Doing Business in Brazil: An ERP Perspective

The name ‘Brazil’ in our minds is synonymous with Soccer and Samba. To minimize the impact of US slowdown, more and more companies are turning to the BRIC economy which has strong fundamentals. While it is yet another country, there are unique legal requirements which need to be taken care of while doing business in Brazil. Oracle E-Business Suite offers a set of Brazil Localization Modules to cater to these requirements.

First and foremost is the long customs period (approximately 30 days) for importing goods into Brazil. During this period, a company cannot show it as goods received but it needs to make some accounting entries to show it as goods in transit. Oracle EBS does not have a functionality to address this requirement. Typically when the supplier ships the goods, the customer company in Brazil usually creates manual accounting entries to represent the payment accrual and the transfer title. It is a common practice to use 3rd party tool (e-comex) or maintain an “importation in process” control out of EBS. During this 30 day period, companies store the goods in government owned warehouses (which is costly) or go for the bonded warehouse route.

Next is the legal documentation required for movement of goods within, from and into Brazil. As per the Brazilian Legislation, imported goods must enter in the inventory after issuing the Entry Invoice (Nota Fiscal Entrada). Also, every good that a supplier sends to a customer (imported or not) has to go along with a Nota Fiscal (Nota Fiscal Saida in this case). There are some other variation of Nota Fiscal like Nota Fiscal de Venda, Nota Fiscal de Remessa, etc. which cater to unique situations. Majority of the companies use the services of a partner to generate the documents for import process. For internal sales it is usual to issue them in house. Most of the companies use a 3rd party tool (e-comex) to generate and print the import invoice .The partner has either access to the company’s system or has its own for which the company needs to provide the data. Some companies use Oracle Localization module – Billing. Yet another variation is using a 3PL for generating NF Saida for which the company takes prior authorization and the 3PL is given access to the Oracle ERP systems.

Brazil has its own idiosyncrasies in terms of duty and tax. The taxes are Federal, State and local in nature. Taxes namely IPI, ICMS, COFINS, PIS are applicable on sales to customers and ISS and IRRS in case of services. IPI, ICMS, PIS AND COFINS are recoverable and at the time of payment of these taxes on sales, the taxes paid on purchases are recovered. Oracle EBS has a localization module called Integrated Receiving to handle all kinds of taxation and receipts. All companies in Brazil use Integrated Receiving for validating taxes during entry to NFE in Integrated receiving. Also, all customers having Oracle ERP system in Brazil use Latin Tax Engine to calculate tax applicable on sales. For Import process, Import duty (II) is based on the Items and has to be calculated and paid before custom’s clearance. Taxes applicable at the time of import are IPI, ICMS, PIS and COFINS have to be calculated and paid before customs clearance. Companies either outsource these services to the custom brokers or integrate with oracle certified tools like e-comex or Soft-way.

Also, a New system for fiscal compliance, was created by the Brazilian Government in January 2007, which includes the introduction of an e-bookkeeping system to be adopted by Brazilian companies, known as the Public Digital Bookkeeping System or ”Sistema Publico de Escrituração Digital” or SPED. SPED represents a joint initiative between Federal, State and Municipal tax authorities, to promote a mutually transparent relationship between the tax authorities and the taxpayer. The system has three different sub projects: the Digital Bookkeeping of Accounts, the Digital Tax Bookkeeping and the E-Invoice (Nota Fiscal Eletrônica). Companies use third-party softwares like Mastersaf or Synchro to address the limitations in Oracle EBS.

Goods sold in Brazil need to be returned in Brazil only. Majority of the companies create an RMA, receive from the customer an invoice for return (Nota Fiscal de Devolução), receive RMA against that invoice on Integrated Receiving, complete the receiving transaction to return the goods to the inventory and enter a credit memo to the customer in Receivables. For goods flowing out of Brazil (re-export), e-comex is used.

Periodic Average Costing is required by law in some countries like Brazil and is applicable for fiscal inventory reporting requirement. It is invoice based and allows including additional invoiced charges in the cost of the item and hence helps report actual cost or total acquisition cost of an item at end of fiscal period. BR-PAC is a Brazilian Localization that complements Oracle Cost Management in terms of legal and accounting requirements related with acquisition costs, legal reports and expense absorption accounting.

Apart from these, there are other nuances which need to be taken care of for Brazil. After all, the Samba dance does not seem to be that easy!!!

About Sandeep Chatterjee

Sandeep is a Supply Chain Professional mainly focussing on laying out the roadmap for enabling operations in the emerging countries viz. Brazil, Russia, China and India. He specializes in supply chain network optimization for arresting revenue leakages and have successfully engaged with high tech, poultry and FMCG majors on this. Sandeep has 11 years of experience in Manufacturing, Maintenance Planning and Control, Supply Chain, Process Consulting, ERP Implementation and Development with 7 + years as an Oracle Applications Consultant. He has presented papers at APICS, Oracle Application User Group (OAUG) and Oracle Open World and has also written Business Plans, Supply Chain Cases for IIM Kozhikode, NITIE and IIT Bombay. Additionally, he teaches management students and has been part of the interview panel for various management entrance and corporate recruitment events.
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  • Srini

    Excellent article, Sandeep. This small article summarizes several aspects of ERP and doing business in Brazil. I was searching for a nice article/paper on this subject, and your paper was very helpful. Appreciate your help.