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Legal Guides / Business Contracts

Appointing a Distributor in Brazil: Getting It Right

A distributor is often the fastest route to the Brazilian market. But without the right legal framework, what looks like a straightforward commercial arrangement can become an expensive liability. Here is what you need to know.

Quick Read

Little bureaucracy:

Appointing a distributor in Brazil requires no formal steps, but that flexibility creates its own risks.

Flexible:

Parties have wide freedom to set the terms of their distribution arrangement, unlike the appointment of agents.

Terminations can be costly:

Distribution agreements governed by Brazilian law may result in significant termination compensation obligations.

Most common mistakes:

Failing to register trademarks, ignoring tax effects on pricing, and skipping due diligence on the distributor.

Distribution is often the right entry strategy, but the legal structure matters enormously.

For foreign companies entering Brazil, the choice between appointing an agent and appointing a distributor is one of the first and most consequential decisions. Distributors buy and resell the foreign supplier’s goods or services, taking on commercial risk and handling local logistics, customs and tax compliance.

Unlike agents, who are subject to mandatory Brazilian laws that cannot be excluded by contract, distribution agreements may be governed by foreign law. Brazil’s Superior Court of Justice has consistently upheld this.

However, that flexibility comes with a caveat: if the parties do not expressly choose a governing law, or if the agreement is signed in Brazil without a choice-of-law clause, Brazilian law will apply by default, including all of its mandatory provisions on termination and entitlements.

Getting the structure right from the start (including the governing law, the due diligence process and the contract terms) is far less costly than correcting it later. We advise foreign companies at every stage of this process.

Agent vs Distributor

Which structure is right for you?

Appointing an Agent

●Subject to mandatory Brazilian laws that cannot be excluded by contract
●Commercial risk of the sale remains with the foreign supplier
●The agent brings deals but the supplier invoices the end customer directly
●Customs, import duties and tax compliance fall on the end customer
●Only suitable in very specific cases, rarely the preferred structure for goods
●Termination rights are heavily regulated and can be very costly

Appointing a Distributor

●Distribution agreement may be governed by foreign law
●Distributor buys goods/services and resells, taking on commercial risk
●Distributor handles Brazilian customs, import duties and tax compliance
●Greater flexibility on contract terms; parties can largely set their own rules
●Better suited for most goods and many services entering the Brazilian market
●Termination is more flexible, but must still be carefully drafted

Note: Even with a distributor, certain Brazilian mandatory laws (such as the Consumer Defence Code) cannot be excluded by contract. Strict product liability applies to manufacturers, suppliers and distributors jointly.

Common Pitfalls

What foreign suppliers get wrong

After years of advising foreign companies entering the Brazilian market, these are the mistakes we see most frequently, and the ones that tend to be the most costly to fix.

Not registering the trademark in Brazil

Brazil follows the first-to-file principle. Your trademark may already be registered by a third party, including your own distributor. Removing it is expensive and slow. Filing should happen as soon as you decide to enter the market, under the Madrid Protocol.

Ignoring the tax and import cost effects on pricing

Brazil’s import taxes can easily exceed 100% of the CIF value of goods for certain product categories. If your distributor’s pricing model does not properly account for customs duties, ICMS, IPI and PIS/COFINS-Importação, your products will simply be priced out of the market.

Skipping due diligence on the distributor

Brazil is one of the most litigious countries in the world. A distributor with undisclosed labour claims, tax debts or corporate disputes can expose the foreign principal to joint liability. A court search and background check before signing is not optional. It is essential.

Using a generic contract template

A standard international distribution agreement, even with a choice-of-foreign-law clause, will not adequately protect you in Brazil. Brazilian mandatory laws on consumer protection, employment liability and termination will apply regardless. The agreement needs to be specifically reviewed and adapted for Brazil.

Not registering the “.br” domain name

Domain names in Brazil are registered separately and follow a first-come, first-served system. Your distributor, or a third party, may already hold your brand’s “.br” domain. This should be secured early as part of your Brazil market entry strategy.

Ignoring transfer pricing obligations

Since January 2024, Brazil’s transfer pricing rules are aligned with OECD guidelines. For exclusive distributorships between related parties, the pricing of goods and services sold to the Brazilian distributor must comply with the arm’s-length standard, and proper documentation is required.

Assuming the distributor’s employees are not your problem

Brazilian courts regularly hold foreign principals liable for a distributor’s employment obligations if the principal exerts control over the distributor’s employees, sets their targets directly, or benefits from their services. This risk needs to be managed contractually.

No formal written agreement

Distributors can be appointed by conduct, meaning a distribution relationship can come into existence without any written agreement. If that happens and no foreign law governs, Brazilian law applies in full, including its default rules on expenses, entitlements and termination.

A well-drafted distribution agreement, reviewed by a Brazilian lawyer before it is presented to the prospective distributor, materially reduces the risks above and significantly lowers the cost of any future dispute. Getting advice before signing is far less expensive than resolving problems after.

Termination

How distribution agreements end in Brazil

When Brazilian law applies

If the agreement is governed by Brazilian law, the Civil Code provides that the distributor is entitled to damages if the supplier, without just cause, stops supplying or reduces supply to the point that the arrangement becomes commercially unviable. Notice periods must be “reasonable”, a vague standard that frequently leads to litigation.

When foreign law applies

Where the parties have expressly chosen a foreign law to govern the agreement, the STJ has consistently upheld that choice. The termination rights and notice periods of the chosen foreign law will generally apply, giving the foreign supplier far greater predictability and control over exit costs.

What cannot be excluded

Even under foreign law, certain Brazilian mandatory rules will still apply. The Consumer Defence Code imposes strict joint liability on the entire supply chain for defective products. Employment liability for distributor employees can also attach to the principal regardless of the governing law.

Due Diligence

What to check before appointing a distributor

Brazil is a highly litigious country with sophisticated rules. A distributor that appears financially sound may have undisclosed liabilities, including labour claims, tax debts or shareholder disputes, that can expose the foreign principal to joint liability.

Before signing any distribution agreement, we recommend a structured due diligence process covering the distributor company and its key persons, including shareholders and directors.

This is not optional. In our experience, it is one of the most effective ways to avoid problems that are far more expensive to resolve once the relationship is in place.

✓Review of corporate documents from the relevant Company Registries
✓Federal, State and Municipal tax clearance certificates
✓Social security and employment compliance certificates
✓Federal and State court searches (including Employment Court hierarchy)
✓Analysis of relevant ongoing or past litigation
✓Financial capacity assessment: can the distributor meet its obligations?
✓Background check on key shareholders and directors
✓Review of any existing distribution or exclusivity arrangements

Our Team

Experience in Brazil market entry

Fabiano Deffenti

Founding Partner

Deffenti Lawyers regularly advises foreign companies on structuring their entry into the Brazilian market, including the choice between agents and distributors, the drafting and review of distribution agreements, due diligence on prospective distributors, and the management of disputes arising from distribution relationships.

Our founding partner, Fabiano Deffenti, has extensive experience advising multinational clients on Brazil-related commercial contracts, including structuring joint ventures, technology transfers and distribution arrangements across multiple sectors.

For further background on Brazilian distribution law, see our article on appointing a distributor in Brazil on LawsofBrazil.

Get Advice

Appointing a distributor in Brazil?

We can advise on structure, draft or review your distribution agreement, conduct due diligence on your prospective distributor, and assist with trademark and domain registration.

This page is a summary only and does not constitute legal advice.

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