By Tamy Tanzilli — GT Lawyers
Since the provisional entry into force of the partnership agreement between the European Union and Mercosur on 1 May 2026, the question of how European companies — particularly SMEs — can establish themselves in South America, and in Brazil specifically, has become one of the most strategic issues of the year. At a time when economic blocs are being reconfigured, the Brazilian market is crystallizing investors' ambitions as they search for new growth drivers. But is it truly an eldorado for mergers and acquisitions (M&A)? Answering that question requires examining the legal foundations of the treaty, the realities of the market, and the operational constraints that remain.
I. A Confirmed Structural Attractiveness
Before even discussing the legal mechanisms, it is worth recalling a fundamental economic reality. Together, the European Union and the four Mercosur member states (Argentina, Brazil, Paraguay, Uruguay) represent a market of more than 720 million consumers, according to European Commission data. For a company seeking international growth, this critical mass is in itself a decisive argument.
Brazil holds a leading position within this bloc. According to the Pesquisa Fusões e Aquisições published by KPMG Brasil in February 2025, the Brazilian market recorded 1,582 M&A transactions in 2024, a 5% increase over 2023 (1,505 transactions), ending two consecutive years of decline. Domestic deals accounted for 981 transactions, while 601 involved foreign parties, including 394 acquisitions carried out by majority foreign-owned groups. The United States was the leading foreign investor (259 transactions), followed by Canada (35), the United Kingdom (33), Spain (23), and France (18). Furthermore, Brazil maintains its regional leadership: according to the Aon/TTR Data report of February 2025, it accounted for 1,674 announced and closed transactions in 2024, out of a Latin American total of 2,904, confirming its position as the region's leading market. The leading sectors are technology, renewable energy, financial services, and agribusiness.
On the legal side, the EU–Mercosur agreement establishes a favorable framework for these operations. Article 1.2(f) sets out, among its fundamental objectives, the improvement of conditions for the establishment of businesses, creating a stable, predictable, and non-discriminatory legal framework for economic operators from both blocs. This provision underpins the entire investment chapter of the treaty.
One of the most significant contributions to M&A operations lies in Chapter 10 of the agreement, on services and the establishment of businesses. Article 10.3.1 enshrines the principle of non-discrimination: European companies established in Brazil must be treated comparably to local companies or to investors from other Mercosur countries, provided they meet the applicable establishment criteria. This provision should not, however, be read as full equivalence: Article 10.3.1 does not remove the sectoral reservations listed in the annexes (notably Annexes 10C and 10-E), and several requirements of Brazilian domestic law remain fully applicable, as discussed below.
The treaty also includes a chapter dedicated to SMEs (Article 14.1 et seq.), providing for the creation of an SME coordinator with representation from each party (Article 14.3) and mechanisms for sharing information on marketaccess conditions (Article 14.2). This dimension is all the more relevant given that SMEs represent 98% of Brazilian companies, according to European Commission data.
II. Acquisition: The Ideal Entry Vector to Scale Up Quickly in Brazil?
For a European company seeking to establish itself quickly in Brazil, a merger or acquisition (M&A) is often the most attractive entry vector, since it provides access, in a single operation, to operational assets, an in-place workforce, and an already-established commercial network.
The advantages of acquisition
- Immediate market access: existing customers, teams, contracts, and operations make it possible to skip the often lengthy start-up and visibility-building period.
- Strong acceleration of development: the acquirer immediately benefits from operational, commercial, and human synergies, without waiting for a new structure to organically scale up.
- Immediate strategic positioning: acquiring an established player confers local legitimacy that years of commercial effort would not necessarily have achieved as quickly.
- Business continuity: the target retains its contractual relationships, regulatory authorizations, and customer base, preserving the operation's operational value.
Risks to anticipate
- Latent liabilities: Brazilian law provides for joint and several liability in tax and social security matters. The acquirer can be exposed to the target's tax, social security, and environmental debts predating the transaction, even where these were not apparent at the time of negotiation. Thorough due diligence — tax, social security, environmental, and regulatory — is therefore essential to identify the level of risk before committing. Thorough due diligence — tax, social security, environmental, and regulatory — is therefore essential to identify the level of risk before committing.
- Cross-cultural integration: intercultural management is one of the most underestimated success factors. French companies that neglect this aspect — management style, internal communication, relationship to hierarchy — encounter significant difficulties in their post-acquisition operations.
- High transaction costs: audit, negotiation of definitive agreements, take-over, and legal and tax advisory fees — the total cost of the project can be significant.
- Sometimes rigid governance: certain Brazilian corporate structures maintain consent clauses, shareholders' preemption rights, or blocking mechanisms that complicate the acquirer's takeover and, where applicable, exit.
These risks are real but manageable. Above all, they illustrate the need for rigorous preparation ahead of any M&A operation in Brazil. Sectors subject to certain restrictions on foreign investment — notably energy, infrastructure, and rural land (Annexes 10-C and 10-E of the agreement) — call for specific upfront analysis. Outside these cases, however, the Brazilian market remains broadly open, and the figures bear this out: 601 crossborder transactions in 2024, including 394 led by majority foreign-owned groups (KPMG Brasil, February 2025).
