Around the world, it’s no secret that the e-commerce market is booming. In 2019, the industry as a whole amounted to global sales of over 3.5 trillion US dollars. It is expected to continue its incredible growth over the coming years, almost doubling to 6.54 trillion dollars by 2022. Whilst geographies like America and Europe are established players in the global e-commerce market, Brazil has recently been labeled one of the fastest growing online markets in the world. This is thanks to a rise in the use of mobile technology and increasing access to the internet. With the rise of e-commerce, dropshipping has also been on the rise in the country.
As it’s a new retail strategy, many may not be familiar with dropshipping and how it works. Dropshipping is the fulfillment of a retail item without the store actually keeping the product it is selling. That means that when an order has been placed, the retailer will then purchase that item from a third-party seller and then ship it to the customer. This means the merchant selling the product directly to the consumer is not handling the products themselves.
Dropshipping in Brazil
Although dropshipping in Brazil has been slower to take off compared to other countries, the market has been changing.
Traditionally, mail delivery services in Brazil have been known to be poor, with many deliveries not making it through from overseas senders at all. Or customers receiving packages after long delays due to inconsistencies in the local postal service system. There are a number of other contributing factors as to what is making the process so difficult. One of the leading reasons is that Brazilians are unable to import products through the mail or a FedEx delivery without having to pay extensive tax on the item. This puts a lot of retailers and customers off of the idea.
These import taxes can reach up to 60% of the overall product price. Even if the customer is willing to pay that, the fact that customs can take anywhere between 30 to 180 days to check the products can make ordering products from abroad very unappealing to most Brazilian consumers. There are a number of things that can cause a delay at customs, including:
– Improper documentation
– Importing food, health products, cosmetics and medicines
– Importing goods made from animals and vegetables
– Goods no meeting the required certification standards
– Forbidden goods or contraband
– An audit by the Brazilian Federal Revenue
However despite these challenges, the e-commerce and dropshipping market is on the rise and in 2018 58.5 million people purchased something online.
So what’s changing?
Firstly, in September of 2018 the Brazilian Post Office introduced a $15 fee for all international mail. Even though this is an additional cost to the end-user, it has incentivized the postal service to improve their delivery. And since its activation, more parcels are being delivered on time.
This has helped to bring new e-commerce opportunities for Brazilians and for retailers. Improved logistics plus Brazil’s current rank as the leading market for internet usage in Latin America and fourth overall in the world, means online shopping is not going to slow down in the country any time soon. The most common products being purchased online include;
– Electronics
– Appliances
– Clothing
– Cosmetics and Beauty Products
– Home Décor
– Pharmaceutical Products
This rise in demand and improved delivery service has helped to reduce the ePacket delivery time from China to just over three weeks. As the largest supplier of goods, China is a key market. This use of ePacket has become the main source of products being shipped to Brazil.
ePacket is one of the most popular methods of shipping products from China and Hong Kong. It is used by the majority of merchants. It allows users to track their products throughout the shipping process and it is one of the fastest international delivery services.
How have companies been growing their dropshipping methods in Brazil?
With these improvements to logistics and widespread access to internet across the country, it’s no wonder that more businesses are looking to take advantage of the region and there are several ways in which you can successfully market yourself as a drop shipper to increase their revenue in Brazil.
1. Use a Reliable service
The first tip for anyone looking to begin an e-commerce business in Brazil is to use reliable dropshipping solutions. For many of the leading merchants who are operating on a Shopify system, they opt to use services such as Oberlo as their solution to not only find products to sell but also then ship them to customers around Brazil. Of course with the import tax and additional costs raising the overall cost for the consumer, retailers are having to find ways to improve the overall value of the service that the end-user is receiving. From improving their customer service to the quality of the products, it will all help to improve their reputation and in turn their customer base.
2. Utilize Effective Social Media Strategies
Utilizing effective social media strategies to market their products is a vital tool for the most successful dropshippers in Brazil. The average Brazilian spends three hours and forty minutes each day on social media! With nearly 90% of the country on it, a company directly targeting their potential audience can help to yield big returns. Equally, those companies that are closely monitoring and adapting to what their competitors are doing in their digital space are the most likely to succeed.
3. Accept Payments in the Local Currency
By far though, those businesses that are accepting payments in local currency are the ones that are profiting the most by dropshipping in Brazil. With only 6.5% of the country having an international credit card. Almost 45 million citizens being unbanked. The ability to accept Boleto Bancario is vital if you want to be able to reach the entire population.
Every day, millions of Brazilians use a Boleto to pay for everyday goods, services, and bills. That is why if your dropshipping company is able to accept Boleto, you will be reaching more customers and embracing a local tradition.
The rise of e-commerce has helped increase the payment method too. With many preferring to use a Boleto for online orders rather than other payment alternatives. The problem with accepting a Boleto however is that the payment process has to be handled by a local entity. A costly and incredibly complex process to try and establish yourself.
How epag can help your dropshipping business in Brazil
Epag was established to help businesses around the globe operate in Brazil. It accepts payments in the local currency without having to worry about expensive FX fees, complicated local taxes, and impossible international remittances. Our entire team has lived and worked in the country. We are experts in the intricate banking systems of the country.
Providing a one-stop-shop for large businesses and SMEs alike, the world-leading facilities that we use will collect payment for you before remitting it in EUR or USD to anywhere in the world. This will enable you to successfully operate your dropshipping business. Focusing on expanding your customer base without having to worry about how you will receive payment. To learn more, get in contact with us here.
E-commerce is the key to retail success these days, without a question. Technology has transformed the way we interact with the world around us. We can now shop anywhere, at any time, directly from our smartphones. This has revolutionized the way retailers are able to sell their products to customers. They can now serve end-users in countries around the world; making their customer base and profit almost unlimited. That is certainly a good thing, but increased demand means higher expectations.
This shift in the collective mentality on online purchasing means there is increasing pressure for retailers to invest in their e-commerce sites. Customers now demand a beautiful website that is easy to navigate and is clear to use and to purchase from. The most essential part of the shopping process is the checkout experience; this is where the customer will part with their money and pay it to you. So no kidding it needs to be the easiest page to use on the site! This does also mean retailers have to be capable of accepting various currencies and payment methods.
That means choosing the right checkout system for your site is crucial. In such a booming industry, there are now many possible payment gateways you can choose for your site, so which one is right for you?
What are Payment Gateways?
At some point, nearly all of us have purchased something online. Whether it is concert tickets, the weekly grocery shop or some new clothes; it has become so ingrained into our culture that we probably do not think too much about it.
How well do you really understand what happens between the moment you enter your card details into the website and the point the confirmation email hits your inbox though? Well, that transaction is catered for by something called a payment gateway. A payment gateway is essentially a system that acts as the in-between for a bank and retailer. It helps to process the bank information that the customer has entered on your website into an authorised transaction.
This is a complicated task. In order to be able to meet the required security laws, this data needs to be encrypted to ensure your customer’s information is secure. That, and you are providing your consumers with safe transactions. Not only that, but a payment gateway helps to make things a lot faster for both parties; you will not need to enter the customer information in manually and the customer can enjoy their goods far quicker.
Using a professional payment gateway will also enable to you accept far more types of payment; helping you to reach those wider international markets that perhaps might have been inaccessible previously.
Tips for choosing the right gateway
Choosing which payment gateway to use on your e-commerce site is an important decision to make. There are many different styles available. No matter which one you choose, you need to ensure that it matches a few set criteria.
