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DOING ENTERTAINMENT BUSINESS IN BRAZIL
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Introduction
Brazil is a thriving country, rich with its cultural diversity and joyful people. A strong economy with solid institutions generates approximately US$1.800 trillion in GDP per year and is expected to grow as the emerging country it is. With more than 200 million people, Brazil represents a universe of its own. Most of the population is ascending to middle class status and demands more sophisticated goods and services, increasingly consuming cultural content, such as movies, shows and TV series. Acknowledging this, the government has developed strong policies to foster its cultural industry and export our colors to the world. This guide provides practical, basic information for production, distribution and exhibition of entertainment content in Brazil. The Brazilian entertainment industry is divided into different market segments. The audiovisual segment is highly regulated and includes numerous rules and directives governing access to subsidized government money.
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Incentives In Brazil the entertainment industry benefits from an array of mechanisms and more than US$ 600 million funding in government subsidized funding. Entertainment in general (music, publishers, etc) may be owned by foreigners and may access incentives. In the film and television industry, only local films and official international co-productions may raise government funds through incentive mechanisms.
How? • Tax incentives • National Film Industry Fund (Funcines) • Audiovisual Sector Fund
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Q&A
What type of incentives does Brazil offer in the Entertainment field? A number of different incentives are available in the cultural and sports sectors, which may be utilized by companies or NGO’s, including those controlled by foreign companies or individuals. Incentives in the audiovisual sector carry a number of restrictions which are detailed in the present document.
Why should I produce cultural activities in Brazil? Brazil is a rich country, with a large population, consuming higher levels of culture. Audiovisual Brazilian industry enjoys big subsidies to foster its high competitivity, they are relatively accessible with an experienced partner
Are foreign film and TV productions required to contract a local producer in order to film in Brazil? Yes, except for journalistic or news- gathering productions, all foreign audiovisual productions must contract a Brazilian production company registered at Ancine.
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What is Ancine? Ancine is the Audiovisual Federal Regulatory Agency of Brazil, which regulares all the activities and access to funding in the Brazilian audiovisual Market
What actions may the local Brazilian producer take on behalf of the foreign producer? In addition to acting as a channel of communication with Ancine, the Brazilian company is responsible for ensuring compliance with local legislation and assisting with customs clearances, hiring local crew, handling equipment rentals, as well as providing other forms of assistance.
Which countries have co-production treaties with Brazil? Brazil maintains bilateral co- production agreements with Argentina, Canada, Chile, Spain, France, India, Italy, Portugal, Venezuela, Israel and the UK.
What are the requirements in terms of cast, crew and technicians that must be used for co-productions? In the case of international co-productions with countries with which Brazil already has international co-production agreements, specific requirements are contained in the respective treaties. Otherwise the requirement is a minimum 2/3 cast, crew and technicians that have resided in Brazil for more than 3 (three) years.
Does Brazilian legislation (local, state or federal) impose any restrictions on script content? There are no government restrictions at any level regarding script content.
Are foreign producers required to advise Ancine in advance of filming in Brazil? No. The local producer will report to the national agency on the foreign producer’s behalf.
