Openness to Foreign Investment

Openness to Foreign Investment

In February 2025, Brazil recorded a significant volume of Foreign Direct Investment (FDI), totaling US$ 9.3 billion—well above market expectations (US$ 5.5 billion) and representing a notable leap compared to US$ 5.3 billion in February 2024. This result reinforces the return of international confidence in the country’s potential.

According to the World Investment Report 2024 by UNCTAD, Brazil was the fifth-largest recipient of FDI in the world, with US$ 65.9 billion in inflows in the previous year. The total stock of FDI in the country reached US$ 997.5 billion, confirming its global importance.

Europe is the main source of these investments, accounting for 61.5% of the total, followed by North America (23.3%). The leading European investors are the Netherlands (41.2%), Luxembourg (15.5%), and Spain (10%), while the United States accounts for 84.6% of North American capital invested in Brazil. By sector, the highlights in FDI are: financial services and investment funds (19.2%), trade (8.1%), oil and natural gas extraction (7.4%), and infrastructure in energy and sanitation (5.6%).

Brazil attracts investors due to its large consumer base (over 210 million inhabitants), a consolidated middle class, abundant natural resources, strategic geographic location, economic diversity, and resilience to international crises. The devaluation of the Brazilian real also favors export-oriented and industrial sectors.

However, the business environment still faces notable obstacles: burdensome labor legislation, high production costs (energy, credit, and logistics), deficient infrastructure, excessive bureaucracy, complex taxation, and a shortage of skilled labor. The country is also vulnerable to fluctuations in commodity prices.

Investment Incentives:

The Brazilian government offers a range of incentives to encourage foreign capital inflow, including tax exemptions, financing options, special regimes, and agreements to avoid double taxation. The main mechanisms include:

·         REPETRO: a special customs regime for the export and import of goods intended for oil and natural gas exploration and production, offering suspension of taxes such as Import Duty, IPI, PIS, COFINS, and the Freight Surcharge for the Renewal of the Merchant Marine (AFRMM);

·         REIDI: a special regime to stimulate infrastructure development, with suspension of PIS and COFINS taxes on the purchase or import of machinery, equipment, construction materials, and services destined for projects in transportation, ports, energy, basic sanitation, and irrigation sectors;

·         Regions with targeted incentives: tax reductions or exemptions for construction, expansion, modernization, or diversification projects in priority areas covered by the former Amazon Development Superintendency (SUDAM) and the Northeast Development Superintendency (SUDENE);

·         Manaus Free Trade Zone (ZFM): a special region that offers tax and customs benefits for industrial, commercial, and agricultural production.

Other support instruments include financing and incentive programs such as those offered by BNDES (National Bank for Economic and Social Development), PROEX (Export Financing Program), and technical and institutional assistance from entities like Apex-Brasil and Invest & Export Brasil.

Legal Framework and Rules for Investors:

The legal regime for foreign investment in Brazil is broadly liberal. Foreign investors may hold 100% of the capital in Brazilian companies and enjoy freedom of establishment. Capital contributions must be registered with the Central Bank of Brazil through the RDE-IED system (Electronic Declaratory Registration – Foreign Direct Investment), and appointing a legal representative in the country is mandatory.

Certain strategic sectors require prior authorization for foreign participation, such as the exploration and mining of mineral resources in border areas, telecommunications, broadcasting, and healthcare services.

With regard to real estate acquisition, foreign residents and companies authorized to operate in Brazil may acquire or lease rural properties, subject to legal limits. For properties located in the border zone — up to 150 km (approximately 93 miles) from the country’s terrestrial border — prior authorization from the National Defense Council (CDN) is required.

The risk of expropriation in Brazil is considered low. The Federal Constitution guarantees that any restriction on property rights must occur through a judicial decision, with the right to full legal defense and fair compensation, including for foreign investors.

Sectors with Investment Opportunities:

The Brazilian economy includes strategic and expanding sectors that offer broad business opportunities:

·         Agribusiness and food production: sugarcane, coffee, orange, soybean, banana, cashew nut, corn, pineapple, and chili production, as well as cattle and poultry farming, and tobacco cultivation;

·         Mining and energy: extraction of minerals, iron, aluminum, oil, gas, and renewable energy sources;

·         High-value industries: aerospace, pharmaceutical, automotive, steel, and chemical industries;

·         Emerging and high-tech sectors: agricultural biotechnology, digital technologies, aerospace, petrochemicals, clean energy, commerce, transportation, basic metallurgy, vehicle manufacturing, and real estate activities.

