Patrick Bruha

Patrick Bruha

Staff Writer
The Brazil Business

Updated

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The Complete Guide to Product Distribution in Brazil

Patrick Bruha

Patrick Bruha

Staff Writer
The Brazil Business

Updated

With a large amount of specific and complicated legislation, it may be difficult for foreigners to establish legally the whole chain of product distribution in Brazil. In this article, we will present you with a complete guide to product distribution in Brazil.

This article will be divided into three major sections, each representing a key step in establishing a product distribution chain in Brazil:

  • Import
  • Distribution
  • Sales representation

Import

For the purpose of importing products to Brazil, it is necessary to keep in mind that many registrations are required.

Radar

In order to perform any foreign trade operation, the importer must first be registered with Secex through Siscomex. But, before being able to access Siscomex, the importer will need a Radar license - a license granted by the Receita Federal do Brasil, which is the Brazilian Federal Revenue.

There are two different types of Radar licenses:

  • Radar Pessoa Jurídica
  • Radar Pessoa Física

The maximum time for the Brazilian Federal Revenue to analyse and grant or decline a request for a Radar License is 10 working days.

Radar Pessoa Jurídica

Radar Pessoa Jurídica is a Radar license exclusively for legal entities that are willing to engage in foreign trade operations. The Federal Revenue grants the Radar Pessoa Jurídica to legal entities according to the analysed financial capacity of each of them.

It is worth mentioning that it is up to the judgement of the Brazilian Federal Revenue to decide which type of Radar Pessoa Jurídica it will grant to a legal entity. The Brazilian Federal Revenue defines the financial capacity of a legal entity through an analysis made every six months.

There are three different types of Radar Pessoa Jurídica.

The Limited Radar, which is valid for legal entities with financial capacity of less than USD 150.000.

The Unlimited Radar, which is valid for legal entities with financial capacity of more than USD 150.000.

The Express Radar, which is valid for the following entities:

  • Legal entity formed as a joint-stock company, with shares traded on the stock market or over the counter market, and its wholly-owned subsidiaries
  • Legal entity authorized to use the Despacho Aduaneiro Expresso, which is Portuguese for Express Customs Clearance
  • Publicly owned company or mixed capital company
  • Entities of direct public administration, autarchy and public foundations, autonomous public agencies, international organizations and other extraterritorial institutions
  • Legal entity that intends to operate exclusively in export operations

Radar Pessoa Física

Radar Pessoa Física is a special license that is granted to individuals that intend to perform foreign trade operations in the following cases:

  • For professional activities - if the importer/exporter is a farmer, an artisan or similar
  • For personal collections
  • For own use and consumption

All information about the Radar Pessoa Física can be found in this article.

Siscomex

Siscomex stands for Sistema Integrado de Comércio Exterior, which is Portuguese for Foreign Trade Integrated System. It is a computerized system available via this link, and is responsible for integrating information on foreign trade operations such as:

  • Registry
  • Follow up
  • Control

Siscomex allows users to keep up to date with cargo entering and exiting Brazil, since intervening agencies that may take part in any foreign trade operation are able to, at various stages of the operation, control and interfere in the process of the operation. Through Siscomex itself, the importer/exporter can exchange information with all intervening agencies for authorization and supervision.

In short, Siscomex stands out due to the following benefits it offers:

  • Standardization of codes and nomenclatures
  • Increase in the number of service points
  • Elimination of parallel systems of data collection
  • Simplification and standardization of documents
  • Significant decrease in the volume of requested documents
  • Speeding up the collection and processing of information
  • Reduction of administrative costs for all involved in the operation
  • Use of data in the preparation of foreign trade statistics

Necessary procedures when importing to Brazil

Before any company can ship any products to Brazil, it will need to contact a company in Brazil that will be the legal importer of the goods and which should hold all the necessary documentation on import products.

After the negotiation for the import process is completed, if the goods require any authorization from one of the consenting agencies, the importer should request an Import License or Simplified Import License from Siscomex. It is only after the Import License is granted that the goods can be loaded and shipped to Brazil.

Anytime after the goods have been shipped and before their customs clearance, the person in charge of the import process is required to complete the Import Declaration or Simplified Import Declaration of the products with Siscomex. Also, at customs clearance, the Excerpt of the Import Declaration and, if necessary, the Excerpt of the Import License should be presented to the customs agent. In turn, the customs agent will hand the importer the Proof of Import, promoting the effective nationalization of goods into Brazil, being the last stage of the customs clearance process.

If the foreign documentation necessary for clearing the goods at customs is not in Portuguese or in English the importer should provide a sworn translated version of it.

Payment

The import of goods can not be released until the importer issues a remittance to the exporter. It is only with the remittance in hand that the exporter should issue a commercial invoice and an export order. The full payment of the goods must be cleared out of Brazil through the Brazilian Central Bank in order to avoid problems during the customs clearance of the goods into Brazil.

It is important to note that Brazilian banks work with IBAN, the International Bank Account Number, which are most commonly used in America and Europe. Chinese banks use BIC/SWIFT codes for international transfers.

Taxation of goods

As for the taxation of imports, it is necessary to say that Brazil, together with Argentina, Paraguay and Uruguay adopt the Mercosul Common Nomenclature, the NCM, which is based on the international method of product classification, the Harmonized System. The classification of goods under the NCM code defines which taxes and rates are due.

