1. The business environment for investment in Brazil
Brazil has consistently overcome the international economic crisis associated with the COVID-19 pandemic and has emerged as a stronger and more attractive global player. A high degree of economic diversification, a strong domestic market, a wide range of trading partners, and a robust, regulated financial system were crucial in successfully cushioning the worst effects of the crisis. Brazil has matured both politically and economically: in addition to political stability and smoothly functioning institutions, the country has achieved surprising currency stability, growing international reserves, solid macroeconomic indicators, and a rapidly growing domestic market.
All this makes Brazil one of the most promising emerging markets in the world today and one of the most attractive markets for foreign investors.
However, despite growing interest and confidence in Brazil, potential investors still have some negative perceptions of the country’s strengths and weaknesses and continue to struggle to overcome complex regulatory and legal issues. Companies may face challenges due to the complex tax environment, bureaucracy, and inadequate infrastructure.
Nevertheless, in 2025, Brazil passed a tax reform that, once fully implemented, will significantly simplify the tax system. Furthermore, the transfer pricing rules have been broadly aligned with OECD guidelines.
To improve your understanding of these challenges and the opportunities for successful investment, it is essential to seek the advice of experienced consultants who are well versed in the economic environment, financial and tax regulations, foreign investment and mergers and acquisitions, as well as Brazilian politics and culture and other issues.
To support your investment in Brazil, we have identified some of the key concerns and risks that a potential investor may face.
2. Incentives and challenges for investing in Brazil
2.1. Investment incentives
Several countries that currently belong to the BRICS are known worldwide for offering enormous prospects for success and growth potential. However, the challenges for investors in Brazil are less than in other emerging markets. Brazil is a country rich in natural resources, with a young working population and a largely untapped domestic market, making it a nation with great potential. Over the past three decades, the country has built a solid foundation for growth, supported by economic and political stability, and is now better positioned than ever to realize its potential.
Brazil’s prospects for success are based on rapid economic growth, rising per capita GDP, expanding markets in various sectors, a growing middle class, an increasing urban population, and higher energy consumption, however, challenges include inadequate infrastructure, inefficient governance and high levels of inequality and poverty.
However, Brazil has characteristics that distinguish it from other investment destinations. In terms of governance and finance, the country is a stable democracy with well-established institutions. Following macroeconomic adjustments and greater political stability, Brazil’s economic environment has become less volatile. International trade has grown, driven by export-friendly government policies. At the same time, new regulations strengthen the rights of minority shareholders and promote good corporate governance and accounting practices. The country has modern and strict environmental legislation and a mature and resilient financial system. Inflation has been under control for 30 years.
Furthermore, the business environment in Brazil is promising. The country is currently the tenth largest economy in the world and the largest in South America, with a growing presence in global markets. It has well-developed agricultural, mining, manufacturing, and service sectors, supported by a broad and diversified industrial base. Brazil has also been awarded an investment-grade rating by the major rating agencies. Foreign investors can take advantage of most of the tax incentives available, including, under certain conditions, the tax deductibility of goodwill. Local capital and bond markets have improved significantly, with an increasing number of initial public offerings (IPOs) in recent years. The perception of country risk has also improved considerably.
Brazilian companies are undergoing a transformation process in which they are introducing best practices in corporate governance and accounting and aligning local standards with international accounting standards (CRS/IFRS). Although corruption remains a problem, public safety has improved significantly in recent years.
In 2016, Brazil ratified the OECD Convention on Mutual Administrative Assistance in Tax Matters and committed to preparing reports in accordance with the EU Directive on Administrative Cooperation in the Field of Taxation (Directive 2011/16), as amended on January 1, 2016, starting in 2018.
From a geographical perspective, Brazil offers a favorable environment for European investors with few cultural barriers. In particular, relations between Brazil and Germany are long-standing and deep-rooted. In 2027, the 200th anniversary of the first trade agreement between Brazil and Germany will be celebrated. The trade and shipping agreement between the Empire of Brazil and the Free and Hanseatic Cities of Lübeck, Bremen, and Hamburg was signed on November 17, 1827.
