1. Presenting Brazilian Capital Market – a mature and expanding environment
The Brazilian capital market, one of the most developed in Latin America, is the result of a long journey of evolution. Its history, marked by experiences of economic crises and different attempts at market opening, forged a robust and resilient environment. Learning from past instability, the market has undergone a profound transformation since the 1990s, building a framework based on higher standards of governance and introduction of mechanisms for minority shareholder protection, inspired by international best practices. This maturation process has been confirmed by the significant presence of institutional and foreign investors, who now play a central role in the market’s liquidity and dynamism.
Recognizing the potential for further growth, the Brazilian market continues to innovate to become even more attractive. For example, in 2023, the Brazilian Stock Exchange entity (“B3” or “Brasil, Bolsa e Balcão“) presented updates to its listing segments of the stock exchange, which provides a “ladder” of corporate governance commitment capable to suit different maturity and strategic goals for Brazilian Companies.
In addition, to broaden access beyond equity and simplify debt issuance, the Brazilian Securities and Exchange Commission (“CVM” or “Comissão de Valores Mobiliários“) recently introduced the “Regime Fácil” (in loose translation, easy regime), a landmark initiative set to begin in 2026. This framework is designed to reduce costs and bureaucracy for smaller companies when issuing securities, including both shares and debt instruments like debentures.
Therefore, the Brazilian capital market current agenda demonstrates a commitment to expanding access and fostering a vibrant environment for business growth. In this sense, the objective of this chapter is to demystify access to this market. We will present the main avenues for companies to raise capital, through both equity and debt, and the clear rules applicable to foreign investors, starting for the players of this ecosystem.
2. The Ecosystem: Who is Who?
For any interested company or investor, understanding the key regulating and oversight players in the landscape is the first step. The Brazilian capital market ecosystem is supported by a set of core institutions, each with a distinct and complementary role:
- CVM (Comissão de Valores Mobiliários): As the market’s primary regulator and supervisor, CVM acts with a mandate to ensure transparency, fair dealing, and, most importantly, investor protection. It authorizes public offerings, oversees listed companies, and enforces market regulations.
- B3 (Brasil, Bolsa, Balcão): B3 is the central market infrastructure. As one of the world’s largest financial market infrastructure companies, it not only operates the stock and derivatives exchanges but also provides registration for a vast array of debt instruments. To ensure the integrity of its markets, B3 is supported by BSM Supervisão de Mercados (BSM), its autonomous self-regulatory arm. BSM monitors all market operations to detect and punish illicit practices, such as insider trading and manipulation, and administers a reimbursement mechanism to protect investors from certain types of losses, adding a crucial layer of security for all participants.
- BACEN (Banco Central do Brasil): The Brazilian Central Bank is the country’s monetary authority. While its primary role is to ensure the stability of the currency and the financial system as a whole, it has a crucial interface with the capital market, particularly in regulating and overseeing foreign exchange and the flow of foreign capital into and out of Brazil.
- ANBIMA (Associação Brasileira das Entidades dos Mercados Financeiro e de Capitais): This is the Brazilian Financial and Capital Markets Association. ANBIMA plays a self-regulatory role, creating codes of best practice that are widely adopted by market participants. Its certifications for investment professionals and its standards for structuring and distributing financial products serve as a seal of quality and contribute significantly to the market’s credibility and integrity.
With this framework in sight, the next section details the instruments available for corporate fundraising in Brazil, ranging from initial public offerings to structured debt securities, designed to meet distinct corporate strategies and financing needs.
3. Capital Raising Avenues for Companies: Financing Growth
For a company seeking to expand its operations, modernize, or strengthen its capital framework, the choice is fundamentally divided into two major segments: raising capital through equity or through debt (third-party capital).
The choice between equity and debt is a strategic one, designed to meet distinct corporate strategies. Whether for the initial capital required to launch a business or for the complementary financing needed to scale existing operations, the Brazilian market offers a range of sophisticated instruments. The following is a breakdown of the primary alternatives available in each segment.
3.1. Equity Market (Share Capital)
Opting for the equity market implies admitting new shareholder into the company in exchange for a capital injection. This capital-raising route requires, as an initial step, the company to go public. In this respect, the decision to go public must be aligned with a strategic and professional vision, as this change involves not only the company’s financing but also its financial structure, governance, expansion capacity, project financing capabilities, and applicable obligations and regulations.
