confirmation only occurring if such judgment:

      • fulfils all formalities required for its enforceability under the laws of the country wherein it was issued;
      • is issued by a competent court after proper service of process on the relevant party; 
      • is not subject to appeal; 
      • is (i) legalised by affixation of the Hague Apostille pursuant to the Apostille Convention, if the country has ratified the Apostille Convention or (ii) authenticated by a Brazilian Consulate in the jurisdiction wherein it was issued, if the country has not ratified the Apostille Convention; and 
      • is not contrary to Brazilian national sovereignty, public policy, morality or human dignity.

      Foreign arbitral awards must also be confirmed by the Superior Court of Justice, which will analyse if that decision is in accordance with the provisions of the Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 (New York Convention).

      Sovereign or quasi-sovereign entities may arbitrate in matters related to waivable property rights. There may be requirements related to the applicable law and language of the proceedings in these cases, depending on the entity involved.

      Last verified on Thursday 15th August 2019

  • Miscellaneous

    • Brazil

      The subordination of debt is expressly recognised by the Brazilian Bankruptcy Law, which expressly states that subordinated debt (either by law or contract) rank lower than other credits, although in the absence of relevant case law it is difficult to ascertain how a court would carry out these payments, especially considering the duties of the court and of the administrator towards the company and the creditors as a whole. Nevertheless, the objectives of such a contractual provision may still be achieved to the extent that amounts are paid to an agent, in the case of subordination of different credits under the same intercreditor agreement, or the enforcement of one creditor against another (which may take longer and be less effective).

      Last verified on Thursday 15th August 2019

    • Brazil

      There are sector-specific laws that regulate certain tariffs payable to public service providers. These tariffs are usually fixed and revised under the terms of the concession and specific legislation. However, there are general legal provisions regulating how tariffs must be set for certain public services, and for public services deemed essential, tariffs are limited by reasonableness and accessibility standards. Tariffs will normally be composed of regulatory costs of operation, maintenance, administration, remuneration of capital and amortisation and depreciation. Currently a more transparent process to calculate the depreciation or amortisation of reversionary assets is under discussion.

      Last verified on Thursday 15th August 2019

    • Brazil

      As a rule, the direct and indirect owners of the project company have no responsibility for the obligations related to the project. However, if a Brazilian court decides to pierce the corporate veil, responsibility may extend to the shareholders.

      Pursuant to the Brazilian Civil Code, if there is (i) an abuse of the legal personality of the project owners or its shareholders, which may be characterised by the misuse of the project company; or (ii) a co-mingling among the assets of the owners, of the project company or even of the administrators and the owner’s shareholders, the piercing of the corporate veil can be ruled by a Brazilian court and the liability can be extended to the owners of the project company or to its shareholder. In such case, the direct and indirect owners of the project company shall be liable for the project company’s obligations.

      From an environmental standpoint, there are several discussions concerning the possibility of lenders being held liable for environmental liabilities. In Brazil, environmental liability is imposed regardless of the agent's fault. In other words, it is only necessary to demonstrate the causal link between the actions of the agent and the environmental damages. Brazilian courts may consider lenders liable for environmental liabilities as indirect polluters, given that they have provided funding for the environmental damaging project. Assessment of risk by Brazilian financial institutions must take into account social-environmental factors, as per resolutions by the Brazilian Central Bank. Lenders have very rigid policies to this end, and have been increasingly rigorous in matters related to the environment.

      From a Brazilian tax perspective, liabilities relating to the project may only extend beyond the project company to the direct or indirect owners in specific situations set forth by tax legislation. Events that may attribute tax liability to third parties are: (i) liability arising from common interest, which is verified when there are several individuals or legal entities concurring to the tax triggering event; (ii) in case the individual or legal entity that manages third-party assets commits any act that results in the collection of taxes and, therefore, may be liable if the primary taxpayer fails to pay; or (iii) liability resulting from the practice of acts with misuse of powers or that violate any laws or the by-laws of the relevant legal entity.

      Furthermore, whenever one or more companies are part of the same economic group, they will be jointly and severally liable for the obligations arising from the employment relationship of any of its group members and their respective employees.

      Finally, it is important to note that the controlling shareholders of the project company may be jointly and severally liable for the payment of fines and damages as a result of non-compliance with anti-corruption provisions.

      Last verified on Thursday 15th August 2019

    • Brazil

      There are several tax incentives aimed at developing infrastructure projects in Brazil, especially at the federal and state levels. Below are descriptions of the main Brazilian tax incentives with respect to the importation of equipment or materials to be used in infrastructure projects. There are several other incentives and special customs regimes that may apply to specific activities.