1.Security
This is the most important aspect. Customers are not going to input their payment details if they are not 100% convinced that their data is secure and safe. They want to know their money is secure. Research has shown that over 80% of customers feel safer when security logos are in place.
2. Cost
Will this be a cost-free process for the customer or will they have to pay processing fees? Similarly will you be paying money on hidden fees every time a transaction occurs? Make sure you know before choosing your gateway method.
3. Accepted payment types
This is another important one. If you are planning on operating internationally then you need to be able to offer your customers the ability to pay in their preferred method. Nearly half of all shoppers have said they would switch retailers if theirs was not listed. So make sure you are not cutting off 50% of your business by not covering them.
4. Ease of Use
The world is instantaneous nowadays and customers do not want a long and drawn out payment process. Make sure the payment gateway you choose is able to be integrated easily with your existing website. And enables a smooth payment process for the consumer.
What are the different payment gateway options?
Now this is where you will have to make the important decision on which type of payment gateway you choose for your website. There are typically three main types of integration you can choose for your e-commerce site:
1. Offsite Payment / Redirect
This is probably the most basic integration method available. This is where the customer will be taken away from your website and redirected to a payment gateway on the service website. Most typically somewhere like PayPal. This is popular as it means your website does not have to worry about any security concerns. But it does mean that they will be leaving your website to make the payment.
There are still some security problems however as they are prone to being used in what is known as a ‘man-in-the-middle’ attack. That’s why typically only small private businesses use this form of payment method.
2. Hosted Checkout
A hosted checkout is an easy-to-install system for merchants and creates a seamless checkout experience for customers. They also mean you do not have to worry about the many requirements of PCI compliance issues. This is because you will not be storing any customer information.
A hosted checkout simply means you will be hosting the payment gateway directly on your website. This means your customer will be taken off-site to another window where the payment is completed. Typically, these can also be designed to keep in with the style and theme of your website to a certain point, but you may be limited.
epag operates a hosted checkout solution (JS based) with many different merchants from all segments and offers some nice customization options to ensure a good user experience.
3. Server-to-Server Integration
The full server-to-server integration (S2S) is a method that allows you to handle the transactions directly on your website. Even though a payment gateway provider will be the one actually handling the process. This is a very popular choice as the consumer experience is uninterrupted, and buyers won’t know that they are leveraging an integrated technology to your site. So the experience is a bit more streamlined from a consumer perspective.
In order to do this, you do need to either be PCI Compliant or have an SSL certificate. You will also need to ensure your security is up to scratch as you will be maintaining customer information.
Most of epag’s larger merchants utilize this form of integration to maintain a stronger control of checkout flow for their users.
Which option should you choose?
What kind of payment gateway you should utilize and whether you prefer hosted checkout or server-to-server integrations for your checkout experience will depend largely on where you are looking to operate. And the methods you are looking to incorporate on your website. If you are looking to maintain more control over the customer data and PCI compliance is already completed, or easy for you to manage, then perhaps you prefer server-to-server. If this isn’t possible for your company, hosted checkout will be a faster and easier solution.
How can epag help?
Here at epag, we help businesses who are looking to take advantage of the nearly 200 million citizens living in Brazil and Latin America.
Estimates suggest that 93.5% of people living in the region have no form of international payment, meaning you are missing out on nearly 186 million potential customers. By using our integrated payment gateways, you will be able to accept all forms of payment in a seamless and swift transaction.
In order to accept local currencies in Brazil, you need to have a local entity in Brazil. This means either going through a complex and lengthy process trying to establish your own branch, which requires an in-depth understanding of the very intricate tax laws. Or using a local payment processing partner, such as epag.
Our one-stop-shop lets you trade in the region without worrying about any hidden transaction costs – not only that we can settle the transactions in your local currency. Get in touch with us today to find out how we can help you expand your business.
Why the Asia/Brazil relationship is onlyset to grow stronger
Trade between Brazil and Asia is a vital relationship between the two. The likes of China, Japan, India and more regularly trading goods and services with the country; helping both economies to flourish.
Historically, there has been a long and prosperous economic relationship between Brazil and China. Trade relations actually dating back to the start of the early nineteenth century. In 1974, the two countries began official diplomatic relations; enjoying a positive relationship based on non-interference, equality, and mutual benefit.
Over the nearly four decades since that agreement was created, the diplomatic partnership has grown from strength to strength. Trade between the two countries in 2019 was worth a total of $98.142 billion United States Dollars (USD). This actually makes China the main trading partner of Brazil. Edging out the likes of the United States, Argentina, Netherlands, and Japan.
The historical and economic relationships between Brazil and Asia doesn’t start and stop in China, however. Japanese investment in the country took off in the 1950s when companies from Japan realised the potential market for its various manufacturers. As well as Brazil being a fantastic source for the raw materials it needed to undertake the business; meaning global brands such as the Pilot Pen Corporation, Yanmar Diesel and Toyota Motors flocked into the country. In fact, Toyota even chose Brazil as the location for its first non-domestic car assembly plant!
The growing ties
Over the last ten years, that relationship has only grown stronger and more profitable. An increasing number of businesses from Asia (China, Japan, and South Korea) are opening their products and services out to the Brazilian nation (and vice versa).
The period between 2008 and 2016 saw Japanese countries invest an average of $3 billion USD into the region. Whilst in 2010, 2011 and 2012 South Korean investments averaged at around $1 billion USD a year. China was equally invested in the region, with the Chinese government investing nearly $38 billion USD into the country in the five years between 2010 and 2015.
Although in more recent years economic activity across Brazil might have stagnated slightly it has not deterred investment from abroad. In fact, infrastructure investments by Chinese companies are actually on the rise. In 2017, a leading conglomerate of companies, the HNA Group, acquired part of the rights to manage the Rio de Janeiro-Galeao International Airport. Joining their growing grid, port, and other infrastructure portfolios.
Piers of HNA Group have followed suit with similar investments. For example, the State Grid Corporation of China purchased Brazil’s largest electricity distributor, and the China National Petroleum Corporation acquired various Petrobras run facilities.
It is not just large conglomerates and national corporations that are discovering the benefits that operating in Brazil offers. Many small businesses and companies have found a growing market for their goods and services.
What do Asian businesses need to consider when trading with Brazil?
In recent years Brazil has begun to relax its economy and open it up further. It is still towards the lower end of the 2018 Trade Freedom index created by the World Heritage Foundation. This traditionally meant that importing goods for uncompetitive markets was too expensive. Forcing companies to either open up factories within the country or simply not trade there.
Whilst some of these barriers are still off-putting, they are slowly being broken down. Brazilian government is driving the change to entice more businesses to trade with the country. As the world’s ninth-largest economy based on GDP, many companies in Asia are looking to begin trading with Brazil. But there are a few considerations these businesses need to incorporate before entering the country:
1. Communication
One of the biggest hurdles facing companies is communicating with suppliers and end-users. Aside from the obvious language differences, Brazil also has very different cultural differences. Such as less importance on punctuality but more responsiveness when it comes to meeting and engaging with each other. Similarly, Brazilians prefer to negotiate with people rather than businesses, so personal relationships are very important.
2. Marketing
One of the most important ways of marketing yourself in Brazil is through social media. Brazil is ranked fifth in the world for social media usage. Typically Brazilians spend more time online than they do watching TV!
On average, internet users spend between 4.5-5 hours a day online (that’s 10% of the world’s overall social media usage!). So it is vital companies looking to operate within the country know how to successfully market themselves via social media; it is a guaranteed way for brands to reach potential customers.