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Brazilian Market Data
Cinema
Box Office Revenue (2016)
Number of Screens (2016)
Box Office (2012 -2021)
USA
US$ 11,412 mil
1280 digital 3d
Expected CAGR
China
US$ 6,745 mil
1868 digital
Brazil 6.89%
Japan
US$ 2,165 mil
3,160 total
World 4.39%
UK
US$ 1,928 mil
Top 10
4.63%
France US$ 1,631 mil Source: PwC global entertainment and media outlook / Ancine
Subsidies
BR
US$ 773 mil (Expected to be US$1.0 Bi by 2021)
Government subsidies (2014)
Paid TV Law
Paid TV Law
Subsidies budget
Has significantly increased national production of content. Every channel must broadcast at least 3:30 hrs of National Content per week
3,007 hrs
Over R$1.0 Bi Approx. US$340
In funding and investment
Number of paid channels
171 (44% in HD)
of new content (2016) 75% Series 10% Movies 4% documentaries 10,92% by independent producers
Source: Ancine / AgĂŞncia Brasil
Video & TV
Traditional TV (2016)
Internet Access
Video Data Demand (2016)
18.9 Mil
Fixed braodband penetration
Paid TV subscribers
37.8%
9,870,655 Mb
66,1 Mil
Mobile Internet penetration
homes with TV
US$ 6,332 Mil in Revenue Source: PwC global entertainment and media outlook / Ancine
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59.2%
24,291,195
Expected by 2021
CAGR 31,39% (2012-2021)
*CAGR: Compound Annual Growth Rate
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Video streaming
Source: RBC Capital Markets chart in Money Times/ eMarketer/ Bloomberg
Music industry
Services used by internet audience in Brazil (Video-on-Demand) (2016)
Internet Users that use VOD (2016)
Number of Netflix subscriptions (2017)
Youtube
84%
Brazil 49%
Netflix
71%
USA 49%
Globo
50%
Ecuador 43%
SBT
40%
Mexico 40%
1st USA 2nd UK 3rd Brasil (4–5 Mi) 4th Canada 5th Mexico
GooglePlay
40%
Canada 38%
Amazon
20%
Panama 27%
Brazil is the largest Netflix market outside of English speaking countries
Itunes
17%
World Music Industry revenue (2016, US$)
Brazil Music Industry (2016)
Live Music Market (2016)
1st 2nd 3rd 4th 19th
Largest in Latin America
Revenue in 2016 US$ 140 mi
Expected to grow at 8% CAGR until 2021
Expected to be US$ 177 mi by 2021
Brazilian Gaming industry forecast (2016)
Gaming production in Brazil is increasing
Top developers cities
Brazilian Gaming industry forecast (2016)
Several games have won international awards and are ranked among the top 10 games in global apple Store
1st 2nd 3rd
USA 17.219 Mi Japan 5.996 Mi Germany 4.038 Mi UK 3.812 Mi Brazil 438 Mi
Source: PwC global entertainment and media outlook
Games
Brazil is the largest gaming market in Latin America (US$ 670 Mi) and it is expected to more than double by 2021 (US$ 1.441 Mi)
SĂŁo Paulo Porto Alegre Rio de Janeiro
Source: PwC global entertainment and media outlook / O Globo
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Taxation
Taxation in Brazil is divided into three spheres: federal, state and municipal. Brazilian taxation is focused on revenue, service provision and the circulation of goods. For the entertainment sector the principal taxes are as follows:
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Corporate income tax is subject to a unitary system whereby a single tax rate is applied. This rate is currently 15%, with a surcharge of 10% on taxable income over R$20.000,00 of profit a month.
i.e. income tax on profit of R$ 100.000 Base
Tax %
Tax due
R$ 100.000
15%
R$ 15.000
R$ 80.000
10%
R$ 8.000
Total income tax due
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Depending on the nature of the remittance to a foreign beneficiary, services are subject to the ISS. Under the prevailing legislation, the ISS is not levied on the licensing of patents and copyright.
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In the case of remittances for payments of services purchased abroad, the Brazilian entity is responsible (on behalf of the non-resident) for withholding and payment of the municipal tax, at rates ranging from 2% to 5%.
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Dividends distributed to shareholders are not taxed in Brazil
R$ 23.000
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Main Brazilian Taxes
Identification
tax
Charged on
Period
Reason
Social Contribution on Net income (CSLL)
9,0%
Earnings Before Taxation
Trimester or annually
Social security system
Social Integration Program Contribution (PIS)
0,65% ~ 1.65%
Gross Income Import Payment Roll
Trimester or annually
Social security system
Obligatory Contribution to the Social Integration (Cofins)
3% ~ 7,6%
Gross Income Import
Trimester or annually
Social security system
Contribution for the entertainment industry (CIDE)
10%
Royalties Copyright And services
Withhold tax on payment
Audiovisual industry subsidy
Import tax
Varies
Imports value
Withhold tax on payment
Customs
Service tax (ISS)
2% ~ 5%
Price of service
Withhold tax on receipt emission
Municipal tax
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Incentives
Establishing A Company In Brazil
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There are many fiscal incentives for companies interested in investing in cultural projects
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Brazilian companies may be eligible to redirect a portion of their taxes to cultural projects in Brazil
Foreign investors are entitled to own shares of Brazilian companies, as long as they comply with certain conditions.
