1. How to do business in Brazil?

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2 1. How to do business in Brazil? 1.1. Data about Brazil: general, geographic and economic GENERAL DATA AREA: ,599 Square kilometers (IBGE) CAPITAL: Brasília PRESIDENT: Dilma Rousseff POPULATION: (Census 2010) (Estimated in 2014) NUMBERS OF COUNTIES: CURRENCY: Real (R$) OFFICIAL NAME: República Federativa do Brasil NACIONALITY: Brasileira NATIONAL DATES: September 7 th (Independence Day) and November 15th (Declaration of the Republic) GEOGRAPHY OF BRAZIL LOCALIZATION: Eastern part of South America TIME ZONE: Brasília Time (official) CLIMATE OF BRAZIL: Equatorial, tropical, tropical altitude, Atlantic tropical, subtropical and semiarid region. MAIN BRAZILIAN CITIES: São Paulo, Rio de Janeiro, Belo Horizonte, Porto Alegre, Salvador, Goiânia, Recife, Manaus, Curitiba, Florianópolis, Belém, Maceió, Cuiabá, João Pessoa, Fortaleza, São Luís. COMPOSITION OF THE BRAZILIAN POPULATION: Mulattos: 43,1%, Caucasians: 47,7%, African descendants: 7,6%, Indians: 0,4%, Asian: 1,1% (IBGE - Census 2010). LANGUAGE: Portuguese (official) RELIGION: Apostolic Roman Catholic (64,6%); Evangelical (22.2%); no religion (8%), Spiritualist (2%), others (2.2%) do not know (0,1%). (Census 2010). Complete data on religion in Brazil. DEMOGRAPHIC DENSITY: 22,4 hab./square meters. DEMOGRAPHIC GROWTH: 1,17% per year (2000 to 2010). LIFE EXPECTANCY: 73,4 years (Census 2010) ILLITERACY RATE: 8,3% (2013). PER CAPITA INCOME: R$ (year of 2013). IDH (Human development Index): 0,744 high human development. Brazil ranks 79th position among the 187 countries analyzed. (Data released by the UNDP in July 2014) GINI: 0,495 (2013) BRAZILIAN ECONOMY Agricultural products: cotton, rice, coffee, sugarcane, oranges, soybeans. Livestock: Cattle, Horses, Mules, Goats, Asinine, buffalo, pigs, sheep, Poultry, rabbits.

3 Mining: bauxite, iron, manganese, gold and oil. Industry: Processing, consumer goods and durables. PIB of 2014 (Gross Domestic Product): R$ 5,52 trillion equivalent to US$ 1,54 trillion using the exchange rate of US$ 1,00 = R$ 3,585 as of August 30 th, 2015; and/or 1,35 trillion using the exchange rate of 1,00 = R$ 4,008. PIB of 2015, forecast to R$ 5,47 trillion our US$ 1,53 trillion. Trade Balance: Surplus of $ 2.5 billion in GDP growth: In 2014, 0.1% and forecast for 2015, a decrease of 2.06%. National Minimum Wage: R$ 724,00 (starting January 1st, 2014). Inflation for 2014: 6,41% (IPCA) Forecast of 9,25% UNEMPLOYMENT RATE: 6,7% (May of 2015) and 4,8% (annual average rate for 2014) (IBGE) 1.2. Brazil has made the convergence to IFRS with full adoption in the year beginning in 2010 With the approval of Law nº 11,638, late 2007, there was an update of the Law of Corporations, establishing conditions for adoption of international financial reporting standards known as IFRS. The period of 01/01/2008 to 31/12/2009 allowed the companies to adapt to the application of new concepts brought by the international accounting standards that have become mandatory in financial years beginning on 01/01/ First steps for a foreign investor to constitute a company in Brazil Types of Companies Among the various alternatives recommended in law foreign investors mostly choose to establish or acquire interests in commercial companies with limited liability: (i) the value of their shares in case of corporation or (ii) the value of the paid shares of social capital in the case of Limited Liability Companies. The law requires a minimum of two investors (shareholders or partners). The Corporation may be: (i) open market, which is regulated by CVM - Brazilian Securities Commission or (ii) closed that are not regulated the CVM. The Closed Corporations and Limited Liability Companies are subordinated to corporate law advocated by Law no. 6404, 1976, and its amendments Identifying and hiring an accounting office The business complex environment in Brazil suggests that financial organizations are the first to be sought before any step to enable a decision to invest in Brazil. Knowledgeable of the procedures (step by step), the necessary documentation and local bureaucracy these organizations plays a decisive role in forwarding the process of constitution or acquisition of companies in Brazil Identifying and hiring a resident Administrator in Brazil Brazilian law requires that the administrator responsible for the operations of the company to be incorporated has permanent residence in Brazil, can be a Brazilian citizen who is not prevented by law to hold the office or a foreign national who has temporary or permanent work visa and residence permit to stay in Brazil.

