Oil and Gas: Opportunities and regulatory concerns for entering Brazil

 

Foreign investors should take into account initial procedures as well as tax and regulatory requirements

 

By Glória Cunha

 

The state of Rio de Janeiro now offers a wide range of investment opportunities in the oil, gas, energy, and maritime industries. At OTC 2024, the world's foremost offshore technology event held in Houston, USA, Firjan presented a panel showcasing a promising future. The data revealed that the state has 99 projects in these businesses, with over BRL 1 trillion expected to be invested over the next few years.

To seize these opportunities and navigate the Brazilian environment smoothly, it is crucial for companies to seek fiscal support to ensure proper compliance with Brazilian legislation.

 

Entering Brazil: initial procedures

The procedures for starting operations in Brazil will vary depending on the form of entry and the business segment. In this context, accounting consultancy combined with expert legal advice can help investors come up with the best strategies for starting up in Brazil. Here are some key points to bear in mind:

 

Obtaining a CNPJ

Foreign investors, regardless if they are individuals or legal entities, can own shares in businesses in Brazil.

To operate in the country as an equity holder, a company domiciled abroad must first be enrolled in the National Registry of Legal Entities (CNPJ), which is done by registering with the Central Bank of Brazil (Bacen). 

The Non-Resident Declaratory Registration (CDNR) is also mandatory for entities not based in Brazil that seek to register with the CNPJ to hold ownership interest in companies domiciled in the country.

The Central Bank checks the investor’s regulatory compliance and submits the data to the Federal Revenue Service, which then assigns a CNPJ number to the entity. 

 

Opening a bank account

This procedure should be planned well in advance to prevent any unexpected issues with local requirements. To open a business account, a CNPJ is required from the company, along with corporate and legal documents and the necessary registration data.

 

Registration of capital

Investors should also be mindful of the information concerning the amount of capital they are sending to Brazil. All foreign capital remitted to the country must be registered with the Central Bank within 30 days of the funds’ entry.

 

Transfer pricing

New transfer pricing rules were recently outlined by Law No. 14,596/2023 and will become mandatory starting from the fiscal year 2024. This new regulation aligns the Brazilian framework with the practices of OECD (Organization for Economic Cooperation and Development) member countries.

 

• See also: New transfer pricing rules signed into law

 

Companies that calculate Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) based on actual profit and maintain operations or transactions with related parties abroad should keep the new provisions in mind.

 

Regulatory aspects

The National Agency for Petroleum, Natural Gas, and Biofuels (ANP) is responsible for regulating the industry in Brazil. 

One of the requirements imposed on these businesses is that companies must provide proof of their economic and financial capacity. In certain cases, whether for initial apportionment or expansion of their portfolio of investments, the ANP requires the submission of financial statements accompanied by an independent auditor's opinion to attest the availability of the minimum net worth required for the intended investment. Additionally, the amount to be invested must be available in a bank account in Brazil.

Oil companies must also invest in research, development, and innovation (R&D&I) activities, as outlined in the oil and natural gas exploration and production agreements. Periodic reports must be submitted to the ANP to demonstrate compliance with this requirement.

 

Effective tax planning

Tax planning involves a detailed analysis of applicable federal, state, and local legislation, as well as identifying specific tax benefits for each sector.

Even so, operational issues, location, objectives, and business projections must be given special consideration.

Current incentives and sector-specific taxes should also be accounted for in the business location analysis. To name one example, the state of Rio de Janeiro has recently implemented a Fee for Control, Monitoring, and Inspection of Oil and Gas Exploration and Production Activities (TFPG), which contrasts with other attractive policies for the industry.

 

Impacts arising from Brazil’s Tax Reform

The recently approved Tax Reform aims to streamline the Brazilian tax framework. However, it requires companies to make adjustments and pay close attention to the transitional period, which will span the next few decades. Additionally, the reform is still pending further regulation and warrants close monitoring by companies.

It is essential to assess the impact of these changes on the operating costs for businesses in the oil, gas, and energy industries. For instance, it is important to monitor whether existing tax benefits will be maintained, such as Repetro (a special customs regime for the export and import of goods for oil and gas exploration and production activities).

 

Industry expertise

Consulting specialists who are well-versed in Brazilian legislation and the specifics of the oil, gas, and energy sectors is crucial for those looking to invest in the country. Domingues e Pinho Contadores has extensive experience in assisting both domestic and foreign companies. You can count on our support: dpc@dpc.com.br.