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Tax deductions for investments in cultural projects may reach 100% of the total value of the project
It is mandatory to Include a Brazilian resident as legal representative and shareholder with authorization to represent the foreign investor.
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Brazilian Companies and individuals may deduct up to 4%~6% of their total income tax by investing the amount in cultural projects On the state level, tax relief is available for ICMS tax (Circulation of Services and Merchandises tax), and on the municipal level through the ISS (Service tax) or IPTU (building tax). To be eligible for tax relief, cultural projects must be previously approved by the public agency responsible for the concession or the tax incentive. Sponsors in culture may also be entitled to a portion of the products produced, insertion of a brand on the project, and up to 10% of the revenue
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The above-mentioned condition allows the foreign legal entity or individual to obtain a Brazilian federal taxpayer number (CNPJ or CPF)
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The holder of that number may undertake foreign exchange operations and also become a member or a shareholder of a Brazilian Company
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The most relevant corporation types are “Sociedade Limitada” (Limited Liability Company), and “Sociedade por Ações” (Corporation). In both cases, the liability of the shareholders is limited to their respective capital.
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A local company is required to obtain their own taxpayer numbers (Federal, State and/ or Municipal, according to the nature of its operations). A local attorney and accountant are usually called upon for this administrative and legal procedure
Establishing a company in brazil
Gather all required documents
Company registration
National registry of legal entities (CNPJ)
State and municipal registration
Business license
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Cultural Incentive Federal Law (Rouanet Law)
The federal law of cultural Incentive (Rouanet Law) established public policies for fostering national culture. The main feature is a set of TAX INCENTIVES for those who invest part of their income tax due in cultural projects, all of which must be approved by the Ministry of Culture. The maximum tax incentive for individuals is 6% of their Income Tax. For corporate entities the maximum tax incentive is 4%. 100% of the value invested may deducted from income tax due. Only Individuals and legal corporate entities (profit or non-profit) operating in the cultural sector for at least 2 years may propose projects according to the Rouanet Law. The main activity of the legal entity must be related to cultural activities. Legal entities may also submit the cultural curriculum of partners in order to qualify as proponent Activities listed in Rouanet Law articles 18 or 26 may qualify for 100% support. According to article 26, all other cultural activities not mentioned in article 18 require the sponsor or donor to invest part of their own money in the project.
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Items in Article 18
Rouanet Law Overview
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Dramatic Arts; (includes theater, dance and circus)
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Presentation of the project to the Ministry of Culture;
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Literary, Artistic or Humanistic Books;
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Instrumental or Classical Music;
Approval and opening of project account by the Ministry of Culture;
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Visual Arts Exhibitions;
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Donations of Collections to Public Libraries, Public Archives and Cinematheques. Personnel training and acquisition of equipment to maintenance of these collections;
The sponsor/donor makes a deposit in the project’s account by the last day of the current year, the proponent issues a receipt that allows the sponsor/donor to deduct it from its income tax
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Reimbursement of the sponsoring amount will be effected the following year, by means of a refund or reduction in the Income tax;
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The project is implemented in accordance with terms from the Ministry of Culture;
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When finished project is submitted to the Ministry of Culture accounting department.
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Production of cinematographic and audiovisual works (short and medium footage) and preservation and dissemination of Audiovisual Archive;
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Preservation of cultural heritage, both tangible and intangible;
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Construction and maintenance of cultural spaces in municipalities with no more than a thousand inhabitants
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Federal Public Policies To Fund Audiovisual Productions In Brazil
Public policies funding national productions and theatrical screen quotas have been in place since 2001. These policies, coupled with investment in infrastructure and technology, such as broadband and digitalization of TV, have promoted continuous expansion of the Brazilian audiovisual industry. The Audiovisual Federal Regulatory Agency (ANCINE) has recently launched public bids for video games produced in Brazil. According to federal law N°12.485/11 (so-called “Paid TV law”) Brazilian national content must be broadcast by most paid TV channels in Brazil to comply with TV regulations. According to the same law, distribution of paid TV channels was opened to telecommunications companies, which were also obliged to pay the CONDECINE (National Film Industry Development Contribution) tax, used to foster the development of the Brazilian audiovisual industry through the Audiovisual Sector Fund (FSA). In 2015 this fund invested more than R$710 million.
