Brazil is the largest economy in Latin America and ranks as the world’s ninth largest GDP. For US companies entering the Brazilian market or working with Brazilian partners, understanding the legal differences between the US and Brazilian systems is not optional: it is essential to getting the deal done correctly. Brazilian law is civil law, not common law, and is based primarily on the Brazilian Civil Code (Lei 10.406/2002). Contracts that work well under US law may not function as intended under Brazilian law, and disputes that seem straightforward under US legal principles can become complicated when Brazilian courts apply their own interpretive framework.

This guide covers the key contract law differences, franchise-specific requirements, US-Brazil tax considerations, and what US businesses and investors need to know before entering into any agreement with a Brazilian counterparty. At Lopes Law LLC, Anthony Lopes, Esq. is a native Portuguese speaker who has advised US franchisors and investors on cross-border Brazil transactions for over 15 years.

How Is Brazilian Contract Law Different from US Contract Law?

The most important thing for US businesses to understand is that Brazil operates under a civil law tradition. This means that Brazilian courts apply written code provisions rather than evolving common law precedent the way US courts do. The source of legal rules is the code, not judicial decisions, and the interpretive approach differs accordingly.

The Boa-Fe Objetiva Principle

Article 422 of the Brazilian Civil Code requires parties to act in good faith throughout contract formation, execution, and termination. This is the concept of boa-fe objetiva (objective good faith), and it is broader than the good faith concept US attorneys are accustomed to. In Brazil, good faith is not simply an implied term in the agreement: it is a substantive legal standard that can create obligations and liabilities beyond what the written contract says. A party that technically complies with contract terms but acts in a way that violates the spirit of the agreement can be found to have breached Brazilian law under boa-fe objetiva.

Contractual Penalties and Liquidated Damages

The Brazilian Civil Code caps contractual penalties (pena convencional) at the value of the underlying obligation. US contracts frequently include liquidated damages clauses designed to deter breach or compensate for hard-to-quantify losses. These clauses must be reviewed for Brazilian enforceability: a penalty that exceeds the underlying obligation value will be reduced by a Brazilian court, regardless of what the contract says. This is a significant difference from US liquidated damages doctrine.

Force Majeure Under Brazilian Law

Article 393 of the Brazilian Civil Code codifies force majeure (caso fortuito) with specific interpretive rules. Brazilian courts have applied this provision in contexts that US attorneys might not immediately recognize as force majeure. Any contract with Brazilian performance obligations should include a carefully drafted force majeure clause that addresses both the US and Brazilian legal standards, rather than relying on a standard US boilerplate provision alone.

Consumer Protection: The CDC

The Brazilian Consumer Defense Code (CDC, Law 8.078/90) applies broadly to consumer-facing transactions and cannot be waived by contract. If your US business has any B2C component in Brazil, Brazilian consumer protection law applies regardless of what the contract says about governing law. This includes right-of-return periods, warranty obligations, and mandatory disclosure requirements that go beyond what US law requires.

What US-Brazil Contract Provisions Require Special Attention?

A US contract simply designating US law as governing law is not sufficient for Brazilian enforceability. Several key provisions require specific drafting attention for any contract with Brazilian performance elements.

Choice of Law

Brazilian courts sometimes decline to apply foreign law, particularly where public policy (ordem publica) arguments are raised. A contract designating US law alone may not be honored by a Brazilian court if the subject matter has strong connections to Brazil. For contracts involving Brazilian employees, Brazilian consumers, or Brazilian real property, Brazilian law will apply on those points regardless of the choice-of-law clause.

Jurisdiction and Arbitration

US court judgments can be enforced in Brazil through a process called homologacao at the Superior Court of Justice (STJ). This is a multi-year process with no guaranteed outcome. The far better approach for commercial contracts between US and Brazilian parties is to include an international arbitration clause. Brazil ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2002, which means commercial arbitration awards are generally enforceable in Brazil. Including an ICC arbitration clause or a Brazilian arbitration institution clause (such as the CAM-CCBC in Sao Paulo) is strongly recommended.

Currency and Payment

Contracts can be denominated in US dollars (USD) or Brazilian reais (BRL). Currency repatriation from Brazil requires compliance with Brazilian Central Bank (BACEN) regulations. Royalty payments and intercompany transfers must be registered with BACEN and comply with applicable withholding tax requirements. A contract that simply states “payment in USD” without addressing the BACEN registration process may create practical difficulties when the US company attempts to receive funds from Brazil.

Employment Considerations

If your US company has Brazilian employees or independent contractors, Brazilian labor law (CLT, Consolidacao das Leis do Trabalho) applies. Brazilian labor law is extremely protective of workers. Independent contractor relationships that would be valid under US law may be reclassified as employment relationships by Brazilian labor courts, triggering significant retroactive liability for benefits, social security contributions, and termination payments.

What Franchise-Specific Issues Apply to Brazil?

Brazil has one of the most sophisticated franchise legal frameworks in Latin America. US franchisors who want to expand to Brazil must understand that their US Franchise Disclosure Document (FDD) is not sufficient for Brazilian franchise sales.

Brazilian Franchise Law: Lei 13.966/2019

The current Brazilian franchise law, Lei 13.966/2019, replaced the older Lei 8.955/94 and modernized the disclosure and contractual requirements for franchise relationships in Brazil. Under Lei 13.966/2019, any US franchisor offering franchise rights in Brazil must prepare a Circular de Oferta de Franquia (COF), which is Brazil’s FDD equivalent. The COF must be delivered to the prospective franchisee at least 10 days before any agreement is signed or any payment is made. This is similar to the US FTC Rule’s disclosure obligation, but the specific content requirements differ and must comply with Brazilian law.

