Last week I started the series on Doing Business In Brazil, with the post “Conducting Business In Brazil.The three types of companies Danish Decision Makers should be aware of”.
Today I´ll share with you 3 thoughts on the taxation system.
The reason for sharing my thoughts is simply because I want to prepare you for next posts where I´ll start explaning the taxation system in Brazil for Danish companies.
#Thought Number 1. Brazil as a potential market and the planning importance
It is needless to mention again how large and promising the Brazilian market might seem to a foreign company. Being the 5th economy of the world, with a domestic market of nearly 200 million people, a rising GDP and with many foreign investors and companies watching looking at it more carefully now, Brazil is surely a great potential market, however it is very important to plan.
A major mistake some companies do when they go to Brazil is neglecting the fact that Brazil has a VERY DIFFERENT culture from their country of origin .
Recently a startup, started and failed in Brazil. Their Business was quite interesting. They had a subscription service called Shoes4You. There are many speculations on why the Business failed. But there is one thing that is for sure.
In Brazil there is something called “jeitinho”, or as foreigners know “Brazilian way”. The issue here was that the customers discovered that they could cancel their Shoes4You subscription indirectly through their banks, rather than using the company. This eliminated the charges, but still allowed subscribers to get shoes at discount rate.
Result= no income from charges= Fail
#.Thought Number 2. Why should you be concerned about taxes in Brazil.
Differently than other countries where business men are concerned whether they are going to incorporate a limited liability company or if they are going to list their company in the stocks market, or even how many partners the company should have, when doing business in Brazil, taxation is (in my opinion), the first item that you should take in consideration when starting your business plan, regardless you´re going to establish your company in Brazil or finding a local vendor or distributor.
Taxation is of paramount importance, due to the complexity of paying taxes in Brazil.
Another important detail is. Brazil hasn´t had its reform in its tax system, however,given the sluggishness in doing a reform, there are many loopholes in the legislation, that can bring tax benefits to your business, but you will only know that, and be able to have these benefits if you are covered by local competent advisory.
#.Thought Number 3. Choosing the Taxation Method in Brazil
The way you choose to be taxed will have a direct impact in your balance sheet which means that your results can vary substantially.
Soon you will have another post on the taxation methods in Brazil.