Federal public policies focus on stimulating Brazilian audiovisual productions and official co-productions between Brazilian and foreign production companies, but not foreign productions alone (i.e. Brazil does not provide support mechanisms such as tax credits or cash rebates aimed at attracting foreign productions shot in Brazil). This policy is a two-pronged strategy: •
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The first mechanism is aimed at supporting the financing of domestic production or official international coproduction of audiovisual content through (i) public funds (direct support) and/or (ii) funding from taxpayers who qualify for tax deductions (indirect support); The second mechanism is the stimulation of demand through the regulation of certain segments of the audiovisual market, two of which (motion pictures and pay TV) are subject to a system of minimum quotas for exhibition of domestic audiovisual content.
2. Federal tax incentive 1. Direct subsidy: The Audiovisual Sector Fund mechanisms for audiovisual content (FSA) production (indirect The FSA is the public source of federal funds for audiovisual support) production. Its resources are mostly derived from CONDECINE tax and must be used in activities established by the Audiovisual Industry Development Support Program (PRODAV).
This contribution gives FSA the right to earn a share of the income (if any) generated by audiovisual works that have benefited from its support. In addition to investing in production of content, FSA also invests in audiovisual project development and more recently in the production of video games. FSA’s project selection occurs in two forms: (a) selective support, in which FSA selects projects according to criteria previously defined by the FSA; or (b) automatic support, in which certain previously qualified national companies (based on their performance in the local market in the previous year) develop specific projects for FSA investment. The maximum amount that FSA may invest in a single audiovisual production project depends on the project’s characteristics (type, category and duration), and usually does not exceed R$4.5 million. This investment may be coupled with other sources of funding, such as local public funds (state or municipal funds, such as those provided by SP Cine, in São Paulo), or indirect funding through tax incentives.
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The Brazilian market offers several tax incentive mechanisms to finance productions by independent Brazilian production companies. There are currently eight federal tax incentive mechanisms for audiovisual production: Articles 18 and 26 of Law 8313/91 (Rouanet Law); Articles 1, 1-A, 3 and 3-A of Law 8685/93 (Audiovisual Law); and Articles 39-X and 41 of Provisional Presidential Decree 2228-1/01 (MP 2228-1/01). These mechanisms are either (i) “investment or co-production” mechanisms, whereby taxpayers (companies that export audiovisual content to Brazil) use part of the amount owed as income withholding tax and/or CONDECINE tax to invest in independent Brazilian audiovisual productions as co-producers (thus retaining copyrights to the resulting audiovisual work); or (ii) sponsoring mechanisms, whereby taxpayers sponsor independent Brazilian productions, in exchange for obtaining visibility for their brands. Paid TV quotas have significantly influenced tax incentive mechanisms because:
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The market growth has increased the income of foreign paid TV programmers (and consequently also the remittances to foreign countries that provide the basis for the calculation of the tax incentives they are entitled to under the terms of Article 3 of Law 8685/93 and Article 39-X of Provisional Presidential Decree 2228-1/2001); The quotas have increased these programmers’ demand for independent Brazilian productions (i.e. these mechanisms are a good source of financing independent Brazilian productions).
3. Requirements for audiovisual productions to be eligible for federal funding Only audiovisual productions which obtain the classification “Independently produced Brazilian productions”, approved by ANCINE, are eligible to raise federal funds as subsidies or tax incentives. 3.1 Only independent Brazilian production companies may undertake audiovisual production projects eligible for subsidies or tax incentives. A company is considered Brazilian if: •
it has been established under Brazilian law;
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its headquarters and management are in Brazil;
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at least 70% of its voting capital stock is directly and indirectly owned by native Brazilian citizens or a person who have been naturalized Brazilian citizen for at least 10 years, and who have legal authority — de jure and de facto — over it, are entrusted with the management and, when applicable, with editorial accountability for the content produced, selected, marketed or distributed;
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it is registered in ANCINE as an independent Brazilian production company.