3. Accepting payments
Many companies struggle with accepting payment in Brazil. 29% of the 212 million people living in the country are classed as unbanked (you can read more about in our blog here [LINK]). In addition to that, many Brazilians do not have a means of international payment; preferring to purchase goods in cash or via Bancario Boleto (check out our blog on those here [LINK]).
Being able to accept local currency is vital for success in Brazil. There are two companies in particular highlighting how important it is. AliExpress is the most successful Chinese e-commerce site in Brazil, selling more products than anyone else. With over 73 million online buyers in the country, it is a huge potential market. The owners of AliExpress knew to take full advantage of these customers, they would need to be able to accept all local payment methods.
Using a local partner, AliExpress launched in Brazil in 2013 and quickly became very popular. CTO Dongbai Guo stated at the 2018 Ecommerce Brasil Forum, that their ability to accept Boleto was the key aspect of their success.
Another success story is that of mobile gaming giant Garena. Although Latin America might not be the first region to jump to mind when it comes to gaming, Singapore-based Garena has proven that it can be a very lucrative market. Research has also shown that players in Latin America spend over $5 billion annually on mobile, computer, and console gaming.
By adopting the ability to accept local payment from players in Brazil, Garena was able to maximise its ability to reach even more players; helping to unlock the full potential of this untapped market.
How you can begin trading in Brazil
With a growing economy and huge potential market place, it is no wonder so many businesses in Asia are looking to begin trading in the region. In order to maximise the opportunity, companies will need to accept local methods of payment. These are local credit cards and Boleto Bancario, but this can be incredibly complex and difficult to implement.
In order to accept local methods, the payment process will need to be handled by a local entity. Whilst you could set yourself up, it would require a local expert to help you navigate through the various regulations, laws, and taxes. These require very advanced knowledge. This is why many companies, such as AliExpress and Garena, use the experience of a local financial agency.
Epag is one of these companies. It has been able to help dozens of Asian companies open up a channel into Brazil. With unrivaled knowledge of the market and use of the very latest technology, they remove the need for any local entities or Brazilian bank accounts. Collecting payments in the local currency, they are then able to remit the amount anywhere in the world in either Euros or USD; without charging any hidden fees.
So, if you are thinking of expanding your operations from Asia. And are interested in unlocking what Brazil has in store for you, then get in touch with the epag team today to find out more.
The last few years have seen the rise of blockchain and cryptocurrency, and the market in Brazil has followed suit. In fact, Brazil is the cryptocurrency leader in the whole of South America. More people are opening a cryptocurrency account in 2018 than they did a traditional bank account!
This rise in use has made the country one of the most exciting in the world for potential crypto and blockchain products. The country has been ranked by Morgan Stanley Research as seventh overall in terms of the number of cryptocurrency exchanges. This is behind the likes of United Kingdom, Hong Kong, United States of America, Singapore and Turkey.
Who are the crypto users in Brazil?
A report by the Business Administration School of Sao Paulo in 2018 revealed that the average Brazilian crypto user has more than one form of cryptocurrency in their wallet. These users are also predominantly male, with this gender making up an incredible 92% of the overall users.
As you might expect with such a digital product, the vast majority of users in Brazil are young. 40% are between 20 and 25 years old. Whilst 26 to 40-year-olds make up another 40%.
These statistics won’t likely come as a surprise to those with some knowledge of cryptocurrency. We see similar trends around the world. However for Brazil, in particular, 40% of crypto users were earning below the minimum wage. An interesting point to note when thinking about how people earn, store, and spend their money in the country.
Changing regulation could halt this rapid rise
After a few years of rapid cryptocurrency market growth in Brazil, in 2019 the government implemented new regulations. These regulations have led to a sharp halt in the rise.
With new tax laws coming into play in 2019, two large cryptocurrency exchanges were closed. This was after facing heavy fines for failing to meet the new regulations. As there was no dedicated ruling or law in regards to cryptocurrency, these new regulations meant that every exchange made was under Normative Instruction No. 18881,888/19 ruling (Instrução Normativa RFB Nº1888/19. This meant every crypto transaction carried out by a company in Brazil, would have to be reported or result in a fine of up to $1,500.
Many businesses see this crackdown as a way for the government to increase tax revenues. But according to government commentaries on the matter, these measures were actually introduced to help. To help tackle the rising money laundering, tax evasion, and funding of crime that was happening.
Specific guidelines for the cryptocurrency market
Towards the end of 2019, many Brazilian courts also began targeting illegal cryptocurrency investment firms. These investment firms had cropped up and forced their closure. They did this with the aim to improve both the security and the legitimacy of the crypto market in the country.
Despite the initial dip in the market following this legislation. In January 2020 the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) announced that they would be launching a brand new regulatory sandbox that had been designed to help the creation of cryptocurrencies.
These regulations were designed to provide specific guidelines for the cryptocurrency market. They also act as a test for new companies to join the market in a safe and regulated market. The CVM is also planning to adopt further changes to welcome the rise of blockchain technology within the country as well.
They are aiming to launch in 2020. This framework allows the sharing of data and resources that are offered by banks with proven fintech partners. These changes could cause a slight dip initially but are designed to provide fairer regulation and enhanced security. Meaning the cryptocurrency and blockchain industries could take off once again.
Why 2020 could be the perfect time to bring your crypto business to Brazil?
With the crypto market poised to expand once again, 2021 marks the perfect opportunity to join the growing Brazilian blockchain community. With over 210 million people living in the country, there is undoubtedly a huge opportunity. Especially for exchanges and traders to expand their customer base and reach even more people.
There are a number of reputable bitcoin exchanges in the country. These allow users to top up or withdraw their wallets. Leading providers include the likes of Airtm, Local Bitcoins, CEX.io, BitEx, Ripio, Satoshi Tango, Mercado Bitcoin, FlowBTC, and BitCambio that all offer Brazilians exchange services. In certain cities, residents can also top up their crypto wallets direct from an ATM. Sao Paulo for example has two machines that allow users to do so without needing any verification.
In response for growing customer demand for instant payments, the Central Bank of Brazil (Banco Central do Brasil – BCB) announced plans in February 2020 to launch a brand new instant payment system by November. This is the Brazilian Instant Payment Scheme (PIX). Pix allows users to complete peer-to-peer and B2B transactions in under ten seconds. They will be able to manage these transactions via their mobile phone, desktop computers, or even some select ATM machines. The new system will allow crypto firms to join the platform without facing any restrictions from the bank. Giving many citizens another way to work with crypto exchanges.
How to accept Cryptocurrency in Brazil
The number of Brazilians using cryptocurrency is only going to increase. It makes for an incredibly attractive market for any cryptocurrency exchange or crypto wallet company looking to expand their business.
In order to be able to accept crypto, a company will need a digital wallet. This will require certain software to open the wallet from. Then when a customer chooses to purchase via crypto, the software will generate a unique QR code. The customer will then scan this QR code and the required amount is then automatically deposited into their wallet. You can then withdraw this as required like you would with any bank. It’s important to note, that all businesses are willing to go through such hurdles. That’s why businesses that really want to accept cryptos usually hire a payment processor that specializes in taking cryptocurrencies.
Growing your crypto wallet in Brazil
To be a successful crypto wallet in Brazil, you’ll need to take into consideration how people pay for things in Brazil. This is to ensure you’re not missing out on any part of your addressable market. 94% of Brazilians don’t have access to international credit cards, and around 30% don’t have bank accounts. That’s why it’s important to seriously evaluate how you will allow your clients to pay for their wallet top-ups in the country.