      The special regime for development of infrastructure (REIDI) applies to legal entities that carry out infrastructure projects in specific sectors (such as logistics, power and sanitation). Approved projects are entitled to temporary exemption on PIS and COFINS taxes on importation or domestic acquisition of machinery, devices, instruments and pieces of equipment, and construction materials intended for the company’s fixed assets or used in the approved projects, as well as on the acquisition or importation of services and payment of rental related to the development of approved projects.

      The special customs regime for the export and import of goods for exploitation and production of oil and natural gas (Repetro) allows for importation with temporary exemption of federal taxes, provided they comply with certain legal requirements. Such tax incentive applies to temporary importation that is usually carried out under lease, rental and charter agreements. On 19 July 2019, the federal government expanded the regime to encompass the manufacturing of goods destined to be used for the exploration and production of oil, natural gas and other fluid hydrocarbons (Repetro Industrialização), which suspended federal taxes on the importation or local purchase of raw materials, intermediate products and packaging materials to be used to manufacture goods later destined to entities legally qualified in Repetro, until 31 December 2040. With respect to the state VAT, states and the Federal District are authorised to reduce the ICMS tax base on imports or local acquisitions of assets and/or goods, on a permanent basis, applied to the same activities.

      The Ex-Tarifário regime consists of a temporary reduction of the tax on importation of capital goods, computer and/or telecommunication assets, as set forth by the Mercosur Common External Tariff (TEC), in case there is no domestic production of such imported assets.

      The Reporto regime applies to ports and railroad concessionaires dedicated to the modernisation and extension of port infrastructure. Such regime grants a temporary exemption of the following taxes: (i) tax on importation, (ii) tax on industrialised products; and (iii) social contributions (PIS and COFINS), in case of domestic sales or importation of new machinery and equipment. These tax incentives are effective until 31 December 2020.

      Further,a new state agreement is under progress ICMS Convention 133/2019) that establishes rules stating that companies that benefit from Reporto may also benefit from the ICMS tax exemption (state VAT) on the importation of the same goods until 31 October 2020.

      Last verified on Thursday 15th August 2019

    • Brazil

      The Brazilian legal system establishes a series of limitations on the acquisition and lease of rural land by legal foreign entities or by a Brazilian juridical person with a majority foreign participation. According to Law No. 5.709 and Normative Instruction 88/2017 of the National Institute for Colonisation and Agrarian Reform (INCRA), foreign legal entities may only acquire rural properties for the implementation of agricultural, livestock, forestry, industrial, touristic or colonisation projects, within the physical limits established by law. The authorisation for the acquisition or rental of rural property by a foreign legal entity will be conditioned on the approval of the project by the Ministry of Agriculture and by INCRA.

      Decree No. 85.064/80, dated 26 August 1980, which implements Law No. 6.634/79, established that the acquisition or rental of (or any in rem right over) rural property in a border area must be authorised by the National Security Council.

      In addition, Decree No. 85.064/80 establishes that without the prior consent of the National Security Council a foreign entity is not allowed to have interests in entities that have in rem rights (such as title or possession) on rural property located in the border area. For these purposes, the border area consists of the area within 150km of the border.

      Failure to comply with these legal provisions may result in (i) the transaction being considered null and void and (ii) the payment of a fine of up to 20 per cent of the declared amount of the transaction. Non-compliance with the prohibition of foreign capital in a company that owns or has in rem rights over rural property located in a border area may result in the company’s dissolution.

      These restrictions are excepted in the case of in rem rights arising out of a collateral granted to financial institutions or of the payment of loans with land or rights over it. 

      The requirements for rights of way may vary according to the nature of the project. In some instances, there are Public Utility Declarations, which determine the expropriation of a certain area or the institution of easements when there is a justified public interest. Furthermore, the right of way can be granted through the establishment of a private easement, which depends on an agreement between parties and must be registered at the Real Estate Registry.

      Last verified on Thursday 15th August 2019

    • Brazil

      Very successful privatisations of airports and port terminals were accomplished at the beginning of the new Bolsonaro administration. The privatisation process will continue in the second semester of the new administration with the pulverisation of control of Eletrobras (a state-owned enterprise in the electricity sector) by the federal government, following a model adopted by BR Distribuidora, the control of which has also been sold to the market. In the meantime, the PPI is preparing a series of concessions to be auctioned in the near future. Under a pragmatic approach projects that were developed by the Termer administration (privatisation of blocs of airports) were brought to conclusion by the new minister of infrastructure who is praised as one of the best members of the new administration. In parallel, the intense recession of the Brazilian economy and the debacle of the major construction companies have created conditions for a series of failures by existing concessions, an intense sale and reorganisation of assets to funds and other financial players. The same factors have contributed to decimate the local strategic investors, which normally would be extensions or consortia made up of subsidiaries of the major construction companies. Under the new Bolsonaro administration, the expectation is that new strategic investors, both local and international, be identified to replace the former players and take over some of the existing projects. It is also expected that with assurances for the opening up of the economy, these new players will be able to bring together new finance to the sector whose alternatives up to the past few months were concentrated in the financial capacity of the Brazilian public sector.  

