Brazil Risk Analysis

Topics: Tax, Economics, Income tax Pages: 9 (2991 words) Published: March 27, 2011
Executive Summary
Investing in Brazil, as with any country, entails exposure to a variety of political, social, economic, and other risks, but also entails potential benefits for multinationals corporations.
Political Risk- Brazil has been a stable democracy for 25 years. Despite some unique risk as corruption, Brazil has been rating overall medium risk for dynamic risks, governance framework, political violence and business and macroeconomic environment.

Financial Markets in the country & Sources of Capital for the multinational corporation Brazil is now the eighth-largest economy in the world and will continue to seek a growing international role. The country has also been considered a confident player on the world stage and also seat temporary at the UN Security Council. The Brazilian Bovespa index of the Sao Paulo Stock Exchange has been doing very well with several shares from different sectors which are providing steady growth to the Bovespa index. There are many financial service as the private multi-purpose commercial banks, universal banks, play the leading intermediary role in the country’s financial sector. Public financial institutions are also among the leading intermediaries, promoting rural economic activity and agricultural production through the provision of subsidized loans.

Tax Structure & Investment Incentives for which foreign based companies are eligible Brazil’s Tax Laws and system, Brazil's corporate tax rate for 2010 around 34%. The tax consists of a basic tax of 15%. There is also a surtax of 10% for annual income of over BRL 240,000, about $ 110,000. Additional, all corporations are subject to a social contribution tax at rates ranging from 9 % are added on net profits Firms may effectively reduce income tax liability by investing part of the tax due in government-approved incentive projects or by purchasing quotas in funds that invest in such projects.

Currency Discussion and Forecast

The Central Bank of Brazil allowed its currency, the Real, to float freely on January 15th 1999. Since then, the Real has being through currency devaluation early in 2000. But it has gain value over the last 3 years. Based on the Relative purchasing power parity and the international fisher affect the Real is forecast to depreciate against the dollar in 2010 and 2011 Due to a larger Current account deficits.

Political Risk
Brazil has been considered a stable democracy for the past 25 years. The president is elected for a once-renewable four-year term and enjoys extensive powers. The current President Luiz Inácio Lula da Silva. As Brazil enters the 2010s and a new president, Dilma Rousseff, is set to take office in 2011.The new administration will face a myriad of policy challenges over the coming decade. The impressive economic performance under President Luiz Inácio Lula da Silva has significantly raised the bar for any future administration, leaving a delicate combination of policy objectives from continuing to improve living standards and addressing a widening fiscal shortfall to meeting the security and infrastructural challenges ahead of the FIFA World Cup in 2014 and the Rio de Janeiro Olympic Games in 2016. 1 According to Political Risk Report 2009 -Maplecroft, Brazil scores an overall medium risk for dynamic risks, governance framework, political violence and business and macroeconomic environment. It also has a medium risk profile for structural risks such as supply chain risks, poverty, development, energy security vulnerability to climate change. Political risk has been tamed at this time in Brazil. According to Paulo Sotero Marques, director of the Brazil Institute of the Woodrow Wilson International Center for Scholars, a congressionally chartered think tank in Washington, DC, Brazil today is a very stable country with a strong and improving institutional framework. Elections take place as scheduled. Delivery of services through e-government, where available, is...

Bibliography: 1. The Country of the Future; Dazzled by Brazil’s Vast Potential, Are Investors Overlooking the Risk by Christopher Wright. CFA Magazine Set- Oct 2010
Political risk report Country-by-country risk analysis and mapping 2009
2. Political Risk Report: Country by Country Risk Analysis and Mapping- 2009
3. Freedom House Country Rating: Background Report on Latin America. Washington. D.C March 6, 2007.
4. Economist Intelligent Unit; Country Report: Brazil. November 2010
5. Brazil Tax Laws and Tax System.
6. Encyclopedia of the Nations ;Americas, Brazil; Taxation - Brazil - power
7. Encyclopedia of the Nations; Americas, Brazil Foreign investment - Brazil - tax, growth, power.
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