Felipe Hanszmann, partner at Vieira Rezende and head of VR1, the firm’s innovation, digital transformation, and venture capital center, highlights the key factors that make Brazil an attractive destination for investments in the data center sector. He also addresses the legal challenges faced by international investors. Through a comprehensive analysis of infrastructure, regulation, and the innovation ecosystem, Felipe offers valuable insights into the opportunities and challenges that define this evolving landscape in Brazil.

What aspects position Brazil as a global leader in data processing and AI?

Beyond its competitive advantages – such as the availability of renewable energy and vast territory – Brazil stands out in several key aspects that contribute to its consolidation as a global hub for data processing and AI.

First, the growing domestic demand for digital services is a major driver of data center infrastructure development. With a large and increasingly connected population, Brazil generates a massive volume of data and requires high-performance services to meet this demand.

Second, Brazil's strategic location, supported by submarine cables that connect the country to multiple continents, facilitates global data traffic and strengthens international connectivity.

Finally, the country’s thriving ecosystem of startups and technology companies fosters an environment of innovation, particularly in AI development. This attracts investment and further accelerates the growth of the sector.

In your view, what are the main legal challenges international investors may face in the sector?

International investors entering Brazil’s data center sector will face some significant legal challenges, including:

• Real Estate and land use issues:
  • Acquiring land for data center construction requires a thorough legal analysis, covering aspects such as urban zoning, environmental restrictions, and land regularization. Brazil’s land use regulations vary significantly from one municipality to another, demanding in-depth knowledge of local legislation.
  • Obtaining licenses and permits for data center construction can be a complex and time-consuming process, often involving multiple government agencies. Specialized legal guidance is crucial to ensure regulatory compliance and streamline approval procedures.
• Power supply contracts:
  • Reliable and cost-competitive power availability is a critical factor for the viability of data centers. Negotiating long-term contracts with energy suppliers requires thorough legal analysis, addressing key aspects such as tariffs, supply conditions, and liability for service interruptions.
  • The increasing adoption of renewable energy in Brazil presents both opportunities and challenges for the data center sector. Negotiating Power Purchase Agreements (PPAs) for renewable energy and obtaining Renewable Energy Certificates demand specialized knowledge of electricity sector regulations.
  • Another crucial aspect is compliance with ANEEL (National Electric Energy Agency) regulations, as these rules can directly impact the construction and operation of data centers.
• Complex regulatory framework: Brazil’s infrastructure sector is highly regulated, with numerous specific construction and operations standards. This regulatory complexity can create uncertainties and operational challenges for foreign investors.
• Tax issues: Brazil has a complex and high tax burden, with multiple tax regimes and levies that can significantly impact investment profitability. Specialized legal counsel is essential to optimize tax structures and ensure full compliance with tax regulations.
• Data protection: The General Data Protection Law (LGPD) imposes strict requirements on processing personal data, requiring strict compliance from data center operators. Adhering to LGPD standards is crucial to avoid penalties and ensure data security.
• Contracts and licenses: Negotiating construction, operation, and energy supply contracts, as well as obtaining environmental and construction permits, can be a complex and time-consuming process. Support from an experienced law firm is essential to streamline procedures, mitigate risks, and ensure legal certainty.

How do you believe the data center legal framework will help attract more investment?

The legal framework for data centers, recently announced by the federal government, is a crucial step toward boosting sector development and attracting more investment. We believe it will help overcome existing challenges in several ways:

• Legal certainty: By establishing clear and objective regulations, the legal framework will reduce regulatory uncertainty, providing greater legal stability for investors.
• Tax incentives: The introduction of tax incentives for data center construction and operation will lower investment costs, making the sector more attractive to investors.
• Streamlined processes: Simplifying licensing procedures and creating a one-stop shop for investors will streamline bureaucratic processes.
• Stimulating competition: By encouraging greater competition in the sector, the legal framework will drive innovation and service improvements, benefiting both investors and end-users in the long run.