Brazil is a huge market for many international companies being by far the biggest market of the Latin America and Caribbean region.
However, it is important to know that it is a protectionist country with complex customs clearance processes.
Carefully check the following points to properly prepare your operations.
This article considers formal exports, not postal or courier shipments. Those interested in this subject can consult the page dedicated to it here.
1.Identify the classification of your product within the customs nomenclature used in Brazil: NCM (Common Nomenclature of Mercosur)
The customs nomenclature used in most of the world is the Harmonized System with its HS codes for each product category, making possible to the customs authorities to classify the imported products.
In Mercosur, and therefore Brazil, a different nomenclature is used: the NCM codes. NCM stands for Common Nomenclature of Mercosur. The Mercosur Common Nomenclature (NCM) is the 8-digit code that defines all goods that circulate in Mercosur countries.
Through it, the products are determined and classified, having their characteristics and particularities presented, in addition to being present in all invoices.
It is important to note that the NCM is based on the Harmonized Commodity and Coding System (HS) and its HS Code but is more specific. Making the correct NCM classification is first essential step before thinking to export to Brazil.
It will determine the taxes involved in import operations (II, IPI, PIS, COFINS, ICMS). It will also define whether the import and export process will be classified under a special customs regime, such ANVISA for health-related product or MAPA for food-related product, and whether there will be any tax reduction possible during the nationalization process, such Import Duty exemption Ex-Tarifário.
In addition to providing agility in customs clearance and avoiding dubious and generic classifications that generate fines, delays and excessive costs.
2.Customs clearance can only be made by a Brazilian company certified with an import permit RADAR
One of the main points to know is that, in Brazil, the law obliges the importer to register the customer broker in its RADAR which is the import permit to carry out the customs clearance of the product and pay for the import taxes.
This RADAR import permit can only be obtained by a Brazilian company. A foreign company without a structure in Brazil will not be able to request it.
Therefore, the foreign exporter is not able to manage the customs clearance of the products when the goods arrive in Brazil from abroad and in no case will be able to deliver DDP (Delivery Duty Paid) products to the Brazilian customer.
It is important to note that not all Brazilian companies have a RADAR import permit, nor do they want one.
Indeed, the procedure for obtaining it is complicated and the company must justify at least one import per semester so as not to lose its license and must start all over again.
Moreover, having a RADAR means being much more monitored by the tax authorities and being subject to more control; something that some companies prefer to avoid and will favor local purchases.
Consequently, the first step before exporting products is to certify that the customers have a RADAR import permit.
Otherwise, the exporter will have to think of alternative solutions to be able to deliver your products that we will check later in this article, in point 8.
3. Incoterm to use with Brazil
As mentioned before, Incoterm DDP is not possible.
All others, however, from EXW (Ex Work) to DAP (Delivery at Place), are authorized.
However, it is advisable not to offer an incoterm beyond CIF (Cost Insurance and Freight) or CPT (Carriage Paid To).
Indeed, when the goods arrive, the exporter loses control over the various registrations to be made to collect the goods. Brazil is a very bureaucratic country, and a small detail can delay the customs clearance of a shipment for several weeks.
Port infrastructures are also not as efficient as in Europe or USA and may take more time to treat the shipment.
Delays may occur which will not be exporter fault, but he will be responsible for port or airport costs until the situation is resolved in case of incoterm DAP.
Committing to operational costs beyond the arrival of the goods is therefore very risky.
4.Check the regulatory standards regarding the products
Unfortunately, Brazil has its unique standards with often little to no recognition of the international standards commonly used in the world. Brazil currently ranks last (141/141) in the World Economic Forum’s 2019 Global Competitiveness Report for “Burden of Government Regulation.”
Consequently, this means that even if a company has already tested its products and successfully met technical requirements through an International recognized method, it may still be necessary to re-test and re-certify those products to meet the technical proper requirements used in Brazil.
This mainly concerns products related to health, cosmetics, electronics and related to food and agriculture.
It will therefore be necessary to refer to the directions of the competent public bodies:
ANVISA (Brazilian Health Regulatory Agency)
Public authority issuing Import Licenses related to medical-cosmetic-pharmaceutical products.
See the website: ANVISA
DECEX (Department of Foreign Trade Operations)
Public authority issuing Import Licenses related to some textile and clothing products.
See the website: DECEX
IBAMA (Brazilian Institute for the Environment and Renewable Natural Resources)
Public authority issuing Import Licenses related to some environmental products.
See the website: IBAMA
INMETRO (National Institute of Metrology, Quality and Technology)
Public authority issuing Import Licenses related to measurement apparels.
See the website: INMETRO
MAPA (Ministry of Agriculture)
Public authority issuing Import Licenses related to food, beverages, and related products.
See the website: MAPA
These regulations apply to both the products and the companies that distribute them.
