The Business Environment of Brazil - Report Example

Introduction to Brazil Brazil, officially called the Federative Republic of Brazil is the world’s largest country both in terms of area and population. The official language of the country is Portuguese. The country gained independence in 1822 and presently is following a Presidential Federal Republic form of Government (CIA, 2008). The Brazilian economy has a very significant position in the world economic order and the country along with Russia, India and China in combination is called the BRIC. GDP, Population and GDP Per Capita Brazil is the largest national economy in the Latin America. It is world’s eighth largest economy by nominal GDP and the ninth largest when measured in Purchasing Power Parity. The country’s Gross Domestic Product in the year 2009 was 1,575 trillion USDs (WorldBank, 2010). The country’s economy saw significant volatility during the Financial Crisis but was amongst the first countries to emerge from the crisis. The country has been predicted to be amongst the five major economies in the coming decades. As per the World Bank, the population of Brazil was approximately 191 million (WorldBank, 2010). Most of the population of the country lives in urban areas. The population is significantly concentrated in the southeastern and northeaster regions. Based on the GDP and the population of Brazil, the GDP Per Capita comes out to be USD 8,205 (WorldBank, 2010). Main Cities/ Towns and Transportation Brazil has twenty-six states, one federal district that contains the capital city and municipalities. The capital city of the country is Brasilia. The various states have autonomous administrations and are responsible for collecting their own taxes and formulate their own laws. The states also get a share of taxes from the Federal Government. In terms of population, Sao Paulo is the largest city of Brazil (IBGE, 2009). Other important cities in the country include Rio de Janneiro, Salvador, Brasilia, Fortaleza, Belo Horizonte. Most of the capital cities of the states are the largest cities. Some non-capital metropolitan cities include: Campinas, Santos, Paraiba Valley, Steel Valley, Sinos Valley etc. The transport network of Brazil is mainly based on roads. The railway system in the country has been majorly been neglected with major emphasis on improving the highway network. Some of the cities such as Sao Paulo, Rio de Janeiro, Brasilia and Salvador have metro transit system for commuting within the cities. The country has about 2500 airports with Sao Paulo having the largest and the busiest airport. The country has also got a large coastline and some ports. Santos is amongst the most important ports for the country. Main products and Industries Brazilian economy is a significantly diversified economy with agriculture, industries and some services all playing a major role in the economy. Agriculture and related industries like forestry, fishing and logging contribute about 6.1% of the GDP in 2007. The country has also got industries ranging from automobiles, steel, petrochemicals, computers, and aircrafts to consumer durables contribute about 25.4% of the GDP. Services contribute about 68.5% of the GDP (CIA, 2008). The country’s primary services include the banking sector. Other areas where the services sector is improving include the insurance and the stock exchanges. The country is a major use of energy and draws most of its energy from renewable sources such as hydroelectric power and ethanol. Registered Businesses (Large and Small) Brazil has a large number of big and small size companies that contribute to its economy. The country’s most famous stock exchange the Bovespa had more than 500 companies. Most of the companies in Brazil are based out of the south and the south east although new investment avenues are coming up in the north eastern part of the country as well. The country had 33 Brazilian companies in the Forbes Global 2000 list for the year 2010. The top 10 amongst these are (Forbes, 2010): Sr. No Name of the Company Industry Sales ($Bil) Market Value ($Bil) 1 Petrobras-Petróleo Brasil Oil & Gas Operations 104.81 190.34 2 Banco Bradesco Banking 59.10 54.50 3 Banco do Brasil Banking 56.10 42.78 4 Vale Materials 27.82 145.14 5 Itaúsa Conglomerates 66.36 28.74 6 Eletrobrás Utilities 13.11 15.95 7 CSN-Cia Siderurgica Materials 5.57 25.30 8 Usiminas Materials 5.54 14.26 9 Tele Norte Leste Telecommunications Services 8.17 7.99 10 JBS Food, Drink and Tobacco 20.19 12.18 Currency and Wages The currency being used in Brazil is the Real and it is symbolized as R$. The one-hundredth of the currency is called the centavos. The modern real was developed as a part of a major monetary reform to check high inflation. It is also represented as BRL. The currency has seen significant volatility as compared to the USD in the last 5 decades. The exchange rate for the currency in 2005 was around 1 USD = 3 R$; which has now changed to 1 USD = 1.69 R$ (Google Finance, 2010). The wages in Brazil are governed by the Minimum Wages Act. For the year 2010, an organization must have to pay minimum wages of R$ 6,630 per year. This corresponds to R$510 per month and additional R$255 in June and December. The highest paying jobs in Brazil are in the field of law, medicine and administration. Tax Rates (Corporate) and Repatriation of Profits The corporate tax rate in Brazil is 34% whereas the individual tax rates range from 7.5% to 27.5%. Nonresidents living in Brazil attract a direct tax of flat 27.5%. The Corporate tax of 34% has basic tax of 15% as one of the components; there is a surtax for annual income that is above R$ 240000. Besides this, companies have to pay an additional 9% of the net profits towards social contribution. Any income made from capital gains is added to a company’s regular income. The tax law in Brazil allows companies to carry forward its losses for indefinite period of time; however, the maximum amount that can be set off is 30% of the current year taxable income. The depreciation method to be used is the Straight Line Method and the rates are pre-defined. The rates can be changed depending upon the number of shifts the company is working in (Worldwide-tax, 2010). Summary Brazil is a fast developing country that holds great promises as an economic power in the coming decades. The country has stable political system and provides substantial support to new foreign investments. The environment for doing business in the country is legally supportive and hassle-free. References CIA. 2008. The World FactBook. South America: Brazil. . [Last Accessed on 21st October 2010]. Forbes. 2010. The Global 2000. . [Last Accessed on 22nd October 2010]. Google Finance. 2010. United States Dollar (USD) in Brazilian Real (BRL). . [Last Accessed on 22nd October 2010]. IBGE. 2009. Brazilian Institute of Geography and Statistic. . [Last Accessed on 21st October 2010]. WorldBank. 2010. World Development Indicators. [Last Accessed on 21st October 2010]. Worldwide-tax. 2010. Brazil Tax Laws and Tax System. . [Last Accessed on 22nd October 2010]. Read More