Doing business in Brazil
Those of you who’ve been paying attention will know that I started a new job recently. A simple version of the situation is that I am employed by a British company to provide services to a client of theirs which happens to be a good-sized Brazilian company based in Rio. It was a fairly demanding selection process – 4 interviews, one in Portuguese, one involving me giving a 20 minute presentation) – which stretched over a period of 2 months. At the end of all that, it became clear that they liked me and so I thought my troubles were over. In fact my troubles had only just begun!
My future portrait?
A small matter remained – how was I going to be legally employed? How would I be taxed? “No problem, ” I thought, “I have my Carteira de Trabalho“. Getting my work permit had taken 3 visits to the Ministry of Employment and countless hours of waiting. The eventual result was this precious work document and I was rather proud of it – it looks rather like a passport.
However, my relaxed smile faded when I was informed that my fancy work-passport was useless for this type of employment. A few days later I was informed (by a lawyer, no less), that the combination of employment conditions that I was attempting (deep breath: non-native resident of Brazil, employed by foreign company to provide services for a Brazilian company) was simply impossible in Brazil.
…”Er, I’m sorry, I thought I just heard you say ‘impossible’ – I must have misunderstood.”
No no, they assured me. No misunderstanding. It simply wasn’t possible, it couldn’t be done legally.
I couldn’t believe that after all my efforts, I was going to fail because of some technicality. And surely (I pleaded to no-one in particular) it can’t be impossible for a foreign company to employ a resident foreigner in Brazil – my taxes would be as good as anyone else’s right? But much as logic seemed to demand a solution, I was informed by the British company that it looked like it wasn’t going to happen. I was literally told not to quit my day job!
At times like this it helps if your mother-in-law is A) a lawyer and B) feisty! To cut a long story short, she stepped into the fray, got a few things straight and ended up finding a solution. It wasn’t an easy solution – in fact it took another four months (and thousands of Reais) to get to the position where I could receive payment – but it was workable. And that is the story of how I became the owner of a (very) small business in Brazil.
I thought I’d tell you my story because I just saw this – an article on the BBC website written by Luciani Gomes. It tells of the bureaucratic difficulties people are faced with when trying to set-up a small business in Brazil. Among the most interesting and exasperating statistics are:
- Brazil ranked 126 out of 183 countries in an international survey for ease of starting a business, registering and paying taxes, etc.
- Bureaucracy cost Brazil 46.3 Billion Reais ($23 Billion US) in 2010.
- 40% of Brazilian start-ups fail within 2 years (yikes!).
Originally I created my company for the sole reason that it was the only way I could get paid. I had no intention of being ‘a real company’. But then recently a new situation arose and there is now the possibility of employing at least 2 people. Exciting times I thought! Then I spoke to my accountant. Now I’m all for worker’s rights, but the rules and regulations that govern employment are crazy. If I wanted to pay someone a salary of say R$4,000* per month, I would have to pay over R$5,000 on top for the various taxes, social securities, medical plans, etc.
And if the work dries up and I no longer need the employee? There is a massive severance payout. If the employee is incompetent and we have to part company? I have to pay a massive fee. At the end of the year I have to pay the ’13th Salary’ – an extra month’s pay!
I’m sorry if I am starting to sound like some sweat-shop factory owner who is complaining that he can’t make children work 18 hour days “because of those damn liberals!“, but it’s just that these regulations make it financially close to impossible to employ someone who would be suitable for the role. So who wins here? Not, I think, the worker.
OK, so that’s probably enough ranting for one post. This isn’t meant to come across as one long complaint – I just think that by cutting red tape and relaxing (just a little!) the labour laws, Brazil’s government could do more to help its people and stimulate its economy (2 things I’d be very happy to see).
Has anyone else has had to deal with these issues? Am I just being naive here? Maybe it’s like this in every country (I’ve never been in this position before, so I don’t really have a frame of reference). Before I go, I just want to clarify that I am 100% in favour of employers paying things like health insurance and severance pay, just that the current situation is not viable for an outfit of my size.
* R$4,000 per month is several times above the average wage here, but this would be a technically demanding job and would require perfect English.