In case the products are subject to the vigilance of one this bodies, an import license should be obtained by the Brazilian importer.
5. Importer Licenses
There are two kind of import license, that may be checked by the exporter with his Brazilian importer in order to avoid any issue upon arrival of the goods.
Importations subject to the regime of « licenciamento automático» (automatic license)
These importations mainly do not require any prior authorization before boarding. Only the import declaration has to be presented during the customs clearance. The import declaration contains general information about the import operation and detailed information about the imported goods. This information is entered in the system by the importer himself or his legal representative in front the Customs Authority (Receita Federal).
Importations subject to the regime of « licenciamento não automático» (non-automatic license)
In this case, information related to the importation has to be communicated via the SISCOMEX (customs electronic system) before the goods boarding.
The competent Brazilian authorities then analyze this information. It is only after obtaining the Import License that the goods can be boarded. It takes one to three weeks to obtain this type of license
The Import License and the Import Declaration have to be presented during the customs clearance. Once the Import License obtained, the exporter has 60 days to board the goods. The difficulty remains in the fact that the products subject to the regime of licenciamento não automático is no more published since September 1998. That is why it is always preferable to ask the SISCOMEX before any goods boarding to Brazil.
6. Customs clearance process
The clearing process of the goods is the responsibility of the Brazilian importer and will start at the time the Import Declaration (DI) is registered via SISCOMEX by the customs broker (called “Despachante”). For this to happen, all of the legal demands and documents required by legislation must have been sent.
The payment of taxes and import duties, ICMS excluded, are made at the time the Import Declaration (DI) is registered. It is worth noting that the pre-clearance of products before their arrival in Brazil does not yet exist. Registration can only begin when the goods arrive.
According to the information presented in the Import Declaration and information gathered by the private sector or other sources, the goods will follow through one of the four customs clearance channels:
The automatic custom clearance of the goods is authorized; a proof of import is then emitted, and the goods are sent to the importer.
A thorough examination of the importation documents is performed.
The customs authorities perform examination of the import documents as well as a physical examination of the goods.
On top of previous examinations, an analysis of the customs value of the goods is performed. This analysis is performed accordingly to the article VII of the GATT on customs valuation. This process can take up to 120 days in extreme circumstances.
This channel is being progressively implemented in Brazilian customs operations. This new channel offers some distinguished advantages such as priority warehousing of the products and a preferred orientation – albeit not automatic – into the green channel.
7. Payment Process
There are four modes of payment, which you find the details below. In any cases, the invoicing from the exporter that can be made in other currency than BRL Brazilian reais, the Brazilian importer closing the exchange with the BRL Brazilian Reais when paying the invoice.
The bank transfer is made before the goods are shipped. For the bank, only the proforma or commercial Invoice is required.
Payment at sight:
The commercial Invoice and the bill of lading are necessary to be able to close with the chosen bank. This closure occurs after the shipment of the goods at origin, but before their arrival in the national territory.
Payment Post-shipment collection:
In this mode, payment is made after the arrival of the goods in Brazil or even after the arrival of the cargo at the importer. The charge can vary from 15 days to 360 days after the departure date. The commercial Invoice must be sent to the bank, bill of lading, DI and/or CI, are essential.
The operation is characterized when the payment period exceeds 360 days after shipment. The Financial Operations Register (ROF) is a form of payment generally used in the acquisition of machinery and equipment or high value-added products. This modality is well framed, as it is mandatory that, at the time of registration of the DI, the broker or bank issue a payment scheme containing the installments with dates and amounts to be paid. These installments, as well as their amounts and interest, must be pre-negotiated and defined between both companies, and it is mandatory that they appear clearly on the invoice.
For the bank, updated commercial Invoice, bill of lading, DI and/or CI, ROF and payment scheme are required.
Now that we explained and clarified some points regarding importation process in Brazil, let’s see what the different ways are to sell/export a good to a Brazilian company.
8. Ways to sell/export products to Brazilian customers
Because of the necessity of RADAR to customs clear the goods, the solutions for an exporter to deliver products to Brazil are as follows:
Identify Brazilian customers with RADAR:
The simplest solution. The customer takes care of everything from the arrival of the goods.
The downside is that not all your potential customers will likely have RADAR and those who do will need to consolidate their orders to make it worthwhile.
A solution to enable consolidation of shipment to enable an exporter to offer more competitive prices to his customers is the use of a bonded warehouse. To know more, go here.
Find an importer distributor:
Another solution can be binding for you, with the distributor taking the risk of investing in your products and taking care of all the customs and distribution work.
The disadvantage is first to identify a distributor wishing to invest in your brand and, if necessary, the terms of the negotiation will be commensurate with the risk that he incurs with a request for exclusivity, reduced purchase prices.
