Establishing a local operation and fulfilment in Brazil will, in most cases, be the optimal solution for foreign e-commerce companies that are serious about entering the Brazilian market.
Although the fiscal incentives in Brazil are skewed towards local operations, there are both administrative and practical reasons to manage e-commerce activities from abroad to Brazil. In this article we will highlight the main pitfalls related to imports and fulfilment and how companies can manage the most prevalent risk factors.
What are the import duties for e-commerce to Brazil?
The structure of import duties for sale of goods directly from a foreign merchant to a Brazilian consumer is very simple:
- 0% - books, newspapers and magazines
- 60% - via postal services
- 85 to 88% - via courier companies
In addition to these, the Brazilian consumer will also have to pay custom clearance fees and the financial transaction tax known as IOF.
It is not legal to ship goods to Brazil under the Incoterm DDP scheme with delivered duty paid by the vendor. International merchants can estimate the final price including import duties for the consumer, but they cannot collect the payment for import duties. The import duties will have to be paid directly by the Brazilian consumer or a third party entity with legal representation in Brazil.
In many articles and import guides it is informed that imports of goods with a value below USD 50 are exempt from import duties to Brazil. This does not apply to e-commerce as all parcels that are delivered following a commercial transaction are subject to import duties.
Import of Goods
Depending on the nature of your e-commerce operation, the import can either be just too expensive or almost impossible.
Sales of goods to consumers with a value inferior to USD 3000 and delivered by regular postal services is the easiest and cheapest way of importing goods to Brazil. The import duties for these types of sales is 60% which is payable by the consumer in Brazil. In addition to the tax, the postal service will charge a modest customs clearance fee of BRL 15.
The downside of using postal services is the delivery time, as customs clearance using the postal service can often take weeks with a statistically significant number of parcels disappearing before reaching the consumer.
Import by Courier
For timely delivery it is possible to use a courier service to deliver the goods to Brazil. All the large international courier companies have operations in Brazil.
The courier services are reliable but their services are subject to higher import duties, averaging between 85 to 88% depending on the state in Brazil where the import operation is happening. Another problem with using courier services is the fees they charge the Brazilian consumer as a part of the customs clearance process.
If you choose to work with an international courier it is recommended that you carefully evaluate the courier and their reputation in Brazil. Some of the larger courier companies like UPS are operating with borderline abusive business practices in Brazil. UPS for example, invoice the consumer about USD 25 in custom clearance fees for any parcels with a monetary value without prior consent from the consumers.
To charge nearly 500% more than the postal service for exactly the same custom clearance service suggests that UPS are obfuscating the total freight cost for the foreign merchant, as the merchant is the one choosing which courier to work with.
Import of Regulated Goods
There is a long list of goods that cannot be imported to Brazil without obtaining necessary licenses. Pharmaceutical, food, telecommunication and LED products are the most common products that require a license to be imported. There are also general regulations prohibiting the import of used goods to Brazil unless it is products with special attributes like antiques and art.
Some types of goods like toys require regulatory laboratory testing when imported for resale in Brazil but can be imported directly by the consumer without any license.
The reality is that although there are rules regulating the import of many types of goods, most international shipments directly to consumers through the postal service will only be subject to a superficial inspection consisting of reading the value from the bill of lading.
Our experience is that goods imported by courier companies tend to be subject to closer inspection.
Import for Commercialisation
Import of goods to Brazil for commercialisation require that the Brazilian company holds an import license and the goods must be imported using a customs broker.
Generally speaking, the import duties are lower when importing with an import license but the savings are often offset by the fees paid to customs brokers and other administrative expenses.
For goods with a value inferior to USD 3000 it is possible to use the postal service for the import, even for products intended for resale. The import duties are then similar to the import duties paid to the courier companies and the customs clearance fee is BRL 250.
Return and Replacement under Warranty
Brazilian import regulations have specific rules related to the return and replacement of goods under warranty. According to the regulation, these types of goods should be exempt from import duties.
Our experience is that although the regulation works well for regular trading companies and importers of capital goods, it is not a viable solution for e-commerce imports directly to consumers. Replacement of goods under warranty will normally trigger new import duties and customs clearing fees for the consumer.
Local Fulfilment Agents in Brazil
For e-commerce companies with a limited number of stock keeping units, it is possible to contract a local fulfilment agent in Brazil.
Most fulfilment agents in the e-commerce area work on a shared risk model. The local agent in Brazil have an import license allowing them to import a larger batch of goods to Brazil with lower import duties in comparison to imports by the consumer directly. The fulfilment agent will anticipate the import duties in Brazil and the foreign merchant will only get paid after the goods are sold to the Brazilian consumer.
When a Brazilian consumer purchases the goods from your website, the customer is redirected to the payment gateway of the local fulfilment partner in Brazil. Payments are collected locally in Brazil and the goods are dispatched from the warehouse in Brazil directly to the consumer. The profit from the sale is then transferred from the local fulfilment agent in Brazil to the merchant abroad.
Using a local fulfilment agent has several benefits for both the merchant and the Brazilian consumer.
For the Brazilian consumer:
- No direct payable import duties
- No direct payable custom clearance
- No financial transaction tax
- Lower total product cost
- Faster delivery
For the foreign merchant:
- No support related to fulfilment
- More payment methods available
- Local payment processing with lower rejection rate
- Local return
For many companies, local fulfilment can be a cost effective way to try out the Brazilian market with similar benefits to Brazilian merchants, but without the overhead of establishing an operation in Brazil.
As mentioned previously there are some categories of products like toys for example, where local fulfilment will increase the cost due to the testing requirements.