3.1.1. B3 Listing Segments and the Novo Mercado
An essential part of a company’s process of going public is choosing and following one of B3’s listing segments. Among them, the Novo Mercado represents the highest standard of corporate governance in Brazil. Companies listed in this segment voluntarily adopt a set of rules that go beyond legal requirements, such as the exclusive issuance of common shares (with voting rights), the guarantee of 100% tag-along rights for all shareholders in the event of a sale of control, and internal oversight, control, and transparency structures. For foreign investors, a listing on the Novo Mercado confers a seal of quality and a strong indicator of investment protection.
Nível 2 has similar characteristics but allows the company to issue non-voting preferred shares (PN), compensating for this by extending 100% tag-along rights to them. Nível 1 represents a first step towards enhanced governance, focusing on greater transparency and liquidity but with less strict rules. Finally, to facilitate access for growing companies, the Bovespa Mais and Bovespa Mais Nível 2 segments offer an extended period (seven years) for the company to reach the minimum required free float.
3.1.2. Initial Public Offering (IPO)
An IPO is a company’s debut in the capital markets, consisting of the first public offering of shares on a stock exchange. In addition to expanding the funding base and providing liquidity, an IPO can provide visibility (branding) and a new level of governance. Recently, Brazilian legislation, through the Regime Fácil, has facilitated access to capital markets for smaller companies through simplified, proportional rules. The IPO process is mainly governed by Law No. 6,404/76 and CVM Resolution No. 160/2022.
3.1.3. Follow-on Offerings
Once listed, a company can return to the market to raise additional funds through new share offerings. These offerings, also regulated by CVM Resolution No. 160/2022, are an agile mechanism for financing new expansion phases.
3.2. Debt Market (Third-Party Capital)
Raising funds through debt allows a company to obtain resources without diluting the ownership of its current shareholders, though it requires financial discipline to honor regular payments. The Brazilian capital market offers instruments that go far beyond traditional bank credit.
3.2.1. Debentures
Debentures are the main corporate debt instrument, regulated by Law No. 6,404/76 and various CVM resolutions. A debenture is a debt security issued by a company that grants its holder a credit right against the issuer. This instrument can be simple (redeemed in cash), convertible into shares of the issuer, or exchangeable for shares of other companies, offering great structuring flexibility. A special category, Incentivized Debentures (Law No. 12,431/2011), grants considerable tax benefits to investors financing projects in priority sectors, such as infrastructure.
3.2.2. Securitization Instruments
Securitization is the process of transforming future revenue streams into tradable securities in the present, providing immediate cash flow.
- CRI and CRA: The Real Estate Receivables Certificate (CRI) and the Agribusiness Receivables Certificate (CRA), established by Law No. 9,514/1997, are securities backed by real estate and agribusiness receivables, respectively. The CRA is a major financing instrument in its sector.
- FIDC (Receivables Investment Fund): Regulated by CVM Resolution No. 175/2022, the FIDC is a sophisticated vehicle that acquires a range of commercial, industrial, or financial receivables. Through the fund, these receivables gain immediate liquidity for the originating company. Its structure allows the creation of different classes of shares (e.g., senior and subordinated), permitting efficient risk isolation and allocation.
The evolution of these financing mechanisms highlights the market’s dual commitment: to high governance standards in equity and to structural flexibility in debt. This robust ecosystem of fundraising options is designed to be attractive not only to domestic companies but also to the foreign investors who, as previously mentioned, play a crucial role in the market’s liquidity and growth.
4. The Brazilian Capital Markets for International Players
For foreign investors eyeing the dynamic Brazilian capital markets, understanding the regulatory landscape is the first step toward successful participation.
This section explains the main gateway for direct investment and an alternative route through Depositary Receipts (DRs).
4.1 Direct investment in the domestic capital market
The cornerstone of foreign investment in Brazil’s financial and capital markets is the regime established by the Joint Resolution of BACEN and CVM nº13/2024, which replaced the National Monetary Council (“CMN” and “Conselho Monetário Nacional”) Resolution No. 4,373, enacted in 2014. This regulation provides a streamlined and secure framework for Non-Resident Investors (NRIs) to operate in Brazil, which aligns the Brazilian market with global best practices for security and transparency, significantly mitigating operational risks for investors.
