[YKA: Part 2 will come next Monday. The chart is a quotation from JETRO′s material.]

Many Japanese companies have entered into the Brazilian market because the Brazilian people have been pro-Japan and Brazil has abundant natural resources.
That said, in light of the business law, the companies have to be careful as to certain areas. We interviewed, on the local law situation, Mr. Naoki Iguchi of Nagashima Ohno & Tsunematsu and Bruno Gomes of Machado Meyer, who are familiar with local laws and tax system.

-What are the characteristics of the Brazilian law?

Mr. Iguchi: “The tax system is very complex and many Japanese companies in Brazil face some difficulties in dealing with it. Among other things, indirect taxes, which have different tax rates depending on the individual goods, are not easy to understand for foreign companies.”

Mr. Gomes: “It is important to mention the difference between federal taxes and state taxes. For instance, PIS and COFINS are federal taxes and VAT is a state tax. As to state taxes, many companies face some difficulties in dealing with ICMS.”

-What is ICMS?

Mr. Gomes: “It is to tax on each margin generated in each phase of commerce of a good. ICMS includes ST system, a collective tax collection system, under which a first shipper, such as a manufacturer, may collectively pay taxes derived from each phase.”

-System allows someone to collectively pay taxes on behalf of others?

Mr. Gomes: “Yes. However, the tax standards assessed and set by the government could be higher than actual prices. The complexity of taxes arising from difference in taxation items and states has increased tax risk and this could be a problem in conducting M&A. Although Brazil has actively invited foreign investments, such complex taxation is one of barriers for foreign companies in entering into Brazil.”

-Are there any difficulties in labor area?

Mr. Iguchi: “There are many labor disputes. Japanese companies in Brazil which have a certain level of size usually have some labor disputes. A dispute related to unpaid overtime payment is one of typical labor disputes in Brazil.”

Mr. Gomes: “If a labor dispute between employee and employer is brought to court, the court tends to judge unfavorable to the employer and it has become more common for companies to settle with employees before the court renders its judgment on the case.”