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Foreign Investments in Brazil Fall 30% between January and April

06/18/2018 - 12h13



Brazil has already started to feel the effects of the tax reform that Donald Trump implemented in the United States. On top of this, the coming presidential election has slowed down Brazil's economy, meaning that foreign investments made in companies operating in the country are lower.

The IDP rate (Direct Investment in the Country), a Central Bank indicator, demonstrates that the acquisition and loan level made out by foreign companies to their Brazilian subsidiaries has plummeted by 30% from January to April when compared to the same period in 2017.

In April alone, the volume of productive investments coming from other countries totaled US$ 2.6 billion, the lowest level for the month in question since 2006.

The trend will most likely continue as a result of the modifications made in US corporate taxation norms that President Donald Trump implemented with the intent of attracting and retaining resources in the country, and that have already played an important role in the downturn in investments in Brazil.

In January, US-based companies went from paying a 35% income tax rate to a rate of 21%. This has reduced the appeal of making investments in countries such as Brazil, where the tax rate is approximately 34%.

The US tax reform may be the main problem, but it's not the only one. At the beginning of 2018, Argentina approved tax cuts that were designed to be implemented progressively.

Additionally, the list of countries that has announced that it will reduce corporate taxes over the next few years is a long one: Japan, Greece, Belgium and the UK are some examples.

"Comparatively speaking, today, Brazil is in the group of countries with higher tax rates. In Europe, there is a race to reduce rates in several countries," said Carlos Toro, a partner at the Brazilian branch of consulting firm KPMG.


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