III. Legal and Tax Points of Vigilance
1. The Requirement of Legal Representation
Under Brazilian law, notably under the Civil Code (Article 1,134) and the rules governing corporations (Corporations Law No. 6,404/76), any foreign entity wishing to register or acquire a company must appoint a legal representative residing in Brazil. This power-of-attorney requirement — the mandato — is more than an administrative formality. It carries significant practical consequences: liability of the representative, the need to identify a trustworthy profile with knowledge of local law and practice, and risks in the event the appointed representative defaults. This constraint effectively conditions the validity of many operations and requires securing local legal counsel from the earliest stages of an establishment project.
2. Prior CADE Review
Any merger transaction likely to produce effects within Brazilian territory is subject, under certain conditions, to prior review by the Conselho Administrativo de Defesa Econômica (CADE), Brazil's competition authority. Under Article 88 of Law 12,529/2011, notification is mandatory when at least one of the groups involved has recorded annual gross revenue in Brazil equal to or greater than 750 million reais, and another group has recorded at least 75 million reais. These thresholds are cumulative. The review process can take up to 240 days, extendable by a further 90 days. Completing the transaction before CADE's decision exposes the parties to significant fines (gun-jumping) and to the nullity of acts already carried out. This review period must be anticipated from the earliest stage of structuring the transaction.
3. The Impact of Tax Reform: A Critical New Development for European Investors
The EU–Mercosur agreement does not harmonize direct taxation. Tax rates applicable to companies and to income flows vary across Mercosur countries, and existing bilateral tax treaties between member states and Mercosur countries remain essential to optimizing the structuring of cross-border investments.
Against this backdrop, a far-reaching tax reform entered into force in Brazil on 1 January 2026 and directly affects the expected return calculation of an acquisition. Law No. 15,270/2025, enacted on 26 November 2025, reintroduced a 10% withholding tax (IRRF) on profits and dividends distributed by a legal entity to an individual resident in Brazil, where the monthly amount distributed by a given source exceeds 50,000 reais. For non-residents — including European investors — the 10% withholding applies regardless of the amount distributed, with no exemption threshold. This measure, confirmed by the Receita Federal in its Normative Instruction RFB No. 2299 of 18 December 2025, ends nearly thirty years of full exemption on distributed dividends and materially changes the return-on-investment calculation for any European acquirer.
In addition, the reform of Brazil's VAT system — the creation of the CBS and IBS taxes, being rolled out through 2033 — is reshaping the tax-burden structure across sectors. In an acquisition, a target's valuation can shift significantly depending on its sectoral positioning relative to this reform. Comprehensive tax due diligence, covering both the IRRF regime on dividends and the indirect effects of the reform, is essential before any asset valuation.
Conclusion
Brazil, anchored in the momentum of Mercosur and in the historic agreement concluded with the European Union, stands out as one of the most attractive destinations for M&A operations worldwide. Article 1.2(f) of the treaty lays the foundations for a stable and non-discriminatory establishment framework, and Article 10.3.1 opens new prospects for European investors. Hundreds of foreign companies take this step every year. The market is not inaccessible — it is demanding.
Legal challenges remain: the requirement of local legal representation, prior CADE review, latent liabilities to be identified through due diligence, and the new 10% withholding tax on dividends paid abroad since January 2026. These constraints are real — but they are known, documentable, and manageable with the right support. They are an integral part of the acquisition strategy.
The EU–Mercosur agreement has opened a historic strategic window. Companies that know how to anticipate it — by rigorously structuring their operations, securing specialized legal counsel, and factoring in Brazil's tax and regulatory specifics from the outset — will give themselves the best chance of seizing an opportunity that the numbers, for their part, do not call into question.
Sources and References
– EU–Mercosur Partnership Agreement, full text, OJ L 2026/184 of 27 February 2026 — Articles 1.2(f), 10.3.1, 10-C, 10-E, 14.1, 14.2, 14.3
– European Commission, "The EU–Mercosur trade agreement," commission.europa.eu, accessed June 2026
– KPMG Brasil, Pesquisa Fusões e Aquisições – Q4 2024, February 2025 (1,582 transactions, +5% vs. 2023)
– Aon / TTR Data / Datasite, Latin America M&A Report 2024, February 2025 (Brazil: 1,674 transactions, regional leadership)
– Brazilian Civil Code (Law No. 10,406/2002), Article 1,134 — legal representation of foreign companies
– Corporations Law (Law No. 6,404/76) — joint-stock companies
– Law No. 12,529/2011, Article 88 — mandatory notification thresholds for CADE (R$750 million / R$75 million)
– Law No. 15,270/2025, enacted 26 November 2025 — 10% withholding tax on dividends
– Receita Federal, Normative Instruction RFB No. 2299 of 18 December 2025 — implementation of Law 15,270
– Receita Federal, Q&A on dividend taxation, published 16 December 2025