By using the services of an established financial institute, such as epag, you can accept local payments. This means you can reach more customers and reduce the taxes you will need to pay.
State-of-the-art technology companies like epag use them to collect payments in the local currency, before then remitting it to a business anywhere in the world. So if you are thinking of expanding your crypto exchange or wallet services, 2021 could be the year Brazil helps you to transform your business.
How do you reach the unbanked population of Brazil?
As we all know from years of seeing sweeping images of Ipanema beach, the vibrant street culture in Salvador, and hearing the soft sounds of samba, Brazil is a unique country in many ways. With a population of over 210 million citizens, Brazil has a thriving economy. It is truly leading the way in Latin America. However, another unique aspect of the country is the number of citizens who are classified as ‘unbanked’. Research carried out by the Locomotiva Institute in 2019 revealed that 45 million citizens of Brazil were considered unbanked. This same unbanked population is responsible for spending and moving over R $800 billion (about $200 billion USD) each year.
What does unbanked mean?
Being unbanked (uma pessoa sem uma conta bancaria) refers to anyone who does not use any form of bank or banking institution to house their funds. That or they have not used their account for over 6 months. This means that this segment typically purchases goods using cash or on prepaid debit cards. According to the Locomotiva Institute study, around 29% of the adult population in Brazil either do not have access to a bank account or have purposely not taken one out.
Who is Unbanked in Brazil?
The vast majority of those considered unbanked, fall into the lower-middle to poor economic classes. Defined by the Brazilian government, there are five economic classes overall. These are based on the overall gross monthly income of the household, broken down as follows:
Class A: Above BRL 15.760
Class B: Above BRL 7.880
Class C: Above BRL 3.152
Class D: Above BRL 1.576
Class E: Below BRL 1.576
Additionally, nearly 60% of those classed as unbanked are women. Whilst those living in the countryside are more likely to be unbanked than those in more urban areas. Naturally due to a lack of banking resources within a reachable distance.
Perhaps most surprising is that the vast majority of unbanked people in Brazil are relatively young. Aged between 16-34 years old. For some, the lack of money is the main reason that they do not have a bank account. But 75% admitted to avoiding banks as much as possible by choice.
Why are so many Brazilians unbanked?
There are many different reasons why there’s such a large population of unbanked citizens in Brazil. One of the primary reasons, as cited in the Locomotiva Institute report, is that the population does not earn enough to warrant an account.
Those residents living in low to middle-income brackets are on an incredibly low wage. Their monthly minimum wage is 1045BRL, which is around $230 USD. In addition to low wages, standard banking fees in Brazil are some of the highest in the world. Leading Brazilians to pay billions each year in bank fees.
For people on low incomes, the bank fees that are applied on loans can equate to over 20% of their monthly salary. Should they fall behind on loan repayments for any products that they have purchased, their interest rates will increase significantly. This leaves them paying far more for the item than its original retail price.
The required minimum values in the account can be discouraging for many potential account holders earning low wages. 29% of Brazilians surveyed admitted to preferring to use cash. Whilst nearly 50% of those surveyed admitted to not trusting banks. Additionally, if a family member already has a bank account, members share the account so as to reduce the expensive fees for the household.
With the vast majority of those unbanked Brazilians living in rural areas, many also cited that financial institutes were too far away. Which is a common reason for no longer maintaining or opening a bank account.
What impact does this have on businesses wanting to operate in Brazil?
The lack of customers with an active bank account can pose a serious problem for foreign e-commerce sites who want to operate in Brazil. Especially if they are not prepared to best serve this unbanked population. It should be noted that although a vast portion of the country does not have a bank account, they do have access to the internet and cash. Meaning they are still active and purchasing goods, both online and in stores.
The fact that they do not have access to a bank account means that many citizens are not able to secure a credit card. This is because they do not have a credit rating. A survey in 2017 revealed that only 27% of the population actually owned a credit card.
This means to operate a business in Brazil, a company needs to be able to accept either pre-paid debit cards or Boleto Bancario. Boleto Bancario is the most common form of payment. Similar to how wire transfers and cash payments work, Boletos act like an invoice that is provided to the consumer. This invoice instructs them on the amount due and when that payment is due.
Millions of Brazilians use Boletos every day, and with the rise of internet banking, the popularity of this method is continuing to grow. Especially that now consumers are able to pay off Boletos online. You can read more about how Boletos work and their importance to the Brazilian economy by reading our recent blog on them here.
If you want to operate successfully in Brazil then you must include Boleto as an option for your potential consumers.
Can anyone accept a Boleto Bancario?
The fact that nearly every Brazilian has used a Boleto Bancario at least once in their life, and many use them on a monthly basis, indicates just how popular and frequently used they are.
To accept Boletos as a foreign merchant, you will need to manage the actual payment process. This would be done only via a local entity that is situated in the country itself. This is an incredibly complex procedure to try and open up yourself. Your company would need to engage the knowledge of a local expert. This is to help you negotiate your way through the required laws, rules, and taxes you would be required to pay.
The easier and less time-consuming way your foreign company can accept Boleto as a payment method in a matter of weeks is to use the services of a financial company already established in the country, like epag.
Can anyone accept a Boleto Bancario?
Based right here in Brazil, our team have lived and worked in the country their entire life. We know everything there is to know about the region’s complex financial systems. We have helped hundreds of merchants from around the world set up their payment solutions here in the country. This means our clients do not need any local entities or Brazilian-based bank accounts to be able to accept Boleto (and local cards).
Using state-of-the-art technology, we are able to collect payments in the local currency, opening your business to the entire 210 million-strong population of Brazil. This is before remitting it to you anywhere in the world in either EUR or USD.
With no hidden fees, we are a one-stop-shop for big business all the way down to SMEs. Giving each of our customers a tailored and personal service. So if you are seeking to expand your business and take advantage of the incredible opportunities that retailing in Brazil offers, then get in touch with our experienced team today to find out more.
It’s no secret that e-commerce as an industry is booming around the world. With the advent of drop shipping and marketplaces online, more and more players in the e-commerce field are cropping up. However, it doesn’t mean all will be successful. It is a competitive landscape full of players competing head to head, and usually on price alone. So it’s becoming increasingly important to set one’s e-business apart in one or another to make a real profit. One way to do so is by focusing not only on what you are selling but when. That’s why Brazil’s thirteenth salary is such a good opportunity.
The Dates To Look Out For
If you want to maximize your e-commerce potential, it will not be enough to have a digital storefront. Through which to sell your products. You will also need to pay particular attention to the dates when consumers are primed to buy more.
These select dates, such as Mother’s Day, Valentine’s, Black Friday, and the Holidays, signify substantial upticks in online purchases across the world. Last year, online sales topped 126 billion dollars in the US alone. Expected worldwide sales for 2019 will climb 17% to top 4.26 trillion dollars.
This is certainly no exception in Latin America. In fact, governments in many countries in LATAM have decided to offer special payment schedules to workers. This is to help them meet the financial demands of these times of the year.
Colombia, for example, Mid-June signifies a notable rise in online purchases. This is since employers pay the “Prima de Servicios,” a sort of social benefit stipend mandated by the government. They do this to give citizens a monetary boost for summer expenses. Around July, Ecuador experiences the same uptick in e-commerce traffic. This is due to the government paying a similar stipend to the citizens.
One of the region’s most notable cases of a government-mandated monetary stipend is Brazil’s famed “Thirteenth Salary.”
Thirteenth Salary in Brazil – What It Is And How It Works
The Thirteenth Salary in Brazil is a constitutional right guaranteed by the Brazilian Constitution law. This law consists of the mandatory payment to all public and private employees equal to an extra monthly wage.