The franchise sector also stands out, driven by the expansion of the middle class.

Privatizations and Partnerships:

Since 2019, Brazil has implemented one of the largest privatization programs in the world, aiming to reduce the number of state-owned companies from 134 to 12. The program includes assets valued at approximately R$ 470 billion (US$ 117 billion). Highlights include the sale of Petrobras’s pipeline subsidiary (TAG), acquired by a consortium led by French and Canadian companies for US$ 8.7 billion — the country’s largest merger and acquisition operation that year. Also noteworthy was the sale of 30% of BR Distribuidora for US$ 2.27 billion.

In addition to privatizations, there are numerous opportunities in public projects and public-private partnerships, particularly in infrastructure sectors such as airports, highways, energy, sanitation, and urban mobility.

Platforms for monitoring bids and projects include: Tenders Info, Comprasnet, and TendersOnTime.

Sectors with Restrictions on Foreign Capital:

Although Brazil offers a generally open and welcoming environment for foreign direct investment, certain sectors remain subject to specific restrictions, particularly those considered strategic or of national interest. These limitations are grounded in the Brazilian Federal Constitution and relevant legislation. However, even in these restricted areas, there are notable exceptions and ongoing regulatory discussions that may provide opportunities under specific conditions. Below is an updated overview:

·         Nuclear Energy:

Activities related to nuclear energy—including exploration, research, extraction, enrichment, industrialization, and commercialization of nuclear minerals and their derivatives—are constitutionally established as the exclusive monopoly of the Federal Government (Union), as per Article 21, XXIII of the Brazilian Constitution. Foreign capital cannot participate directly in these operations.

Exception and Opportunity: Despite the restrictions, there have been active debates within government and industry circles about allowing private and even foreign participation in segments such as uranium mining and nuclear energy generation. These discussions gained relevance with the potential completion of Angra 3 nuclear power plant and Brazil's interest in advancing its nuclear program. In the future, regulatory changes may open partnership opportunities under concession or joint venture models with government-owned entities.

·         Postal and Telegraph Services:

The delivery of letters and telegraph services falls under the exclusive competence of the Federal Government, as established by Article 21, X. This means foreign companies cannot operate in Brazil’s core postal service market.

Exception and Opportunity: The restriction does not apply to express delivery (courier) and logistics services. Companies such as FedEx, DHL, and UPS operate freely in this segment, including with full foreign ownership. This represents a significant market niche, especially with the expansion of e-commerce logistics in Brazil.

·         Aerospace and Satellite Launch Industry:

The aerospace sector is subject to limitations on foreign participation, especially in activities directly related to national security—such as satellite launching and control, and operation of strategic aerospace infrastructure.

Exception and Opportunity: Manufacturing of aircraft, parts, and equipment is not restricted, and Brazil already has strong international cooperation in this area. Foreign capital is welcome in aerospace production—Embraer, one of the world’s largest aircraft manufacturers, maintains joint ventures and partnerships with foreign companies. Furthermore, the Technological Safeguards Agreement (TSA) between Brazil and the United States allows foreign companies to use the Alcântara Launch Center in Maranhão for satellite launches, under certain conditions, making Brazil a promising player in global space operations.

·         Summary for Investors:

While Brazil maintains certain constitutional safeguards over strategic sectors, these restrictions are relatively narrow and often balanced by exceptions, public-private partnerships, or emerging opportunities through regulatory modernization. Foreign investors are advised to evaluate not only the legal boundaries, but also the evolving regulatory landscape and potential entry points through indirect participation or collaboration with state-owned or authorized entities.

Regional Highlight: Central-West of São Paulo State:

In this context, the Central-West region of the State of São Paulo stands out as a strategic territory for international investors. With excellent highway and railway connectivity, expanding urban centers, a qualified labor force, and growing demand for foreign products and services, the region offers ideal conditions for the establishment of new ventures aimed at both the domestic market and exports.