If one of the owners of a production company is not Brazilian and owns more than 30% of its shares, the company cannot be classified as a Brazilian company. But companies with up to 30% noncitizen ownership are eligible for subsidy funds and tax incentives.
3.3. Nationality of audiovisual works: Only independent Brazilian productions are eligible for subsidies and tax incentives. These productions may be: 1.
Brazilian productions, made by Brazilian production companies; directed by Brazilians or foreign residents in Brazil for at least three years; with at least two thirds of their cast and main crew Brazilian citizens, or noncitizens who have been living in Brazil for at least five years (the director specifically must be Brazilian or a noncitizen resident in Brazil for at least three years)
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international co-productions, approved by ANCINE, between a Brazilian company and a company from a country which Brazil has a binding audiovisual coproduction treaty, following the terms and conditions set forth in this treaty
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international co-productions, approved by ANCINE, between a Brazilian company and a company from a country with which Brazil does not have a binding audiovisual coproduction treaty, where at least 40% of the copyright must be owned by the Brazilian company, so that the remaining 60% may be owned by the foreign company, as long as it is an independent company; and at least two thirds of the cast and main crew must be either Brazilian citizens or noncitizens resident in Brazil for at least three years.
The requirement for a Brazilian company to be considered independent is that it must not have any association, direct or indirect link with paid TV operators or television broadcasting companies. 3.2 Content: projects proposed by independent Brazilian companies must meet the following requirements: •
they must not be classified as advertising*,
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regarding their genre, they must be legally classified as (serial or non-serial) fiction, documentary, animation, reality show or variety programs;
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they must be exhibited for the first time in movie theaters or broadcasted on TV.
* an advertisement is a work “made for the purpose of publicity or propaganda, exhibiting or offering products, services, companies, public or private institutions, political parties, associations or government agencies, as well as tangible or intangible goods of any kind”.
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3.4. Independent audiovisual work: For an audiovisual work to be considered independent, the majority of its copyrights must be held by an independent production company. This means, in effect, that a broadcast company or paid TV operator (or a subsidiary or associate of such a company) may acquire up to 49% of the copyright of an independent audiovisual production, whether through its own resources or indirect funding sources (Arts. 3, 3-A or 39-X). Law 8685/93 (Audiovisual Law); and Provisional Presidential Decree 2228-1/01.
Controlling power over an audiovisual work is defined as “the power to control the audiovisual work as an asset, a condition that allows the holder or holders to use, enjoy and dispose of the work, as well as to exploit it directly or grant rights to exploit it through the various forms of economic exploitation of the work itself or its derivative elements, as long as the concession, limited in time, does not affect the possession and ownership of the power in question
Other areas of entertainment market Entertainment areas unrelated to the audiovisual sector, such as music, publishing, expositions, etc., are totally open and without restrictions. A foreign company may form a Brazilian entity and, subsequently, apply for use of national incentives at all three levels – federal, state and municipal.
Finally, an audiovisual work may only be considered “independent,” if the control (“controlling power”) over said work belongs to Brazilian authors and independent Brazilian companies. However, if a work is produced through international co-production arrangements, majority control and ownership of the copyright may be held by independent production companies of any nationality, subject to the minimum limits of participation by independent Brazilian production companies. Non-scripted formats (variety or reality show formats) and works based on them will not be entitled to fulfill pay TV quotas
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Success Cases
Audiovisual Training Center
Cesnik Quintino & Salinas Attorneys
Editora Brasileira & Produtora Brasileira
LATC Film and Television Program One of the most highly regarded law firms in Brazil, Cesnik, Quintino & Salinas Advogados (with offices in SĂŁo Paulo, Rio de Janeiro, Brasilia and Los Angeles), is known for its expertise in legal consultancy on planning, structuring and enabling business in the areas of culture, media, entertainment, innovation, technology, sports and the third sector.