The idea for a thirteenth monthly salary was born in the year 1962, when the then-president Joao Goulart, popularly known as Jango, approved and made mandatory throughout the country the payout of a Christmas “gift”. Representing one-twelfth of a yearly salary. Retirees, pensioners, and even temp workers have a constitutional right to receive their thirteenth salary.
The intended purpose of this so-called thirteenth salary was ensuring all of the country’s workers had enough money to be able to do a more thorough round of Christmas shopping. A direct result of the population having more money around the Christmas Holiday season is that the economy is given a significant boost through the sudden influx of capital, an increase in sales, and tax collection.
How Do You Calculate Brazil’s Thirteenth Salary?
The exact monetary value of an employee’s 13th salary will depend on how long they have worked for the company. This and their monthly wage earned as a result of the services provided.
Employers will tally up the total salary paid to an employee over the previous twelve months, and divide that by 12. This amount will then be their thirteenth salary. Just as the name suggests.
That means that employees who have worked in full all twelve months of the year are entitled to receive a whole month’s wages as their thirteenth salary. Employees who have worked less than 12 months are still entitled to receive payment. In those cases, the total salary is again divided by twelve. However, the amount is then multiplied by the number of months the employee has worked for the company.
Everyone, regardless of position, will receive this extra stipend from their employees.
When Is Brazil’s Thirteenth Salary Paid Out?
According to the law, companies have to divide the thirteenth salary payout into two different payments. The first payment must be paid between the months of February and November. The second payment is then paid out before December 20th. Just in time for the Christmas Holidays.
Each of the payments must amount to half of the total salary to be received by the employee. Under penalty of law, it is illegal to pay the thirteenth salary using a different schedule than the one stated above.
As a result, the vast majority of employers make their payments in November and December. This is to give their employees maximum purchasing power for the holiday season shopping.
The Countdown to Brazil’s Thirteenth Salary has Started!
Approaching this near to the Christmas Holidays Brazilians are very likely just receiving their thirteenth salary payments. As a result, local retailers and manufacturers are setting up a ton of special offers. These are significant discounts, and no-interest payment plans and they do this to entice shoppers into spending their extra cash.
The good news is that most of them will!
Every year, in a matter of weeks, Brazil’s economy experiences a significant boost. This is due to the extra spending of hundreds of millions of people.
Moreover, every year, the number of people who chose to skip long lines and pushy shoppers to do their Christmas Holiday shopping exclusively online is more extensive and more significant.
A substantial portion of the population will turn to their computers, smartphones, and tablets. They do this to access hundreds of thousands of online stores and access available catalogues. They also do this to compare prices with other virtual storefronts, select their desired product, choose the promotion that suits them best, pick their preferred payment method, and click on the BUY button.
EPAG Can Help You Tap Into Brazil’s Surplus Holiday Spending
Brazil is the largest e-commerce market in the entire Latin American region. Over three-quarters of all Latin American online shopping is done in Brazil. There are more than 210 million people in Brazil. Most of them are chomping at the bit to spend their thirteenth salaries online.
That said, if you do not have a local presence in Brazil, it is quite difficult to tap into the booming market. Most foreign companies have a tough time cracking the Brazilian e-commerce landscape due to a variety of obstacles. These are usually the language, the culture, and, most notably, the particularities of Brazilian payment methods.
Even though Brazil’s economy has been enthusiastically bouncing back from a severe financial downturn. A large portion of the population still lacks access to international payment options. Less than 10% of the population has a foreign credit card. This means that more than 90% of the Brazilian people have difficulty paying for products.
However, this does not have to prevent you from tapping into the Brazilian market.
Epag is the most effective and efficient means of accessing Brazil’s millions of online shoppers.
What Is Epag?
Epag is a seamless cross-border payment platform. It effortlessly maximizes your market coverage, minimizes annoying local processes, and significantly reduces your organizational complexity when accepting payments made in Brazil.
How Does Epag Work?
Epag is a complete one-stop-shop solution with modular server-to-server API. Through a simple, hassle-free integration with the Epag platform, you get immediate access to all local Brazilian payment methods. This includes full support for international remittances and state-of-the-art security.
If you want to tap into Brazil’s Thirteenth Salary spending spree and increase your profit by the millions, get in touch with Epag today.
The Brazilian E-commerce Market And The Hassle Of International Payments
We are now in the third decade of the 21st century. E-commerce continues its inexorable advance towards total commercial dominion. Worldwide, e-Commerce will have sales in excess of 3.9 trillion dollars in 2020 and more than 6 trillion by 2022.
Given the sheer size of the global e-commerce trade, and that virtually every market in every country is growing rapidly. Cross-border e-sales is the way of the future. Especially for companies looking to expand their operations and increase revenue.
However, penetrating international markets can be a daunting task for merchants. Factors such as language, culture, politics, and economic aspects, may hinder a company’s ability to reach customers overseas.
Thanks to increasing access to the internet, it is no longer necessary to establish a local presence to access global markets. Consumers are now primarily looking overseas for their electronic purchases. Some countries in Asia and Latin America showing the highest forecasted growth.
Among these countries with a promising e-commerce potential, we find Brazil.
Brazil, a country of more than 210 million people, possesses the ninth-largest economy in the world. It is also the 8th largest if we look at purchasing power parity. As a result, the Brazilian e-commerce landscape already boasts hundreds of millions of potential customers.
Brazil’s Digital Economy Grows In Potential
The sheer volume of electronic commerce purchases that occur in Brazil every day place it in 10th place among digital markets worldwide. This is just below Russia, but in first place among its Latin American neighbors.
Retail is the main category for digital commerce. This is due in large part to the popularity and ease of access to the internet in the country. 151 million people (over two-thirds of the total population of Brazil,) enjoy internet connectivity and make internet purchases regularly.
It is this substantial number of internet users that drives the booming digital economy of Brazil. Companies spend considerable energy and countless hours trying to capture this vast audience. They do this through targeted advertising driving them to their online stores.
Brazil’s internet audience is composed primarily of urban households with higher-than-average incomes. Moreover, the last few years have seen a distinct upward trend in the economy. This has manifested in increased spending and even more widespread internet use. Data published by the German online statistics portal Statista, suggests that internet access will surpass 70% this year (2020). Hovering around 80% by the year 2023.
As a result, the digital economy of Brazil will only get bigger and bigger as the years pass.
More Money, More Problems
Here are a few data points to give a better perspective to the Brazilian digital landscape:
The Brazilian e-commerce market represents over $23 billion. And is expected to reach an impressive $28 billion by the year 2023.
Brazil has a balanced market share of products purchased over the internet. The four largest categories are Consumer Electronics, Travel, Household Appliances, Clothes, and Apparel.
Brazil has five holidays where retail sales skyrocket: Christmas, Easter, Mother’s Day, Father’s Day, and Valentine’s Day. Other retail events that represent a significant uptick in Brazilians’ online spending are: Carnival, Children’s Day, Consumer’s Day, Black Friday, and Cyber Monday. Which line up with their U.S. counterparts.
There are only around 500,000 online retailers in the country. However, Brazilians hold the 10th position in the global ranking of digital purchases made.
Cybercrime
Unfortunately, there are still more than a few complications regarding e-commerce activity in Brazil. The most critical issue being cybercrime.
With hundreds of millions of people conducting business online, cybercriminals have a significantly easier time targeting unsuspecting folk. This is a problem of which the pertinent Brazilian authorities are aware. Every year new measures are taken to reduce the risks associated with online purchasing.