4 Identifying and hiring of a legal resident representative in Brazil for foreign investors Brazilian law imposes that non-resident foreign investors in the country should be legally represented by citizens who hold permanent residence in Brazil Obtaining a work visa Generally Work Visas are granted to professionals who have expertise not available among Brazilian professionals. To obtain a work visa that is valid for two years initially and may be extended for another two years, Brazilian regulations require an investment equivalent to US$ 200, (two hundred thousand US dollars) which can be reduced to US$ 50, (Fifty thousand US dollars) if the investor sign a commitment to generate a minimum of ten (10) jobs for Brazilian workers within a two years period Identifying and obtaining a business address The Company shall have a proper office address for their activities. The search for a property must be made with great care, because it will be inspected by the constituted authorities to check whether they meet the environmental, location, security, road flow and others Basic documentation for a foreign investor Certified copies and legalized in the Brazilian consulate for acts constituting of the foreign partners. If they are individuals, certified copies and legalized passports. If they are legal entities, authenticated and legalized copy of the corporate act indicating that the signatory of the proxy mentioned below has the power to bestow it. A proxy granted by the foreign partners to a resident attorney in Brazil with powers to represent the members: (i) to set up a company in Brazil and represent them before the company incorporated; (ii) before the Federal Revenue Office; and (iii) to receive summons. All these documents will be transferred into Portuguese by a certified translator and that the proxy granted shall be registered in the Registry of Deeds and Documents in Brazil Drafting of Bylaws or Social Contract according to the Brazilian Corporate Law For drafting the Statute (Corporations) or Social Contract (Limited Liability Companies), in addition to the previous steps the following definitions are requested: (i) name of the company; (ii) corporate purpose (detail from operating activities); (iii) amount of initial capital to be paid; (iv) the limitation of Administrator s powers; (v) term of duration of the company; (vi) Management model among others Record in Government Agencies at the Federal, state and municipal level, including the Central Bank of Brazil and agencies and regulatory bodies Economic activity of the company determines which government agencies at the three levels of power society should be recorded. The basic authorities that are common to all societies are: (i) Internal Revenue Service of Brazil; (ii) State Treasury; (iii) Finance Secretariat of the Municipality; (iv) Central Bank of Brazil; and (v) Caixa Económica Federal - Federal Savings Bank. The importing companies must obtain a special registration with the Federal Revenue of Brazil called RADAR - Registration System and follow-up of Customs interveners, to be empowered to participate in foreign trade Documentation required to open a bank account Financial institutions are very strict and selective about the documentation required to open a bank account. Besides the documentation of a corporation, documentation of foreign investors is required, and the review periods are quite high around 15 days. When a foreign investor has business relationships with the same financial institu-

5 tions in their country of origin the process is faster Digital certificate The acquisition of Digital Certificate must be immediate and as follows: (i) Certified Enterprise called E-CNPJ; and (ii) Certified Individuals called E-CPF in both Certificates responsible holder be the administrator designated in the Statute or Social Contract of the company. These certificates are essential to conducting transactions, access to restricted areas of government websites to: (i) transmission of accessory obligations; (ii) issuing invoices; and (iii) compliance with tax laws.

6 2. How is divided the tax burden in Brazil? From the definition of the corporate purpose, the entity s economic activities are classified by the CNAE - Code of Economic Activity. Generally there are three types of taxes and contributions: 2.1. Taxes calculated on Products and Services Sales Revenues: IPI Taxes over industrialized products Listing TIPI determines the applicable rates based on the NCM code (Mercosur Common Nomenclature) of the product ICMS Taxes on circulation of goods and services Regulation of each State of the Federation determines the rates that apply to each product, goods or transport and telecommunications service ICMS-ST Taxes on circulation of goods and services tax substitution regime The tax substitution regime is an anticipation of ICMS gathering that would be collected by the state in subsequent stages of the chain to the end consumer. It is calculated and paid to the State of destination and charged to the customer by including the amount in the bill of sale. Regulation of each State of the Federation determines which products, calculation bases and the applicable rates based on the NCM product code COFINS Contribution to Funding of Social Security Rates applied vary according to the tax option (taxable income or presumed income) carried out annually by the taxpayer for calculation and payment of income tax and social contribution on net income PIS Social integration program Rates applied, as COFINS, vary according to the tax option (taxable income or presumed income) carried out annually by the taxpayer for calculation and payment of income tax and social contribution on net income ISS Taxes on services The Regulation of each municipality of the Federation determines the list of services and the rates applicable to each type of specified services except transportation and telecommunications that are reached by the ICMS Summary of taxes and contributions calculated on revenues from sales and services rendered by activity: (i) Industrial Activities Revenues earned by industrial activity are achieved by IPI, ICMS, ICMS -ST, COFINS and PIS.

