The Hornets have proposed a deal to Sao Paulo for the 18-year-old attacking midfielder, who was the most valuable player in the prestigious Al Kass tournament in 2015.
But the Brazilian club are refusing to sell the youngster unless he signs a professional contract with them first.
Under national law, young players with no formal contract cannot negotiate with other Brazilian clubs.
But this doesn't apply to Watford so theoretically there is nothing stopping them from swooping in without even contacting Sao Paulo.
However, the player's agent has stated he doesn't want to go down this route and Watford are now awaiting the outcome of board meetings and contract talks that should ease the path of Paulo Henrique to Europe.
The Hornets would still be taking a risk on the signing as they would probably have to loan him out to another club until he qualified for a work permit unless he owned an EU passport, which may not be applicable for much longer.