Are you an e-commerce interested in the Brazilian market? We are going to analyze for you the subject of direct shipping to end consumers, often used by dropshippers.
Shipping your products to your end customers from abroad is surely the easiest solution at first sight and definitely a good way to test the market at lower costs and risks. However, you must be aware of certain challenges that await you and can impact your brand image in the long term.
Find below the details of e-commerce direct shipping to Brazilian consumers from abroad.
What is the clearance process adapted to direct shipping and the taxes to be paid?
You need to distinguish that there are two import processes in Brazil:
B2B where the goods are exported to Importer of Record that will resell the goods locally. This is the formal entry process where the taxation will include the Import Duty and the common local taxes (IPI, PIS, COFINS, ICMS). In case of direct shipping to consumers, this formal entry process is not possible.
B2C where the good are exported to the final consumer as it is in a direct shipping model. This is the informal entry process where the taxation will be specific depending on the carrier company as following:
- via postal services: 60% on CIF value (value of product + international freight)
- via private courier companies (Fedex, DHL, UPS): 95,6% on CIF value (value of product + international freight).
The difference in between the postal services and the private courier companies is the addition of a tax: the ICMS. This is a tax that depends on each Brazilian States but you can considerate an average of 18%.
But wait, 60% + 18% = 78%; so why have we said that the percentage was 95,6%?!
This is due to the way Brazilian authorities calculate the tax, including the tax itself on the base of calculation. 95,6% is the effective value on the CIF value to be paid to clear the goods: (CIF + Import Duty)/ 100%-18%] x 18% for a total of 95,6% on CIF.
Only one exception: books, newspapers and magazines are free of taxes.
Who is responsible for the taxes collection?
It is legally forbidden to ship goods to Brazil under the Incoterm DDP scheme with delivered duty paid by the international seller. Therefore, international merchants cannot inform the final price to their customers. Only an estimation.
The import duties will have to be paid directly by the Brazilian consumer or a third-party entity with legal representation in Brazil.
Is there minimum value exemption for the tax application?
By law, only products shipped between two individuals, without commercial purposes, below CIF USD 50 value not taxed.
The truth is that in practice international sellers with products below CIF USD 50 value often escape the control of customs and succeed to deliver their goods with no taxation. However, some of their products will be stopped by customs, and payment will be requested from their customers.
How long it will take to deliver?
Around 2 to 3 weeks.
Indeed, the release from the airport will take more or less 10 to 20 days after arrival of the goods, most of them at the Brazilian Customs and Post in Curitiba (state of Parana) where is based the biggest center of distribution for e-commerce packages – which receives about 300.000 packages daily.
If the products are controlled, and the taxes are required to the customers, this time can be longer. It is not rare to reach 40 business days to clear the goods. Indeed the communication between the Brazilian Customs and Post and the final consumers is not really effective, so the final consumers are not aware they have to pay the Import duties on their packages.
For that matter, consumers and even merchants may have the impression that the purchase has been lost or retained by Brazil Customs for legal matters, when, in fact, the delivery process is delayed only because of the extensive and bureaucratic system and lack of manpower.
Even so, there are a few reasons why the purchase may be held indeterminately. If the package arrives with incomplete address information or the label has low printing quality, the parcel will not be delivered. According to Brazil’s national postal service Correios, this accounts for over BRL 1 billion losses annually. In addition, local legislation may also hinder the entry of particular sorts of products. Pharmaceuticals, food and supplements, telecommunications and LED products, among others, need special licenses to be imported.
How to process the payment?
Making a cross border sales to Brazil means that the international merchants will charge their customers in Brazilian Reais (BRL) and receive their payment in US Dollars or Euros.
The choice of the right gateways of payment is very important as Brazilian are used to very specific method of payment like Boleto Bancário, PIX, Parcelamento; and not offering it will strongly impact your sales conversation.
It is even more important because many Brazilian people do not have credit cards and may only pay through these local ways of payment.
Make sure your cross-border gateways of payment offer such payment methods.
Challenges to sell using direct shipping to Brazil
Base on the facts mentioned above, the main challenges to direct ship to Brazil are the following:
- Not optimized international freight may make you noncompetitive:
As individual international shipment costs are much higher than bulk shipment and unfortunately the taxes in Brazil are calculated on a CIF base, meaning on the value of the product + international freight, a high international freight may increase a lot the tax burden and impact your competitiveness.
- No pricing transparency:
International merchants will not be able to inform the total final price to your customers, because they cannot include the taxes. The customers may misunderstand the real price to be paid for the purchase
- The collection of the taxes, a bad purchase experience for the customers:
As mentioned previously, your customer will be responsible for the taxes, either 60% or 95,6% depending on the courier. Beside the costs which is a very bad surprise, international merchants should count on the extra bureaucracy it involves for their customers.
- Payment processing:
There are only a few payment gateways offering effective cross border solutions and without them, the sales conversion could be very low.
- Delivery time:
As mentioned before, upon arrival at the airport in Brazil, the products will have to wait weeks before being treated by the “Brazilian IRS” (Receita Federal Brasileira). It may generate frustration with the customer thinking his product is lost, leading to the cancellation of the purchase.
Beside the long wait at customs, there is no tracking of the product, leaving you blind as to the progress of the clearance.
- No possibility to exchange and return the products
By law, the Brazilian customers have 7 days after reception of the goods purchased online to exchange or return them.
In the case of an international merchant without local entity, it would be very complex to do such operation and the taxes paid at clearance will not be recoverable.
On the other hand, marketplaces and gateways of payment will always place themselves on the side of the customers and proceed to the refund at the charge of the seller.
And it is not possible to redirect a product to another consumer once it has been posted. Re-export costs are never borne by the postal service and private courier, therefore payable by the Seller.
- Under-billing is increasingly monitored
Many cross-border sellers used to under-invoice their shipments to Brazil and/or exclude the cost of freight in order to arrive at a CIF value < USD 50.
However, the Brazilian customs have decided to remedy this and are quickly equipping themselves.
It’s much harder to slip through the cracks today. It is no longer uncommon to see 50% of its products discontinued.
In addition, when fraud is detected, the value of the product is defined according to reference tariff schedules which often lead customs to overestimate the price of the products, and therefore pay more taxes.
What do you need do consider for your brand before you start direct shipping to Brazil?
Direct shipping to Brazil can allow international merchants a rapid expansion which can quickly turn against their brand image and weigh on their finances.
In effect, long delivery time, no visibility on where the product is, payment of additional value to release the products from customs, no local customer support and after sales services; the recipe for a bad shopping experience. Brazilians are very active on social media and consumer complaints website such Reclame Aqui. Your brand may quickly receive bad reviews that may damage your reputation for a long time.
In addition, a high charge back rate will directly impact sellers’ finances and can quickly turn the transaction into a negative one.
Who will choose to implement a direct shipping strategy?
Probably seller with products below USD 50 CIF value (Product value + international freight) that have bigger chance to escape from the customs control.
Therefore, companies looking for volume of low-cost products ready to assume long delivery time, the brand reputation risks, high rate of refunds and charge back rate, and lack of exchange-return option will find in direct shipping a good solution to expand in Brazil.
And especially those interested in distributing their products on marketplaces such Mercado Livre, Americanas, Amazon which are developing strongly their cross border solutions.
Companies that desire to protect their brand reputation and find a solution that meets their customer needs, will look for another solution with a local presence in the country.
Did you like this article? If you want to know how to sell your products in Brazil without facing any issues, Novatrade can help you. Talk to one of our specialists.