7 (ii) Trade Activities Revenues earned by trade activity are achieved by ICMS, ICMS -ST, COFINS and PIS (iii) Service Activities Revenues earned by trade activity are achieved by ISS, COFINS e PIS Computed Taxes on Income: (IRPJ and CSLL) and tax options Among the alternatives in the tax legislation for calculation and payment of income tax and social contribution on net income only two are available to the foreign investor: (i) the choice of the taxable income regime; or (ii) the choice of presumed income regime. The tax option is critical because it defines the tax burden of operations for each fiscal year (calendar year). The choice of the taxable income of the scheme states that the tax base is calculated from net income adjusted by additions (nondeductible expenses) and the exclusions (non-taxable income). The option for the presumed income regime establishes that the tax base is calculated from the application of a percentage (presumption rate) on sales revenue. The result of this calculation is increased interest income and other operating revenues. The presumption rate is 8% for industrial and trade activities and 32% for service activities. Unlike other countries, Brazil shares the calculation and payment of income tax on net profit in two taxes: (i) the IRPJ - Income Tax of Legal Entities; and (ii) CSLL - Social Contribution on Net Income. The rates defined by the law are 9% for social contribution and 25% for income tax and 15% on the full tax base and 10% calculated on the basis of calculation when profit exceeds R $ (two hundred and forty thousand reais) in the fiscal year or R $ 20, (twenty thousand reais) in the month. Thus, the maximum rate is 34%. The choice of Taxable Income determines that the calculation and timing of payment of these taxes are monthly and maturity occurs on the last business day of the month. The option for the presumed income determines that the calculation and timing of payment of these taxes are quarterly and maturity occurs on the last business day of the month following the quarter ended Calculated tax charges due on labor Labor legislation, known by the acronym CLT (Consolidation of Labor Laws), predicts a workload of 44.0 (forty-four hours) per week, a national minimum wage of R $ (seven hundred and eighty-eight reais) per month, adjusted annually. In addition to the labor laws are the annual Collective Agreements signed between Sector Unions that represent employers and employees. The collective agreements for these unions have force of law and therefore should be followed by the parties The charges levied on the remuneration of the employee which represent costs to the employer are: (i) the contribution to the INSS - National Institute of Social Services and (ii) the contribution to the FGTS - Guarantee Fund for Time of Service The INSS has a basic rate of 20% plus 5.8% transferred to other entities, plus a percentage ranging from 0% to 3% for Risk and Accident Insurance coverage. The percentage is determined according to the risk that the company s activities expose their employees. The FGTS has a single rate of 8%. These rates are calculated on gross worker compensation

8 Other costs related to employees: Vacation and 13º wage In addition to the calculated social charges directly to the gross remuneration of the employee, the legislation calls for the annual payment of an additional salary, known as 13th wage and the right to Annual Leave thirty (30) days plus payment of ten (10) days of cash payment. Note that on the payment of the 13th wages and the payment of Annual Leave there is incidence of social security contributions: INSS and FGTS Transportation vouchers Legislation limits at 6% of the monthly remuneration of the employee spending on transportation to move their residence to the workplace and the excess value should be funded by the employer Fringe benefits Some fringe benefits granted by the employer to the employee arising from collective bargaining agreements signed between the representative Sectorial Trade Unions of the parties or result from market practices. For example: Food Voucher, Shopping voucher, justify employee s absence from work, Life Insurance, Health Care and Private Pension and other Dismissal When an employer decides to dismiss an employee must report it in writing thirty (30) days in advance, referred to as Early Warning, which can be work or compensation. Since 2011, legislation has incorporated the Early Warning Proportional that corresponds to the payment of over three (3) days for each employee s work year. There is also the termination fine equivalent to 50% of contributions to the FGTS updated during the term of the employment contract. These charges do not exist when the employee decides to resign and terminate the employment contract Annual union dues by the employer The law determines the annual payment of Union dues by the Employer. The value of this contribution is determined by applying a percentage of the value of the share capital of the company and should be collected on the last business day of January of each calendar year Other taxes that impact business: Import taxes In industrial and trade activities, in addition to taxes dues on revenues (IPI, ICMS, ICMS-ST, COFINS and PIS), which depending on the tax option can be fully offset in the output, the imported products are taxed at import taxes whose applicable tax rates are determined based on NCM product code Contribution on Economic Domain Intervention (CIDE) In service activities including copyright, in addition to taxes on income (ISS, COFINS and PIS), which depending on the tax option may be partly offset in the delivery of service, the imported services are taxed by CIDE - Contribution on Intervention of Economic Domain whose average rate is 10% on the value of the service or copyright imported.