What you described happens all the time. And the lawyer who advised you; but could not figure out that simply opening up a small company of your own was the solution, is totally incompetent. I could have told you that, and I’m not even a lawyer. It gets worse by the way, and if you manage to be prosperous this will be frowned upon, regardless of how much prosperity you also create for others by way of jobs and services.
Brazilians don’t like winners, unless it’s related to their soccer team (of course the players that make it happen are frequently chatised as they are often considered to be overpaid).
This is the result of populist labor laws that make absolutely no sense; yet sound very humane and oh so romantic. And many European and American liberal legislators think they are wonderful and would love to implement them in their own countries. Probably because most of them never really managed anything of significance, and the dire results of such policies wouldn’t apply to them anyway. After all the structural unemployment these moronic laws cause in Brazil never kept a single Brazilian politician out of work.
Ah, being an entrepeneur in Brazil: welcome to hell :-(
Ha ha! I had a feeling you would a view on this Gritty. I’m not a big fan of sweeping statements like “Brazilians don’t like winners”, but I certainly take the point that populist laws that sound good during election campaigns (and might even be backed by good intentions) can translate into something disastrous in real life.
When the laws and regulations aren’t realistic/viable, people tend to find a way of circumventing them and that in turn makes the whole exercise pointless and obstructive.
I should clarify that the ‘lawyer’ I spoke about was the legal advisor of the Brazilian company in question. I think the moral of that part of the story is that in many different scenarios in Brazil, people will tell you “it can’t be done”. More often the truth is that A) They don’t know how to do it, or B) They don’t feel like doing it.
It’s all rather exhausting, but hearing “impossible”, is the cue to find someone else who knows how to get you past this latest obstacle. It’s hardly surprising that the jeitinho is such a common phenomenon!
R$4000 a month? Can I work for you??? Unfortunately I get the feeling that if a British resident in Brazil running his own Brazilian company tried to hire an American resident in Brazil, we might break the system :-p (then again, that could be a good thing!)
by cutting red tape and relaxing (just a little!) the labour laws, Brazil’s government could do more to help its people and stimulate its economy (2 things I’d be very happy to see).
I FULLY agree with this, and I really hope it happens. Brazilians in general are um povo muito trabalhador – not to mention extremely creative – and if it was easier to open and run one’s own company, Brazil could explode with awesome new entrepreneurs!
Also, I think a side effect of the heavy-handed laws is that those who are in control (the business owners and people on the management level), in an effort to keep costs as low as possible, tend to want to keep the peons (their employees) down rather than helping them grow.
So you get situations where the lowest level of employees is stuck at minimum wage with no possibility of raises, bonuses, advancement, or any forward progress. Oh, and the employer prohibits them from going to college in their free time or else they’ll be fired. Not that this has happened to ANYONE I know…
Ha ha! I don’t know for sure, but I’m guessing the cost of living here in Rio is probably quite a bit higher than in Salvador. If you want to rent a reasonably nice place (subjective term) in to Zona Sul, you won’t get a huge amount of change from R$2,000 once you’ve paid the condominio… Either that or I have to reconsider that bottle of champagne I have every night when I get home from work ;)
Related to your penultimate paragraph, I have to say that it has also struck me that a certain slice of Brazilian society is very happy with the way things are right now thank you very much! Why would they want to go changing things?!
p.s. as my PR man says, if you’re interested in a move to Rio and don’t mind working in Barra (ha!) then send me your CV! :)
…then I’m not even gonna tell you how much I pay in rent, ’cause you’ll be jealous. I’ll just say that it has three digits and starts in “2” :-D Then again, we got really, REALLY lucky.
WOOOOAAAHHHH! I had no idea how vast the difference is!
Why not consider hiring Brasilicana? Seriously.
And no Tom: I can’t handle public relations for your firm. Time is really an issue for me at the moment; but I’m flattered, yet not surprised, that you thought of me.
I agree with most of Brasilicana’s statement except that she appears to link unproductive labor laws to many an employer’s mindset of hindering an employees growth; but I think that is a mindset pertaining to culture and that preceedes the labor laws although certainly made worse bu them. I get the impression that, regardless of a persons position in the workplace, he/she carries that unfortunate constraining outlook towards others (the employee hindered at work for instance doesn’t want to see his maid, or part time help, moving up the ladder). It makes no sense, NO SENSE at all. And it can’t be a good thing spiritually I imagine.