With this extensive use of online shopping, comes cybercrime. Like in every country in the world, Brazil is no exception. Online fraudsters exist and people are conscious about how they use online shopping checkouts as a result. 6 out of 10 Brazilians wish to opt for alternative payment methods, such as Boleto Bancário. A local cash slip payment method, to minimize their risk of falling victim to cybercriminals. Credit cards are usually only preferred for their speed of purchase (instant vs batched for Boleto). Or for the ability to make payment in installments.
This preference creates a new wrinkle for international e-commerce shops looking to do business in Brazil. This is because only local companies, or companies that use a cross-border PSP like epag, can offer local payments. This is a big draw for customers. Without these options, your revenues will pale in comparison to their potential when offering Boleto & local credit cards.
epag Provides E-Commerce Operators With A Worthwhile Alternative
Brazil is the largest and most desirable digital market in Latin America. According to a Big Data Corp survey, 75% of e-commerce traffic in the region is Brazilian. The Brazilian e-commerce market is almost ten times that of Mexico. The second-largest market in Latin America.
However, there is a shortage of useful tools to help those companies who are looking to conquer the Brazilian e-commerce market. Especially when we consider the fact that there are some substantial obstacles to maneuver. Such as the language, the culture, and most importantly, the available cross-border payment methods.
A large portion of the Brazilian population does not have the means to enact an international payment. Decline rates for international cards are more than 98%.
This situation is then compounded by the fact that international companies have to pay exorbitant processing fees. And having to deal with the world’s second-most complex tax system.
How epag Can Help You
epag can provide your company with the means of countering that harsh climate. We do this by providing a seamless cross-border operation. It maximizes market coverage, minimizes local processes, and significantly reduces your organizational complexity.
Through a simple integration with the epag platform, you get local payment processing, international remittances, a secure platform, and the most uncomplicated market entry possible.
epag is a tailor-made, low-cost solution with a one-stop-shop and modular server-to-server API. If your company needs ways to access hundreds of millions of potential customers while reducing risk, costs, and complexity. Then epag has something to offer you.
Don’t let the complexity of entering an international market blind you. Brazil will remain the largest e-commerce market of the Latin American region for the foreseeable future. Contact us here to discuss further!
What’s important about localizing subscription prices? What data should you keep in mind while doing so? Below are a few key points to know before releasing your prices in the Brazilian market.
Over the last several years, subscription-based companies have grown over 300% around the world, and see no sign of slowing down. Subscriptions have become one of the key mechanisms to build engagement and loyalty with customers, alongside revenue for the organization.
In Latin America, subscriptions exist primarily in mobile-targeting formats. The reason being, the population there is not as much of a desktop-focused audience. Brazil is the most “mobile” among them – with over 240 million mobile connections, and hockey stick-like growth when it comes to tablet sales over the last few years.
What does ‘globalization of subscriptions’ mean for your business?
While there is increasing pressure for companies to internationalize, companies launching their digital subscriptions around the world often lose out on market share in emerging economies. This is normally due to a lack of understanding of the market. While global companies understand the importance of subscription strategies, they may not have clarity on how to best position these services in Brazil, leading to lost revenue. When you localize prices, you can see an (almost) immediate 30% revenue uptake in your target market.
Naturally, to effectively capitalize on the Brazilian market, localization is a must. But what does localization mean, exactly?
Localizing in it’s best form means really understanding and entering a market with different prices altogether – not just changing your currency accepted. While listing prices in the local currency is one important part of localization, it’s only one piece of the puzzle. The key to successful localization is knowing what consumers want, and how much they are willing to spend.
At the most recent Google Playtime Conference in November of 2019, different techniques employed by top international developers were outlined to effectively adjust subscription pricing for emerging economies, including Brazil. Their study identified the complex matrix of considerations Product Managers and business leads must take when pricing subscriptions. It’s definitely worth a watch!
How do I figure out what my subscription pricing should be?
These 3 metrics can help you.
1. GDP (Purchase Power Parity adjusted) as an index
One of the best metrics to consider when building your pricing strategy is Gross Domestic Product (GDP,). This generally refers to the total monetary value of the goods/services that are produced within a country.
Purchasing power parity (PPP) compares the economic productivity and the standards of living between countries. Some countries therein adjust their GDP figures to reflect the PPP.
Checking the GDP & PPP of a country should be one of the key factors in mind when adjusting subscription pricing. Naturally, consumers in such emerging economies don’t usually have the same spending capacity as those from developed countries. Even if their GDP may be lower, they may have an inflated PPP in comparison. So both figures are important as points of reference.
2. Use competitors as a benchmark
Direct competitors’ prices should also be referred to as a benchmark. As with any new market entry, it’s important to assess the lay of the land. Doing research on what peers are charging for a similar service is of course important, but in emerging markets this can be a more complicated endeavor.
While competitive pricing should most definitely be taken into consideration, it’s not prudent to follow them blindly. It is essential to ask basic questions. Such as, whether the price set by competitors is actually effective and resonates with users? Whether the competitive price even leads to subscriber conversion?
It is understandably a difficult task to conduct price discovery of other markets for competitors, but such prices should not be followed without proper research and introspection. Check the prices thoroughly to see whether the same strategy could apply to you.
3. Leverage non-competitor subscriptions as a benchmark too
While the prices of competitors in your field are obviously something to be looked into when formulating price strategies, it is just as important to check on non-competitor subscriptions. These include that of mobile phone plans, Netflix, ISPs, and the like.
While it may seem almost unnecessary to check on subscriptions of products and services that are of a completely different nature, it is in fact necessary. This is because consumers will be using these prices as a point of reference. So it’s critical you do the same.
Of course, you may not consider your product or service to be the same as those from another industry or field, but consumers who pay a subscription fee for a product mentally lump all of their subs together and think about the prices that are offered across all services. The price of the other subscriptions affects their psychology and may influence their decision as to whether or not to subscribe to your product or service.
Two key tips For Your Pricing in Brazil
Reduce Prices by 30-40%
When comparing the same subscription across multiple markets, clear price reduction trends can be seen. Developers tend to substantially decrease prices for subscription in developing markets, usually by around 30-40%. When compared with countries such as the United States. The reduction is driven by the overall assessment of the metrics above, and developers’ understanding of local pricing. Particularly in Brazil where we see this at about 35%
For emerging market economies such as that of Latin America and other developing markets, there are a few factors to keep in mind when effectively adjusting subscription pricing.
Start high and then go low
When setting a price for an app, good, or service in Latin America, the key is effective testing.
Usually, the optimal purchasing power is a lot higher than the expected purchasing power based on indices. Successful apps in the country have set a higher price, reviewed how consumers respond to such prices, and make adjustments accordingly.
When setting a price for an app, good, or service in Latin America, the key is effective testing.
Usually, the optimal purchasing power is a lot higher than the expected purchasing power based on indices. Successful apps in the country have set a higher price, reviewed how consumers respond to such prices, and make adjustments accordingly.
Users in Brazil tend to convert the price of a product into their native currency to estimate the amount it would actually cost them. This could inhibit them from purchasing an app or a product.
Two ways to localize your price:
1. Make a cosmetic change where you convert your price to the local currency 2. Charge differently in different markets, establishing true localization
A few questions to think about are:
How much would a customer in a specific market be willing to pay for an app or service?
Why is a customer willing to pay for one service but not another?
There are several other factors that should be looked into as well. Such as sensitivity to purchasing power parity according to GDP, and taking into account consumers’ preferences.