      Last verified on Thursday 15th August 2019

  • Public–private partnership (PPP)

    • Brazil

      Public-private partnerships (PPP) are regulated by Federal Law No. 11.079/04 (PPP Act). At the state level, each state has created their own local rules on PPP, such as Law No. 14.868/03, of the state of Minas Gerais, or Law No. 11.688/04, of the state of São Paulo. At the municipal level, several rules have also been published dealing with PPP (notably, Belo Horizonte, in 2005, São Paulo, in 2007 and Rio de Janeiro, in 2009).

      PPPs are not restricted to any particular sectors, and can be applied to a variety of projects, so long as the applicable rules are complied with. The amount of the PPP agreement must be greater than 10 million reais, the period for the provision of the service must be greater than five years and the service cannot have the sole purpose of supply of labour, the supply and installation of equipment or the execution of public works.

      Last verified on Thursday 15th August 2019

    • Brazil

      The PPP Act establishes as legal requirements for PPP that (i) the amount of the PPP agreement be higher than 10 million reais; (ii) the period for the provision of the service must be no less than five years and no more than 35 years long, including any and all extensions; and (iii) the service cannot have the sole purpose of supply of labour, the supply and installation of equipment or the execution of public works.

      Any PPP must always be preceded by a competitive bidding. The opening of the bidding process will be conditioned to the provisions of article 10 of PPP Act, which includes, among others, requirements regarding the financial feasibility of the public contribution to the PPP and the issuance of the preliminary environmental licence or guidelines for its issuance, if applicable to the PPP project. PPP agreements must also observe budgetary and indebtedness rules and limitations, and the provisions of Laws No. 8.666/93 and No. 8.987/95.

      The state cannot delegate to the private sector jurisdictional and regulatory functions, as well as the exercise of power of police, among other activities that are exclusive to the state.

      Last verified on Thursday 15th August 2019

    • Brazil

      Among the most significant transactions that have been structured or completed to date are:

      • Technology – Datacenter complex – Piauí (state level);
      • Hospital – Hospital de Sorocaba (Inova Saúde) – São Paulo (state level);
      • Metro – Line 5 (Lilac) – São Paulo (state level);
      • Prison – Penitentiary complex of Ribeirão das Neves – Minas Gerais (state level);
      • Public Lighting – City of Belo Horizonte – Minas Gerais (municipal level); and
      • Infrastructure – Vitória to Minas rail road – Vitória and Minas Gerais (federal level).

      Last verified on Thursday 15th August 2019

    • Brazil

      The Federal Public-Private Investment Partnership Comittee (CPPI) is responsible for defining the priority services for execution under PPP regime, defining the procedures for the execution of PPP agreements, authorising the opening of bidding procedures, among other attributions established in article 7 of Law No. 13.334/2016. The CPPI is composed by the Ministers of the Civil House, of the General Secretary of the Presidency, Finance, Infrastructure, Energy, Environment, Regional Development and the Presidents of BNDES, Caixa Econômica Federal and Banco do Brasil.

      Also at the federal level, the same Law (No. 13.334/2016) has created the Programme for Investment Partnerships (PPI), with the purpose of studying and developing projects to be prioritised and implemented through various structures, including PPP.

      Last verified on Thursday 15th August 2019

    • Brazil

      The most common financing structure for PPPs projects in Brazil is through direct financing by state-owned, national and regional development banks, due to the implied subsidies often provided through lower interest rates. The institution of the TLP, as mentioned, is intended to increase the participation of private lenders in the financing of infrastructure projects, including through PPP.

      Last verified on Thursday 15th August 2019

    • Brazil

      As explained in question 33, the procedure for contracting a PPP is through competitive bidding, which must be conducted in accordance with the PPP Act, together with state or municipal legislation, as applicable, and the specific legislation applicable to bidding procedures (Law No. 8.666, of 21 June 1993).

      Last verified on Thursday 15th August 2019

    • Brazil

      Drivers: existing assets at very low prices allowing investment for completion at very competitive rates, expanded infrastructure deficit in the country, human resources available and idle industrial capacity, and the perceived benefit of efficiency in transferring certain activities to the private sector.

      Impediments to the development of more PPP projects in Brazil are a good pipeline of projects, a culture of investments conducted solely by the public sector, which is perpetuated even under the new liberal administration; the lack of mature and deep capital and bank markets to readily replace BNDES, whose presence is being transformed in the sector as mentioned above; recent failures as a result of the economic crises, a huge public deficit and uncertainty as to budgetary constraints of public authorities.

      Last verified on Thursday 15th August 2019

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