Generally speaking, the following taxes will apply when importing any goods to Brazil:

For more details about tax rates and classifications according to the NCM system, please have a look at our Tax Index.

Customs clearance in Brazil

Before the goods arrive in Brazil, the importer will have to pay the liable taxes to the Federal Revenue, including Import Duty, IPI, PIS, COFINS and ICMS. With confirmation of the payment to the Federal Revenue and all other documents that the importer amassed during the process, the customs clearance may be realized.

Distribution

According to the new Brazilian Civil Code, enacted in 2002, the distributor is someone who assumes the obligation to promote, on behalf of another person or company and upon remuneration, certain transactions, within a given area, while assuming financial risks.

As for distributor agreements that are settled in Brazil, it is important to say that there are two different types:

  • Commercial distribution agreements
  • Ordinary distribution agreements

Ordinary distribution agreements are signed between any manufacturer that is willing to promote its products through a third party and are valid for almost all sectors. However, if the parties’ agreement is for the distribution of automotive vehicles or their spare parts, a special distribution agreement is to be drawn up: the commercial distribution agreement.

Also, when establishing distributor agreements in Brazil, it is important to keep in mind that, according to the Brazilian Competition Law, distributors are free to determine the prices and conditions for which they will sell the products to their customers.

Ordinary distribution agreements

An ordinary distribution agreement must comply with the following requirements in Brazil:

  • The agreement has a non-sporadic feature and does not create any dependency bond between both parties
  • In a given operational area, unless otherwise agreed by both parties, the contractor may not designate more than one distributor to operate with identical assignments
  • Unless otherwise stated, the distributor will be entitled to remuneration corresponding to all commercial transactions concluded within its operational zone, even if they did not take part in it
  • Unless otherwise stated, all expenses occurring from the distribution activity are to be held by the distributor
  • The distributor is entitled to compensation if the contractor ceases the contract without a just reason
  • If the contract has no provision on its duration, it is legally assumed to be undetermined, and its termination may occur at any time by means of a simple 90-day notice

Commercial distribution agreements

Only dealers of automobiles, trucks, buses, agricultural tractors and motorcycles are subject to commercial distribution agreements, while dealers of other automotive vehicles, such as boats and non-agricultural tractors, are not subject to this special regulation. In these cases, the responsibilities of the dealer are:

  • Sales of automotive vehicles described above
  • Provision of spare parts of automotive vehicles manufactured or supplied by the respective manufacturers
  • Provision of technical assistance to consumers
  • Use of the manufacturer’s trademark

It is important to state that a commercial distribution agreement, as opposed to the ordinary distribution agreement, may forbid the sale of new automobiles produced by other manufacturers. However, dealers are allowed to trade new automotive parts manufactured or supplied by third parties, provided that “loyalty levels” are respected. Loyalty levels are defined as the minimum amount of the manufacturer’s additional parts or goods which the dealer is required to acquire. These are set between syndicates and companies.

In a commercial distribution agreement, the following basic provisions must be specified:

  • Definition of the operational area reserved for the dealer. While operational areas may be reserved for more than one dealer, it is possible for the contractor to grant exclusivity to a specific dealer
  • Minimum distances between different dealers - established in accordance with marketing potential criteria
  • The dealer commits themselves to trade the contractor’s automobiles and spare parts, as well as to provide technical assistance to its customers

Finally, a commercial distribution agreement must clearly state that a dealer is forbidden, personally or through third parties, from performing such activities outside its area.

Sales Representation

In Brazil, sales representation as a profession was only recognized by law in 1966, which was then significantly altered by another law in 1992.

While distributors assume the financial responsibility of selling the products they acquired from their supplier, sales representatives are agents employed to sell on behalf of the supplier.

Although the activity of sales representation differs on only one aspect from that of the distributor, there are quite a few requirements that are to be met in order to appoint or establish a sales representative in Brazil.

Types of sales representation

Foreign companies can appoint a sales representative in Brazil in three different ways:

In general, companies have required the sales representatives to set up or be part of a legal entity, or to be registered employees from a sales representation company, different from the company that hired the services of the sales representative. Hiring an independent sales representative tends to be avoided because it generates risks to the contractor regarding the Labor Laws.

Sales Representation Agreement

The sales representation agreement must set the following conditions in Brazil:

  • General conditions and requirements of representation
  • Indication of the generic or specific products or articles that will be represented
  • Terms of representation
  • Specification of the area or areas in which it will exercise the representation
  • Define exclusivity or non exclusivity of an area
  • Define compensation value and payment conditions
  • Details of exclusivity terms
  • Obligations and responsibilities of the parties

Sales representatives must provide to the person/entity that they represent detailed information about the progress of the business in charge and devote themselves to the sales representation activity, in order to expand the business they represent and promote their products.

Other Legal Obligations

The legislation that regulates the activity of sales representation establishes a series of obligations for both the representative and the companies represented, among which is worth mentioning:

  • There should be no employment ties between the sales representative and the company that hired them to represent them, which means that the sales agent has the autonomy to exercise other sales activities for other companies
  • Sales representation activities may be provided either by individuals or by a legal entities. In both cases, it is mandatory for the professional to be registered with the Regional Commercial Representation (Core) of the state where they will operate
  • A written contract must exist between the sales representative and the company to be represented

Other relevant information on appointing a sales representative in Brazil can be found in this article.