In order to identify prospective Brazilian importers, the Brazilian government offers two online tools that are very useful to SMEs in the region seeking to enter this market. In the first place, the Catalogue of Brazilian Importers (https://cib.dpr.gov.br/), provides online information on all the Brazilian companies that have imported in recent years.
In second place, the Brazilian Trade and Investment Promotion Agency (ApexBrasil) which works to promote Brazilian products and services abroad and attract foreign investments to strategic sectors of the Brazilian economy.
Open a subsidiary:
A solution that makes sense, open a subsidiary to obtain your RADAR import license and manage distribution. Also allowing attractive export transfer prices reducing the import taxes and attractive dividend returns.
However, it is a long-term solution that requires already having a volume of activity.
Indeed, the opening and maintenance of a subsidiary in Brazil is long, costly and complicated. It is an investment to think about when you are sure of your market.
On the other hand, Brazil is a highly taxed country, which can quickly make your products uncompetitive when you add the margins applied by distributors.
For more information about this subject, go here.
Use an Importer of Record complementing an internal sales team:
This solution will allow you to obtain an operational capacity to import and distribute your products via a specialist who will allow you to consolidate several shipments to different customers and who will apply a much lower margin than a distributor.
On the other hand, you will remain in charge of commercial prospecting and will have to allocate the necessary resources to capture your customers.
Novatrade as Importer as a Service offers such solution. Please contact us here if you are interested.
9. Understand the taxes applied to your products
Although the exporter is not responsible for collecting taxes, it is good to know the details to understand the figures presented by an importer of record or a distributor.
During customs clearance, 5* taxes will be paid**: Import Duty (II), IPI, PIS, COFINS, ICMS.
The calculation of these taxes will be made on the CIF value of the products, and therefore including the cost of international freight, with a particular cascading calculation method. Certain taxes taking into account the previous taxes in their calculation basis.
These taxes will depend on the NCM customs classification of the product, the State of importation (Brazil being Federal with autonomous States on certain taxes) and possible tax reduction (tax benefit granted to certain importers) or tariff exemption (such as the Ex-Tarifario).
* An additional tax named AFRMM (8% on international freight value) will be collected in case of sea transport.
** A common mistake is to consider these 5 taxes as taxes related only to imports. However, only one tax (II) is linked to importation, the others are local taxes that any local distributor will have to collect. The difference in competitiveness between imported and local is therefore not as great as one would think.
On the other hand, theses local taxes IPI, PIS, COFINS, ICMS, are recoverable by the importer depending on his tax regime.
It is important to take it into account when negotiating with a customer, distributor, or importer of record when they will present their import costs to you.
Be aware that the tax burden is heavy in Brazil.
Although a large part of the taxes is local, the tax cost to clear customs will represent on average 50% to 80% of the value of your products.
This is a reality of the Brazilian market that everyone faces, and which must be studied with precision before to start, but which should not discourage you.
The market is accustomed to this tax burden and to higher prices of consumer products than compared to the world.
10. Exchange rate
The exchange rate is an important variable in Brazil with significant fluctuations.
For example, one dollar was around 4 reais in 2020 and it trades today in 2022 at around 5, with peaks of up to 6 during the pandemic.
It is therefore important to take this parameter into consideration for your export plans to Brazil and aligned with the Brazilian importer.
11. Brazilian import Costs breakdown
Importing into Brazil is complex and understanding its taxation a big challenge for international (and even Brazilian) companies.
It is therefore important to rely on local specialists to guide your decisions.
In order to give you an overview, you will find below the cost breakdown of import costs in Brazil:
+ International freight value
= CIF VALUE
(+) IMPORT OPERATIONAL COSTS
+ Airport / Port terminal fees
+ Freight forwarder fee
+ Transport DTA to bonded warehouse] – if applicable
+ Register DA (Declaração aduaneira) at bonded warehouse – if applicable
+ Bonded warehouse storage and operational fees – if applicable
+ Register DI (Declaração de Importação) per customs clearance
+ Inland transport
(+) IMPORT DUTIES
+ II = %II x CIF value
+ IPI = %IPI x (CIF + II value)
+ PIS = %PIS x CIF value
+ COFINS= %COFINS x CIF value
+ ICMS + ((CIF + II + IPI + PIS + COFINS + ICMS value) / (100% – ICMS%)) * ICMS%
= DDP (DELIVERY DUTY PAID) VALUE
(-) IMPORT DUTIES CREDIT DEPENDING ON IMPORTER TAX REGIME
(-) IPI / PIS / COFINS / ICMS (Considering Lucro Real tax regime)
(-) IPI / ICMS (Considering Lucro Presumido tax regime)
(-) nothing (Considering Simples Nacional tax regime)
= IMPORT NET COST OF ACQUISITION
If you need a trustable and experienced partner to help you during the process, please contact us!