Things to keep in mind
To grab the market in Latin America and Brazil along with other emerging market economies, subscription prices must be adjusted in accordance with the needs and expectations of the market. The pricing strategy that is chosen should reflect the value of the app, as well as meet the market expectations to achieve business goals.
Localization can be challenging and a pretty daunting task, but it is critical to your subscription or services’ success in the country.
To make it easier follow the tips as mentioned, which include:
● Using GDP as a benchmark
● Analyzing your competitors
● Taking a look at non-competitors
● Testing your prices
These can help in effectively adjusting the subscription price to the Latin American market and markets for emerging economies as per the market requirements at an optimal cost. Additionally, when offering subscriptions in Brazil, it’s important to understand the ways your customers will be able to pay for this. For example, the #1 payment option for online subscriptions are purchased in credit cards, and since the majority of Brazilians only have local credit cards, it’s critical your business also offer this. This way you can ensure you’re taking advantage of the smart pricing plan you’ve put in place.
Many companies get caught up in the challenges and difficulties of setting up local payments in Brazil because unless you use a cross-border PSP like epag, you need to set up a local entity. If you’re interested in better understanding how you can accept the critical payment methods for your customers in Brazil, without setting up a Brazilian entity, drop us a line here.
Installment payments across the world have long been a payment option for consumers to pay for goods offering buyers a more affordable way to shop. Brazil is no different, where for decades credit card use, and the ‘buy now, pay later’ mantra, has been a key part of the country’s economy. In fact, Brazil even has its own name for the practice – ‘parcelado’.
Installments are effectively paying for something in stages, but getting to take home the product right away. A bit similar to layaway plans in the US, but instead you’re able to enjoy your goods or services immediately while paying for the entire value (usually with a fee for doing so) along the way. Almost half of online purchases in Brazil are made with installments.
But what are the pros and cons to businesses that adopt this model? And how does it all work? Keep reading to find out!
Installment payments in Brazil – how did it all start?
If you have ever been a consumer or seller in Brazil, you may have noticed that installment payment plans to purchase goods are fairly prevalent. You’ll often see in Brazilian shops or online e-commerce sites the original price of a product dramatically slashed through with a line and the more affordable installment price written over it. The option for customers to pay in smaller installments is applied to a large variety of products, from shoes to washing machines, furniture to cars.
The installment payment trend started in Brazil during the 1950s. It helped bridge the gap between the country’s desire for western consumerism like its northern neighbors, and the challenging realities of a not quite stable economic landscape. Fast forward 70 years, and installment plans are now as popular as ever, having become ingrained in the cultural habits of Brazilian buyers. They have become almost a necessity for the general population of Brazil, enabling lower income consumers to get their hands on more pricey items that would have been firmly out of their budgets in the past.
How do installment payments benefit businesses?
As suggested above, the introduction of installment plans makes the purchase of goods more accessible to customers on a lower income, opening the market up to potentially millions of more customers. After all, a car that costs R$ 70,000 (Brazilian Real, BRL, reais) (which is just under $17,000 USD) will look far more attractive to a customer who can pay just R$2,000 a month as opposed to a lump sum of R$ 70,000.
This, of course, is great news for businesses as a bigger market means more potential customers and ultimately more sales.
Interestingly, this psychological theory has actually been proven in studies. One survey even found that Brazilian consumers were persuaded to buy an item because they were able to pay in installments. So not only did the option to use an installment plan give them the opportunity to purchase an item they otherwise couldn’t afford, but it also sealed the deal, persuading them to part with their cash. The study also revealed that the average transaction size of customers increases when they are offered installment plans and they tend to be more inclined to buy what they put in their cart (as opposed to removing items by the time they get to payment time).
What are the barriers to offering installment payment plans in Brazil?
Of course, as with everything in life, with the good comes the bad. Despite the clear advantages of setting up installment plan options when selling products in the Brazilian market, there are also some downsides to consider.
As a business owner or senior member of your organization, you’ll know that cash flow is of huge importance to any business. After all, to make investments and grow your company, you need the cash to do so. But when you have orders to fulfill but don’t actually have the money from these sales in your bank account, things can get a little tricky.
And that’s the difficulty with using installment payment plans. If you are a vendor using a Brazilian PSP (payment service provider) and require the money to be paid into a bank account outside of Brazil, all installment payments will have to be anticipated (i.e. paid) before the cash can leave the country. So, if your customer has elected to pay their installments for your product within 12 months, you’ll have to wait 13 months to receive any of the money, even the very first installment the customer paid 12 months ago.
However, there is a way to get around this issue…
You may, or may not, already be aware of this, but there is such a thing as an ‘anticipation of receivables’, which is also known as ‘factoring’. Factoring is popular in Brazil as it eradicates the issue of cash flow. In basic terms, it means that a business can sell the income it expects to receive from a lump of orders to a third party (called a factor). This results in the business being paid the money before all the invoices are collected. In short, the ‘factor’ pays the business upfront an amount of money, then, after time when the orders are settled and invoices paid, collects the cash that the business was expecting to receive in the first place.
Thanks to this common Brazillian business practice, companies can earn money straight away from their installment payment orders and avoid waiting for the whole invoice to be settled, which could take weeks, months or even years. However, it’s also important to consider that for this service, factors (the third party organization setting up the anticipation of receivables) will charge an anticipation fee. The full cost of this fee depends on factors such as the overall cost of installments andhow many orders are anticipated.
How do Installment Plans work in Brazil?
So we’ve established why it makes good business sense to offer installment payment plans to Brazillian consumers (and the disadvantages associated), now it’s time to explore exactly how it works.
Traditionally, customers are given the decision of how many installments they want to pay in order to purchase an item. Perhaps two or three options are made available by the vendor, enough to make the buyer feel in control yet not inundated with too many choices.
Despite the problems that business can run into when offering installment payment plans to consumers in Brazil, according to the clients we work with, the benefits far outweigh the potential challenges.
Companies who use the plans in their business models have access to more consumers with a higher purchasing power. This, combined with the ability to offer local payment options for installments, will be an unbeatable combination for your business to help maximize your commercial potential in Brazil.
Expanding your business into Brazil should be an exciting undertaking, and it definitely will be. As the largest market in Latin America, it’s bound to provide you with hundreds of millions of potential new customers and that’s not something you want to miss out on, right? But if you’re going to start doing business there you’ll need to know some important factors, like how you’re going to pay your taxes.
How the Locals Are Taxed
Let’s start by taking a look at how individual people pay taxes in Brazil. First, residents pay taxes on any income that they earn, from anywhere in the world. Those who are non-residents are only required to pay taxes on income that is earned within the country. When determining what taxes need to be paid on the evaluation is on where the person making the payment is from. If they are from Brazil then the income is made in Brazil.
If you are a non-resident of the country then taxes are actually flat at 25% and include no deductions. Of course, this is contingent upon what type of income is being earned. Rental income, for example, is flat at 15%. Residents, on the other hand, pay taxes through withholdings. When it comes to money earned from someone outside of Brazil or through other individuals in Brazil they also make monthly tax payments. These payments are made according to a progressive rate, based on the amount of income brought in and range from earnings of 1,903.99 BRL to 4,664.68 BRL.
Now, this should make it a little easier to understand what’s happening for individuals paying taxes within the country, however, what about the people who run businesses?
