This is the final article in a four-part series from ISHC member Darlene Henke. Henke, the co-founder and president of Audit Logistics, as well as partners from Benjamin West, reviewed the topic of "FF&E Project Delivery Around the World" in a series. Read the first part here, the second part here and the third part here.
Especially outside the United States, the development pipeline for hotels is back, and one region that is gathering more momentum than others around the world is Latin America. Brazil is the biggest country with the largest economy, and it is the epicenter for a lot of the development happening in the region.
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Darlene Henke |
As hoteliers look to expand into the fifth most populous country in the world, one of the challenges they will encounter along the way is importing all types of FF&E products. Compared to other countries in the world, Brazil has some of the most challenging policies when it comes to importing, a practice that deters goods from being imported and protects their local markets, ultimately contributing to their strong economy.
Any hotel owner looking to bring goods into the country from abroad will need to be registered at the Foreign Trade Secretariat, an organization and system that registers, monitors and controls all international trade. After registering, obtaining an importing license is necessary, and most hotel owners will find themselves applying for an automatic license—one that is granted to most importers and generally covers FF&E. Other types of licenses exist but those apply more to importing products, such as petroleum, cars, machinery, etc. The timeline to apply for a license and receive it can take up to several months so this should be a main planning priority for the owner.
Once an owner obtains the required license, the next challenge is dealing with a complex system filled with various taxes and charges that will significantly increase the landed cost of the FF&E. Most imports are subject to five different taxes that are variable and charged against the declared value of goods. The value of goods must be declared on the commercial invoice, and must include the freight and insurance cost as part of that value.
These are the five taxes an importer can expect to see:
1. Import duty: The import duty is based on two variables. Brazil is part of Mercosul, which is a treaty among various countries to promote trade. Goods that originate from countries that are part of the Mercosul have less import duty than those outside of the treaty. The second variable is the type of goods imported, and the Harmonized Tariff Schedule that is assigned for those items. HTS is used internationally as a way to classify items. Wood furniture, for instance, would have a different HTS classification and corresponding duty than fabric. Once a HTS number is identified for a product and the country of origin is known, import duties can be estimated in advance. Import duties can be estimated around 20%.
2. Industrialized Products Tax: This is a basic sales tax and applies to industrial products. This varies based on the type of product and HTS classification. This could be estimated around 10%.
3. Merchandise and Services Circulation: This is a state tax for goods and services and will generally range between 7% and 25%.
4. Social Integration Program: Known as a social tax, the government uses this as a way to finance unemployment and subsidized low paid workers. This is currently set at 1.65%.
5. Contribution to Social Security Financing: This is a federal tax and is currently set at 7.6%. In total, when all duties and taxes are applied, the overall increase to the standard product and freight cost could be 60% and 100% of the declared value. Brazil also applies some of the strictest penalties as it relates to documentation errors or omissions. In addition to delaying your shipment, mistakes in commercial invoices, customs paperwork or bills of lading—a legal document between the shipper and carrier—are subject to financial fines that can be as much as $1,000 per occurrence. If paperwork is filled out and submitted correctly, clearing customs will take approximately nine to 12 days. When shipping into Brazil, goods arrive into the port at Sao Paulo. Brazil is currently in the process of building a new ocean port with financing provided to them from China—an indicator of the increased trade between the two countries currently taking place and is anticipated to grow even bigger in the near future.
Handling the FF&E for Brazil hotel projects requires the early coordination of the design team, the FF&E purchasing agent and the FF&E logistics firm to assure accurate budgets so schedules can be realized. Like the old Holiday Inn theme states, the "best surprise is no surprise," and the developers, as well as their consultants, need to make sure they are not surprised in the FF&E process in Brazil.
Darlene Henke, a member of the International Society of Hospitality Consultants, is president, co-founder and partner in Audit Logistics in Louisville, Colorado. Audit Logistics is the leading hospitality freight and warehousing firm in the world and has performed logistics services, as a fiduciary for its clients in over 20 countries.
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