Distributor agreements tend to be the preferred way for product companies to enter the Brazilian market. In this article we will look at the process of registering a distribution agreement in Brazil and what information is required.
Considering that Brazil is such a huge country, it can be difficult for a single distributor to provide prompt delivery across the entire country, and this often makes importers work with several regional distributors.
Most statistics regarding the distribution sector are published by the Associação Brasileira de Atacadistas e Distribuidores abbreviated to ABAD which is the Brazilian Association for Wholesalers and Distributors of industrialised goods.
Data from ABAD suggests that most of the distribution activities are happening in the South-East region of Brazil. In terms of revenue, Minas Gerais is the most important for distribution in Brazil, followed by São Paulo and Rio de Janeiro.
It is no surprise that Minas Gerais is the most important state for distributors in Brazil. The state of Minas Gerais is one of the richest due to its agricultural resources and huge territory, in fact the state is 1.5 times the size of Germany creating many logistical challenges.
Support and Warranty Responsibility
Distributors have no warranty responsibility towards the final customer unless the distributor also acts as the importer of the product. For imported products, those importing to Brazil are responsible for the national warranty fulfilment.
Importers have to cover all the costs related to warranty fulfilment including re-exportation for international repairs.
Mandatory Information for Distributor Contracts
Unlike the sales representative contracts, the distribution contracts has specific rules. The essential elements in a distribution contract are:
- The agreement has a non-mandatory feature and does not create any dependency bond between both parties
- It is in a pre stated operational area, unless otherwise agreed by both parties, the contractor may not designate more than one distributor to operate with identical assignments
- Unless otherwise stated, the distributor will be entitled to remuneration corresponding to all commercial transactions concluded within its operational zone, even if they did not take part in it
- Unless otherwise stated, all expenses incurred from the distribution activity are to be held by the distributor
Distributors of automobiles, trucks, buses, agricultural tractors and motorcycles are subject to commercial distribution agreements with special regulations. Dealers of other automotive vehicles, such as boats and non-agricultural tractors, are not subject to this special regulation:
- Sales of automotive vehicles described above
- Provision of spare parts of automotive vehicles manufactured or supplied by the respective manufacturers
- Provision of technical assistance to consumers
- Use of the manufacturer’s trademark
It is important to state that a commercial distribution agreement, as opposed to the ordinary distribution agreement, may forbid the sale of new products manufactured by other manufacturers.
Tax Implication for Distributors
Distributors can be registered at Simples Nacional, which includes all regular taxes – IPI, ISS, PIS, CSLL, COFINS and IR. If the company has a payroll, it also has to collect INSS. Companies which are not registered at Simples Nacional have to pay all the taxes mentioned above separately.
Cancellation of Distributor Agreements
The rules for the cancellation of the contract are not defined by the current Civil Code. What is established however, is that any of the parties can suspend the contract, as long as there is a notice period of at least 90 days. Fines are applicable if the minimum period of notice is not met.
Contracts which are terminated without a due cause reason do not exempt the company from paying the distributor the amount which is due. This includes pending negotiations and eventual indemnifications established in a special law.