The COF must include, among other items: a description of the franchisor’s business history, the franchise system’s financial performance data, information about existing franchisees, all fees and charges, and the complete franchise agreement. Failure to provide a compliant COF can make the franchise agreement voidable by the franchisee under Brazilian law.

Master Franchise Structures in Brazil

Most US franchisors expand to Brazil through a master franchise structure, granting a Brazilian master franchisee the territorial rights to sub-franchise within Brazil. The master franchise agreement must address Brazilian law requirements alongside the US franchisor’s standard terms. At Lopes Law LLC, we advise US franchisors expanding to Brazil and Brazilian nationals investing in US franchises, coordinating with Brazilian counsel for in-country COF preparation and registration.

Brazilian Nationals Investing in US Franchises

Brazil does not have an E-2 Treaty with the US, which means Brazilian nationals cannot obtain an E-2 investor visa based on a US franchise investment the way Portuguese or Italian nationals can. However, Brazilian nationals can invest in US franchises under other pathways, including EB-5 immigrant investor visas, tourist visa plus entity formation for passive investment structures, or other applicable visa categories. An immigration attorney should be consulted alongside franchise counsel for any Brazilian national considering a US franchise investment.

What Tax Considerations Apply to US-Brazil Business?

Tax planning is particularly important for US-Brazil transactions because the US and Brazil do not currently have a bilateral income tax treaty. This absence creates withholding tax exposure on cross-border payments that does not exist in US relationships with treaty countries like Portugal, the UK, or Canada.

No US-Brazil Tax Treaty

Without a bilateral income tax treaty, withholding taxes on dividends, interest, and royalties paid from Brazil to the US can be significant. Royalty payments from a Brazilian master franchisee to a US franchisor, for example, are subject to Brazilian withholding tax at rates that can reach 15% to 25% depending on the characterization of the payment. Structuring the royalty flow through a treaty-advantaged intermediate entity is a common approach, but it requires advance planning and must be consistent with both countries’ transfer pricing rules.

FBAR and FATCA

US persons (individuals and entities) with Brazilian bank accounts have US reporting obligations under the Foreign Bank Account Report (FBAR) rules and FATCA (Foreign Account Tax Compliance Act). Failure to file required FBAR reports can result in civil penalties of $10,000 or more per violation. Any US business entering into a Brazilian transaction that involves a Brazilian bank account should review FBAR and FATCA compliance obligations in advance.

Brazilian Transfer Pricing Reform

Brazil’s transfer pricing rules were substantially revised in 2023 to align with OECD standards. Prior to this reform, Brazil used a unique transfer pricing methodology that frequently created double taxation on intercompany transactions. The new OECD-aligned rules provide better outcomes for US-Brazil intercompany transactions but require updated intercompany agreements and documentation to reflect the new standards.

IOF: Tax on Financial Operations

The Brazilian IOF (Imposto sobre Operacoes Financeiras) applies to cross-border financial transactions including foreign exchange conversions and intercompany loans. The IOF rate varies depending on the type of transaction and the loan term. Any contract involving cross-border payments between US and Brazilian entities should account for IOF as a transaction cost.

A Real Scenario: US Franchisor Expanding to Brazil

A US franchisor with 200 locations in the US received serious interest from a Brazilian entrepreneur who wanted to become the exclusive master franchisee for Brazil. The entrepreneur was well-capitalized and had experience operating food service businesses in Sao Paulo. The US franchisor’s instinct was to send its standard US master franchise agreement, translated into Portuguese, and move forward quickly.

At Lopes Law LLC, we advised the franchisor that this approach would create significant legal problems. The standard US master franchise agreement did not include a COF provision for sub-franchise sales in Brazil, did not address BACEN registration for royalty repatriation, contained a liquidated damages clause that would be unenforceable under Brazilian law as written, designated US courts as the exclusive jurisdiction for disputes (making US judgments difficult to enforce in Brazil), and used US tax concepts that conflicted with Brazilian withholding tax obligations. We restructured the agreement to address Brazilian franchise law requirements under Lei 13.966/2019, included ICC arbitration seated in New York with Brazilian law governing the parties’ local compliance obligations, coordinated with Brazilian counsel on the COF preparation, and addressed BACEN registration procedures for the royalty payment structure. The deal closed approximately four months later on a legally sound foundation.

Do US Companies Need a Brazilian Attorney in Addition to a US Attorney?

Yes. This is not a question of whether US counsel is competent: it is a question of jurisdiction. Brazilian law practice requires Brazilian bar admission (OAB), and only licensed Brazilian attorneys can appear in Brazilian courts, file documents with Brazilian regulatory agencies, or certify Brazilian-law compliance opinions. US counsel handles the US-side legal work: the franchise agreement, US entity structure, US tax planning, and US regulatory compliance. Brazilian counsel handles the COF, BACEN registration, Brazilian employment compliance, and any Brazilian regulatory filings.

The coordination between US and Brazilian counsel is where having a native Portuguese-speaking US attorney provides real value. At Lopes Law LLC, Anthony Lopes, Esq. communicates directly with Brazilian counsel in Portuguese, which eliminates translation delays, reduces miscommunication risk, and allows the client to participate in both the US and Brazilian legal conversations without needing a separate interpreter. For clients who want to understand what their Brazilian counsel is advising, having a US attorney who can read and discuss Brazilian legal documents in Portuguese is a meaningful practical advantage.

For related guidance, see our post on Why a Bilingual Attorney Is Different from a Translator, our guide to Cross-Border NDAs and Confidentiality Agreements, and our overview of Master Franchise Agreements for International Expansion.

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