Brazil is a highly urbanized country compared to other emerging economies, with a population that speaks a single language. The workforce is creative and flexible, and the country is rarely affected by severe natural disasters. It maintains peaceful relations with its neighbors and, through Mercosur, offers duty-free access to the markets of full member states such as Argentina, Paraguay, Uruguay, and Bolivia, as well as customs advantages for associated member states such as Chile, Colombia, Ecuador, Guyana, Peru, Suriname, and Panama.
The country is also rich in natural resources such as energy, minerals, and raw materials, and is a global leader in the development and production of biofuels, particularly ethanol. The consumer market is growing rapidly, particularly due to the growth of the middle class.
Long-term strategies and investments, for example to improve infrastructure, remain high on the government’s agenda. These efforts are expected to yield results in the medium and long term . Regions such as the northeast face the challenge of seizing the opportunities that already exist in other parts of the country. Social inequalities are also being tackled, with significant progress made in poverty reduction, for example through the Bolsa Família program.
Financial and strategic investors have recognized these opportunities and consider Brazil to be an extremely attractive location. International mergers and acquisitions and strengthened capital markets will play an important role in promoting future investment. Brazil has a high demand for infrastructure and needs more public and private investment in areas such as education and health. The government’s agenda includes structural reforms to the tax system and greater control of public spending with the aim of stimulating economic growth.
Strategic and financial investors such as private equity firms are still relatively new to Brazil, but they are coming in increasing numbers as they realize they cannot afford to ignore this dynamic market.
The traditional “business as usual” approach is not enough to succeed. Investors are therefore seeking to expand their interests in emerging markets. Given the slow growth of developed economies, estimated at only 2% per year in real terms, it is essential to understand how to operate beyond traditional domestic markets.
Brazil offers a democratic and stable environment with mature institutions, a single language, and a market of more than 210 million consumers, many of whom are just entering the consumer market. Emerging markets with investment-grade ratings are no longer viewed as speculative bets. A well-managed investment in Brazil can be an essential part of a successful strategy.
2.2. Challenges for investment
Despite progress, significant challenges remain. The regulatory environment is complex, particularly with regard to taxation and labor law. High payroll, sales, and income taxes, as well as frequent changes in legislation, can impact business plans and increase the risk of contingent liabilities. The country also has complex regulations governing transfer pricing and the registration of foreign capital.
With regard to joint ventures and M&As, Brazilian companies do not always comply with international anti-corruption standards such as the Foreign Corrupt Practices Act, the UK Bribery Act, and existing EU anti-corruption regulations. Off-balance sheet transactions and inconsistent accounting practices are widespread, which affects the quality of financial information. Many companies, especially small or family-run businesses, require investment in areas such as governance, internal controls, IT integration, and human resources management after acquisition.
Restructuring companies can be difficult due to high costs associated with terminating employment relationships. Excessive bureaucracy and regulation affect certain industries and regions. Nepotism continues to play an important role in some areas. In addition, less industrialized regions lack infrastructure and distribution channels, and the inadequate education system limits the supply of skilled labor, reflecting social inequality and poor income distribution.
Brazil also lags behind in investment in innovation and research and development. Brazilian companies continue to struggle to achieve international brand recognition, although this is improving.
Key issues identified in due diligence reviews include tax, environmental, and labor risks; informal business practices; poorly documented related-party transactions; lack of adequate internal controls; inadequate accounting practices; irregular account reconciliations; and poor cash management.
Unsuccessful deals in Brazil are usually related to unexpected tax and labor issues, excessive bureaucracy, poor quality of available information, market volatility, inadequate due diligence, underestimation of the time required for implementation, overestimation of synergies, poor management quality, and inefficient post-acquisition monitoring.
* Andreas Beyersdorf, LL.B. in Business Law from the University of São Paulo (USP) Law School, and Dr. Julia Krautter Romeiro, LLB. from the University of Bonn, LL.M. from the University of Minnesota, USA, Dr. iur. from the University of St. Gallen (HSG), Switzerland, are members of Pacheco Neto Sanden Teisseire – Advogados.