The exclusive five-day program included presentations and meetings with high-profile Hollywood executives and industry organizations aimed at audiovisual industry professionals. Armed with diverse projects and stimulating backgrounds, the LATC creatives met with key professionals in the film industry, each sharing their expertise and special knowledge. Designed for international film and television industry professionals, the LATC Global Film and Television Program offered an exclusive opportunity to explore, understand and access the enormous potential of the global and US entertainment market
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The firm combines technical knowledge and a deep understanding of the Brazilian and international markets to offer complete solutions and find innovative answers for its clients legal issues. Cesnik, Quintino & Salinas Advogados is a pioneer in legal advice on both the entertainment industry and tax incentives to enable cultural and sport projects. Since 1996 the firm has fostered the professionalization and growth of the entertainment industry in Brazil.
Recognized by UNESCO as Natural Human Heritage, the Amazon rainforest is the largest tropical forest in the world, occupying an area of almost half of Brazil. The book “The amazon: natural and cultural preservation� is one of the most successful productions of Editora Brasileira, portraying this beautiful wonder.
What the United Nations calls Mega Trends can reveal technological solutions to many of the most urgent problems faced by major modern cities. This documentary details the main topics under discussion today and analyses how we are preparing for the future.
The firm has also been prominent in structuring startups, platforms and technology companies, with a special focus on the gaming industry, which is growing in Brazil and abroad.
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Meeting the Experts
Fabio Cesnik
Pedro Saad
Steve Solot
Cesnik, quintino & Salinas Law Office
Editora Brasileira | Produtora Brasileira | Rio Produtora | World Licenses | World Observatory
Latin America Training Center | Brazilian Film Commission Network
Founding partner of Cesnik, Quintino & Salinas Law firm. Fábio Cesnik holds a BA in law and legal sciences from the São Paulo University - USP. Specialist in culture, media and entertainment. For eight years in a row ranked in Chambers and Partners as specialist lawyer in media and entertainment in 2018. Chairman of IASP’s Media and Entertainment and member of OAB-SP Rights to the Arts Commission. Member of the Executive Committee of Entertainment and Intellectual Property Section from LACBA (Los Angeles County Bar Association). Author of the books “Globalização da Cultura” and “Guia do Incentivo à Cultura” and co-author of “Projetos Culturais: Elaboração, Administração, Aspectos Legais e Busca de Patrocínio”
Pedro Saad holds a bachelor degree in law and a master’s degree and its currently finishing its P.h.D in Business Administration at PUC-SP. He is a founding partner and CEO of Produtora Brasileira and World Observatory of Human Affairs. He has extensive experience in coordinating and coproduction of major projects with businesses and organizations like UN, UNDP, UNESCO, France Press, Coca-Cola, Deloitte, PwC, AT&T, USP, FGV, Global Compact and Itamaraty (the Brazilian foreign ministry). Pedro is a resident professor in the master’s program of Cultural management at PUC-SP.
Steve Solot is President of the Latin American Training Center LATC www.latamtrainingcenter. com, a regional media training and consulting center in Rio de Janeiro. He is also Executive Director of the Brazilian Film Commission Network (Rede Brasileira de Film Commissions-REBRAFIC) www. rebrafic.net, an association of 10 film commissions in operation and 16 in various stages of development throughout the country. He is also a Lecturer at the School of Communication and Multimedia Studies of Florida Atlantic University in Boca Raton, Florida www.fau.edu/ artsandletters/scms.
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Audiovisual productions Produtora Brasileira / Produtora Rio
Audiovisual Training Center Latin America Training Center Rio de Janeiro www.latamtrainingcenter.com
Law Assistance Cesnik Quintino & Salinas Attorneys São Paulo / Rio / Brasília / Los Angeles / Paris www.cqs.adv.br
Printing and books Editora Brasileira / World Publisher São Paulo / Rio www.editorabrasileira.com.br
UN Non-profit partner World Observatory Brazil / Germany / France www.worldobservatory.org
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