9 Tax on Credit, Exchange and Insurance or related to Securities - IOF The IOF shall be calculated on the value of financial transactions and the applicable rates take into account the terms and nature of the financial transaction Dividends and repatriation of capital Since 1996 the dividends and / or distribution of profits are exempt from taxes and can be remitted abroad upon presentation of the Financial Statements and Minutes of the Extraordinary General Meeting of the Shareholders or Meeting Minutes acting on the payment. The repatriation of capital in an amount equivalent to foreign capital registered with the Central Bank of Brazil on behalf of the investor can be made at any time and not subject to income tax at source.

10 3. How to comply with the tax laws? 3.1. SPED - Digital Public Bookkeeping Service Tax liabilities in real time NF-e - Electronic invoices (transmitted and validated by SPED prior to shipment of the product) NFS-e - Tax notes electronic services (under implementation) CT-e - Electronic transport knowledge transmitted and validated by the SPED in real time Monthly tax obligations DCTF Statement of Contributions and Federal Taxes EFD - SPED FISCAL (IPI/ICMS); EFD - SPED CONTRIBUTIONS (PIS/COFINS); EFD - SPED SOCIAL (Payroll) Annual tax obligations: ECD - SPED CONTÁBIL (Book Diary and Ledger) ECF - SPED IRPJ (Fiscal Bookkeeping includes the Declaration of Income Tax and Social Contribution on Net Income).

11 3.2. SISCOSERV (Integrated System for Foreign Trade, and other intangibles and other operations that produce Changes in Equity). The Brazilian legislation establishing the obligation to provide the ministry, for economic and commercial purposes, information relating to transactions between residents or domiciled in the country and residents or domiciled abroad who understand services, intangibles and other operations that produce variations in the assets of individuals, legal or loved depersonalized people. This reporting should be done monthly according to the timetable set by the authorities.

12 4. How technology impacts the business in Brazil? The business environment in Brazil made huge progress in the technology issues and therefore we present some situations as follow: a) Unable to do business in Brazil without investments in hardware and software. b) No more printed tax documents. Tax documents are kept on electronic files. c) No more accounting books and tax stamped forms. d) System SPED Digital Bookkeeping Public service requires that these books are to be kept electronically. e) Digital certification allows validation and authenticity of electronic files for the legal purposes. f) Integration between systems is a reality and changed the accounting profession into technology stage.

13 5. Final Thoughts Brazil is a market of approximately 203 million consumers In Brazil lives the largest Italian community outside Italy. It is estimated that over time approximately 1.5 million Italian immigrants arrived in Brazil and 70% of approximately 1.0 million immigrants have entered by the State of São Paulo. Today it is estimated that 30 million Brazilians that are descendants of Italian immigrants. Despite the complexity and high tax burden, Brazil offers opportunities for entrepreneurs seeking new markets for their projects. O SESCON Union of Accounting Services Companies and Advisory Business, Skills, Information and Research in São Paulo, with more than 66 (sixty-six) years of existence, represents more than 22,000 ACCOUNTING organizations in the State of São Paulo is the largest and most active employers association in Brazil. Although its operations be restricted to the State of São Paulo, the SESCON is taken as a reference throughout the country and along with the associated financial services companies are ready to assist you in this challenge. ITALIAN DESK - In order to assist investors interested in doing business in Brazil, SESCON structure in partnership with FIESP - Federation of São Paulo State Industries a department named ~ ITALIAN DESK ~ which will (i) attend in Italian language and English; (ii) have a list of associated financial organizations previously qualified and trained to meet these investors according to their specific needs; and (iii) monitoring and assessing the quality of services provided by these organizations. Welcome to Brazil.