Brazil's intricate tax laws hindering Temu's growth in the LATAM region.

In the bustling landscape of Latin American e-commerce, Temu, a global online marketplace, has recently launched its Brazil site, marking its 70th international site. This move comes at an interesting time, as the region's e-commerce market is experiencing significant growth and undergoing changes in tax policies.

According to Payments and Commerce Market Intelligence, the e-commerce growth rate in Latin America is expected to hover around 21% from 2023 to 2026, with the market valued at over USD 509 billion in 2023, representing a CAGR of 23% through 2026. Brazil, the largest national market in Latin America, generates USD 49.2 billion in e-commerce sales, a figure that increased by USD 8.1 billion in 2022 compared to the previous year.

The Brazilian consumer, known for their bargaining skills, may find Temu's promotions such as deep discounts and free shipping particularly appealing. However, the company faces a heavy tax burden due to recent changes in Brazilian tax policies. Goods valued under USD 50 shipped into Brazil by overseas platforms will now be subject to a 20% tariff, in addition to an 17% ICMS sales tax.

Interestingly, convenience, affordability, and speed are key factors in the online shopping decisions of Latin American consumers, and 70% of them pay close attention to product prices and description accuracy, while 60% care about the discount strength of products. This alignment with consumer preferences could potentially benefit Temu in the competitive Brazilian market.

The US Department of Homeland Security has also announced that de minimis shipments, which are low-value purchases usually sent directly to US consumers from China, will face stricter scrutiny in the future. This change could significantly impact many Chinese sellers, but the preference for Chinese products remains high in Latin America, accounting for as much as 62% of cross-border goods.

In Brazil, the inconsistent stance towards tax exemptions for cross-border goods valued at less than USD 50 has been addressed by the Brazilian Senate, which has passed a proposal to impose a 20% tariff on such goods, effective immediately and retroactively applicable to purchases made before the announcement. The Minister of the Economy, Paulo Guedes, announced this change in April 2023.

Despite these challenges, Temu's entry into the Brazilian market is a testament to the market's growth potential. Temu has already entered several major national markets in Latin America before opening its Brazil site, and the company's strategic move could potentially reap significant rewards in the years to come.