I must say though that South Brazil is much better in relation to this. God bless that immigrant obsession of upward mobility, and lack of “shame” in pursuing it, plus understanding why others would want it too.
To Tom’s associates: he didn’t really invite me to handle PR work so put those inhalers away.
Ha ha! That made me chuckle! (The PR bit) :D
It’s interesting, I often ponder Brazil’s problems and try to understand why certain behaviours that seem strange/illogical seem to be quasi-endemic. I also wonder what might be done to break out of these negative cycles and the answer almost always seems to come back to education. Particularly sad/infuriating/depressing then that employers seem to actively discourage it.
Actually, I’d agree with you that the keeping people down thing is cultural. Unfortunately that means it’ll also take quite a while to change.
I’m the best candidate for this job because:
-I am a hard worker
-I like the business that you do (what is it again?)
-I am a really cool guy
-I am into personal relationships, meaning I treat customers with great ”carinho.”
-I can speak English AND Portuguese =0. I can even fake an English accent to make you feel more at home.
-Did I mention I’m cool and a hard worker?
All you need to do is send me my work visa and I’m your slave. See you then!
Alex
PS: The problems need to be resolved in the bureaucracy, because if they are, Brazil will have nothing stopping it.
Ha ha ha! Alex, the job is yours! I’m a little disappointed that you left out “team player”, “proactive” and “initiative”, but I could seriously do with someone who can speak Portuguese properly so I can find out what the hell everyone in the office keeps saying to me! ;)
He also left out herpes.
I desagree with the thing about it being cultural. Probably who says that never been to Argentina, for example. Here, labour issues are maaaajor. Almost anyone has the courage to dismiss a employee because is afraid to losing a lot of money legally. I actually heard a guy telling that his employee was CHEATING, but he couldn´t do anything and there was no way judges would consider it “justified”, and, since the “cheater” was at the company for almost 10 years, he would easily have to pay 40 thousand pesos for letting him go.
But I am afraid of stating that it is cultural in Argentina (though populism is even stronger here in the form of Peronism) and make the same “foreign mistake” I am criticizing. So, let´s just say is circunstancial…
Anyway, I can see some improvements in Brasil. There is a new government policy for small companies. It is called MEI (Micro Empreendedor Individual) and is made to estimulate really small business that used to be informal to became formal – and, of course pay taxes. You problably couldn´t apply for that, Tom, because the earnings limit a year is very small. A lot of my journalists friends started one, so they could be payed as “pessoa jurídica” – an absurd thing that employers now ask in order to avoid responsability for these profesionals that already are paied so bad. The process of oppening one is REALLY easy, and you even get free accounting help. The taxes are also verry low, like R$ 36 a month.
Of course there is a loooot more to be done, but that´s a start(-up? lol) and has to do with the need of estimulate entrepreneurship. If anyone is interested, the site is: http://www.portaldoempreendedor.gov.br/modulos/inicio/index.htm
PS: sorry about my English. Speaking Spanish 24/7 is making it a lot worse… =/
Hi Sthephani! :)
It’s an interesting question. I’m not sure how we draw a line to distinguish between “it’s just been this way for ages” and “it’s cultural”. Certainly it seems to me that people here have just become accustomed to all the red tape and obstructive labour laws, and maybe that’s not surprising: In just 2 years I’ve had to learn that fighting a huge state machine gets you nowhere. You just have to accept it, be patient and try not to get too frustrated by it.
The single-person company thing (MEI) definitely seems like a step in the right direction. For Brazil’s sake as much as my own, I hope they take many more steps like this in the coming years. Imagine how many man-hours would be saved, the increase in productivity, increase in employment and tax revenue, the consequent increase in public spending and the boost to society as a whole. You may say I’m a dreamer, but I’m not the only one… ;) Hee hee!
I could not agree more. And FYI, I am also a dreamer. =)
PS: Sorry for the ages I took to answer.
Hee hee, no worries, there’s no time limit :)