Understanding Business Taxes
Now, when we take a look at how to complete business taxes things start to get a bit more complicated. Regularly, in fact, Brazil is considered one of the most complex systems in the world. There are three levels to taxes in Brazil, and beyond this there are a huge number of specificities foreign companies are not used to. To give you an idea of just how complicated: if you printed out all of the Brazilian tax code, you’d have a document that weighs more than an African elephant and taller than famous American basketball player LeBron James. Taxes are also much higher in Brazil, and while the current administration has indicated that they would like to minimize these complexities and costs for the individual and businesses, we haven’t yet seen the result of such campaign promises.
Keep in mind that doing business taxes in any country outside of your own is always going to require some additional education and effort. You’re going to need to do a whole lot of research into the rules and regulations of the country that you’re entering into– to help you get a head start in Brazil, we’ve already compiled for you, so you can jump start your company’s introduction to the BR market.
Types of Taxes in Brazil
First, there are a number of different types of taxes that are done in Brazil. They have federal, state and municipal taxes that are required to be paid. However, it’s important to note, single actions can lead to multiple taxes being applied at the same time and on multiple levels.
Federal taxes include:
Income tax – Imposto de Renda
Social contribution on net profits – Contribuição social sobre o lucro líquido
Import duties – Taxas de importação
Export tax – Imposto de exportação
Federal excise tax
Tax on financial transactions (IOF – Imposto sobre Operações Financeiras)
Rural property tax – Imposto sobre a propriedade rural
Contribution to the Social Integration Programme -Contribuição para o Programa de Integração Social
Contribution to the Social Investment Fund – Contribuição para o Fundo de Investimento Social
Contributions for intervention in the economic domain – Contribuições para a intervenção no domínio econômico
Taxes on labor relations – Impostos sobre relações de trabalho
And these are just the ones for the federal government. You’ll also have to take a look at the state taxes, which include:
Value added tax for goods and services – Imposto sobre o valor agregado de bens e serviços
Gift and estate tax – Imposto de doação
Tax on vehicle property – Imposto sobre a propriedade do veículo
And then we add in the municipal taxes that go along with this process, including:
Service tax – Taxa de serviço
Real estate property tax – Imposto sobre imóveis
Real estate transfer tax – Imposto sobre transferências imobiliárias
Municipal fees – Taxas municipais
Okay, so, if you’re reading through these you can probably tell that you’re not required to pay all of them, but even just paying some of these things can be complicated.
If you are considered a legal entity in Brazil, you will pay an actual flat tax, at 15%. On top of that there’s a 10% additional tax on higher levels of income and there’s the social contributions tax above, which is either 9% or 15%. Not to mention you’ll pay those additional taxes on other types of contributions that are made.
Withholding and Excise Taxes
If you carry out any type of financial transaction and earn income or make capital gains this is actually taken as the same as what a resident would be charged. You would pay the same rates in these cases, but you would then have to pay some of the additional taxes we had mentioned above, including service taxes of up to 5% and contributions to several of the social aspects we had mentioned.
Double Tax Treaties
If you are covered under what’s called a double tax treaty while doing business within Brazil you will actually have entirely different regulations. That’s because the double tax treaty or a multilateral tax treaty will actually override any other tax laws or regulations that take place within the country. As a cross-border corporation you would first need to look for one of these double tax treaties and see what they say about the payments that need to be made.
The information provided above is related to domestic tax laws within Brazil. If you are based in a country on the list below it means that you currently have a double taxation treaty with Brazil and may be able to utilize these rules for taxation rather than the standard.
Argentina
Austria
Belgium
Canada
Chile
China
Czech Republic
Denmark
Ecuador
Finland
France
Holland
Hungary
India
Israel
Italy
Japan
Korea
Luxembourg
Mexico
Netherlands
Norway
Peru
Philippines
Portugal
Slovakia
South Africa
Spain
Sweden
Ukraine
Note that the rules and regulations for each country are slightly different and you would need to look into the convention documents in order to determine the specifics of this process and how you would follow the taxation rules applicable to you.
Are You Required to Pay?
So the question is, are you actually required to pay corporate taxes in Brazil as a cross-border company? Well, that’s going to depend on a few different factors. You’ll need to be a non-resident of the country and your business is not considered a legal entity within Brazil in order to be considered ‘cross-border.’
You would then need to be doing business within Brazil, including selling your products, services, etc. or earning income through other means such as real estate and rental properties. But not all of these are subject to corporate taxes either. You would also need to be carrying out activities utilizing a Brazilian resident as your agent or representative.
That is still not the end of the situation, however. The individual that is carrying out the duties must have some form of power to bind you to the process, or they must be acting on behalf of a domestic branch of your foreign business. If these are the case then you would be subject to the corporate taxes that we’ve discussed so far.
If you have an agent taking care of things on the ground in Brazil but all of your transactions are actually taken care of abroad you are still considered a non-resident and a non-cross-border company. This would mean you are actually not subject to the corporate taxes either. You are not required to pay taxes in Brazil in this case.
Recapping What You Need to Pay
So — we’ve gone through the details of what taxes in Brazil look like, let’s take a bit of a recap on what types of taxes you could be required to pay if you run a cross-border company that does business in Brazil. Assuming the different factors we’ve discussed already all apply to you and you are required to pay taxes at all, you could be subject to:
Income Tax – This is the basic portion of taxation that covers things like your operating profits. It can actually be calculated utilizing actual income or a presumed income.
Withholding Tax – This includes interest (15% for non-residents or 25% for those in tax havens), royalties and technical service fees, each of which are also 15% or 25% for those in tax havens.
Payroll/Social Security Tax – This one only applies if you have actually employees working for your company within the region, which would apply if you have a physical location there.
Real Property Tax – This is also only applicable if you actually set up a business within Brazil, rather than if you’re operating a business from outside as a cross-border company.
Social Integration/Social Security Financing/Other – All of these taxes can still be applied to your business as well, and they’re going to charge smaller amounts between 0.65% up to possibly as much as 11.75%. Each of these are based on income on good and services and can apply to anything that is imported into the country.
What it All Means to You
If all of this is sounding a little bit overwhelming, don’t worry. Taxes are definitely not meant to be simple because everyone wants to make sure that they’re getting their share. Countries, organizations and different government entities want to make sure that they know all about your corporation and they definitely want to know everything there is to know about how much money you make and where they can get it. But how are you going to get it to them? The best way is to let us take care of it.
Going through all of these steps to pay your taxes in Brazil may be making you question whether you even want to expand into the region, but the truth is you can do it a whole lot easier than this. All you have to do is set up payments through our system, which allows you to accept your payments without actually setting up any kind of legal entity. When you do, you’re going to be subject to far fewer tax requirements and a whole lot less complicated system.
How We Can Help
Our job is to make sure that the payments you’re receiving from Brazil are done in a way that makes it much simpler for you to take care of taxes and more. We’ll take care of all the hard stuff and we’ll make sure that you’re not responsible for all of those different types of taxes. After all, your payments are going to come through our service, and that means you’re not actually doing business without the local entity.
Even better, we accept all of the major credit cards and the major payment methods that are used in countries throughout Latin America. That way, you don’t have to worry about losing a potential customer because they don’t have the right payments available. We make sure that you have fewer taxes, fewer complications and more customers. That’s what you’re looking for by expanding into the market after all, right?
Getting involved in Brazil is an amazing opportunity that’s going to put your business in front of millions of people who could potentially benefit, not to mention increase your revenue. But do you want to spend all that more time trying to do your taxes? Or growing your business into an ever expanding market? We know what we’d rather be doing, and that’s why epag is the way to go for all your cross-border needs. We can take care of the hassle and cut down on the mess.
