International franchising in Brazil has historically been hampered by burdensome regulations (fraught with administrative and bureaucratic complexity) requiring the registration of executed franchise agreements with INPI and the Central Bank of Brazil (BACEN). Brazilian regulators have taken note of the weight of all this red tape and have begun implementing a number of changes to these regulations that will remove cumbersome requirements and delays from cross-border franchising transactions. These changes will make offering franchises in Brazil more streamlined and efficient for international franchisors launching their brand in the market.

(1) Remitting Royalties Abroad - Registration of Franchise Agreements with BACEN No Longer Required Under Law 14,286/2021. 

After registration of an international franchise agreement (i.e., a franchise agreement between an international franchisor and a Brazilian franchisee) with INPI, recordal of such franchise agreement with BACEN was previously required in order to remit franchise fees and royalty payments outside of Brazil. As of 29 December 2022, registration of franchise agreements with INPI and BACEN is no longer required under Law 14,286/2021 and payments to a foreign franchisor may now be processed through any commercial bank in Brazil. However, the practical effect of this change was somewhat muted because registration with INPI is still required in order for a Brazilian franchisee to deduct payments under a franchise agreement as business expenses.

(2) Registration of Franchise Agreements with INPI No Longer Required Under Law 14.596/2023 effective as of 1 January 2024. 

After 31 December 2023, registration of international franchise agreements with INPI will no longer be necessary to allow Brazilian franchisees to deduct payments to the franchisor as business expenses for local corporate income tax purposes. To complete the required registration with INPI, franchisors needed to comply with many formalities and, among other things, provide evidence of its ownership of filed or registered trademarks in Brazil, accuracy of representation powers, notarization and legalization/apostille of the signatures of foreign parties, and submit a copy of the receipt page to its franchise disclosure document signed by the Brazilian franchisee at least 10 days before the franchise agreement was executed. Another drawback of registration for franchised brands, has also been that INPI publishes the franchise agreement upon registration, which results in certain key terms of the franchise agreement being made public.

Fortunately, the new transfer pricing law, Law 14.596/2023, revokes the requirement for registration of foreign franchise agreements with INPI for purposes of deductibility of the payments to non-resident franchisors, a change that will significantly simplify and reduce the cost of cross-border franchising in Brazil. As of 1 January 2024, the new transfer pricing rules will apply to franchise agreements and the tax deductions limitations under former laws will no longer apply.

Although INPI registration will no longer be required for tax deductibility, INPI will continue registering franchise agreements at the request of the parties if desired to produce effects against third parties (which may occur in very limited cases).

(3) Translation Now Required

While the requirement for registration of agreements has been eliminated, the new law also expressly requires that franchise disclosure documents be delivered in Portuguese and that franchise agreements prepared in a foreign language be accompanied by a certified translation into Portuguese. These requirements were previously required as part of the registration process, but will now unfortunately still be required for disclosures and franchise agreements, regardless of whether registration is sought.

Conclusion

International franchisors and businesses should be encouraged by the opportunities for foreign investment in Brazil, which are now less cumbersome due to these recent changes in the law. Baker McKenzie is a leading cross-border law firm and has an industry-leading team of franchising and licensing specialists based in the United States and abroad with a proven track record of representing international franchise clients in Brazil. With our teams based in both the United States and Brazil, we are well equipped to help any brand seeking broad based commercial or franchise-specific legal advice in Brazil.

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Trench Rossi Watanabe and Baker McKenzie have executed a strategic cooperation agreement for consulting on foreign law.