An NRI is defined as an individual, legal entity, or collective investment vehicle (such as a fund) with residence, headquarters, or domicile abroad. The current resolution allows these investors to operate in Brazil under the same market conditions as domestic investors, while frequently benefiting from a highly advantageous tax regime. Generally, capital gains earned by foreign investors on transactions carried out on Brazilian stock exchanges are exempt from income tax. However, from a tax planning perspective, this exemption is strictly unavailable to investors domiciled in jurisdictions with favored taxation (commonly referred to as ‘tax havens’ under Brazilian law, typically characterized by an income tax rate below 17% or corporate secrecy). Moreover, the exemption applies exclusively to trades executed within the regulated stock exchange environment. Consequently, capital gains derived from over-the-counter transactions or non-exchange environments remain subject to standard Brazilian withholding taxes, underscoring the necessity for careful jurisdictional analysis and trade structuring.
4.2. IOF Rates and Tax Reclassification Risks for Non-Resident Investors
While Joint Resolution No. 13/2024 provides a streamlined framework for NRIs, operating within this regime requires strict adherence to regulatory boundaries to maintain its tax benefits.
Capital inflows under Joint Resolution 13/2024 are subject to IOF on Foreign Exchange (IOF/FX) and Securities (IOF/Securities). The current Brazilian fiscal policy applies reduced (zero) rates to these operations to foster capital market liquidity, though the exact rule depends on the nature of the transaction.
It is important to note that IOF rates function as an instrument of monetary and exchange rate policy. Consequently, they can be altered by an Executive Decree at any time, effective immediately.
In addition, Brazil’s IRS adopts rigorous monitoring mechanisms. If an investment or the investor is reclassified, the immediate consequence is the loss of the capital gains exemption granted to NRIs. The operation, then, becomes subject to standard taxation, accompanied by potential ex-officio fines and late payment interest.
The three primary vectors for tax reclassification risk include:
- Tax Havens & Ultimate Beneficial Owner Risk: The income tax exemption on capital gains is explicitly denied to investors domiciled in tax havens. A critical risk arises when Brazil’s IRS applies the “substance over form” doctrine, disregarding the immediate investment vehicle to identify the Ultimate Beneficial Owner (UBO). If the UBO is in a favored taxation jurisdiction, Brazil’s IRS may retroactively reclassify the operation and apply a capital gains tax rate of 15% (or up to 22.5%).
- Trading Environment Risk: The capital gains tax exemption strictly applies to transactions carried out on Brazilian stock exchanges or equivalent organized markets. Over-the-counter operations do not qualify for this benefit. The risk materializes if private trades are artificially routed through the stock exchange merely to simulate the required trading environment, a practice the tax authorities might penalize as abusive tax avoidance.
- Misallocation of Purpose (Portfolio Investment vs. Foreign Direct Investment – FDI): The Joint Resolution 13/2024 regime is exclusively designed for portfolio investments. If a foreign investor utilizes this channel to acquire a controlling stake in a Brazilian company for corporate management purposes, which qualifies as Foreign Direct Investment (FDI) under Law No. 4,131/62, the Central Bank and the IRS can reclassify the capital. FDI is subject to different registration rules and standard capital gains taxation upon the sale of the equity stake (15% to 22.5%), completely bypassing the stock exchange exemptions afforded to NRIs.
4.3. The Step-by-Step Entry Process
Gaining access to the Brazilian market under this resolution is a standardized procedure, efficiently managed by local financial institutions. Here is the simplified path:
- Appoint a Legal Representative: The NRI must appoint an entity authorized by the Brazilian Central Bank to act as its representative. While this role has traditionally been performed by financial institutions, the new regulation (Joint Resolution no. 13/2024) expands the scope of eligible entities. Now, clearinghouses and clearing and settlement service providers supervised by the Central Bank can also be appointed as representatives. This entity is responsible for carrying out all registration procedures and serves as the primary liaison with regulatory bodies, managing communications and reporting duties on the investor’s behalf. Under Brazilian tax law, assuming this role triggers joint and several liability (responsabilidade solidária). This means the local representative is legally liable for the payment of taxes owed by the foreign investor in Brazil, which is why these institutions require rigorous Know Your Customer and tax compliance protocols.
- Appointing a Custodian: A crucial operational component for the investor is the custodian, an authorized entity responsible for the safekeeping of assets (securities), processing trades, and managing the flow of funds, such as dividend payments and capital repatriation. Under the new rules (Joint Resolution no. 13/2024), the formal appointment of a custodian is no longer a condition for the initial registration, giving the investor more flexibility to structure their entry into the market. Considering that the custodian controls the financial flow, it practically acts as the withholding agent. It is legally responsible for correctly calculating, withholding, and remitting applicable taxes at the source, such as IOF on foreign exchange conversions and any Withholding Income Tax, if applicable, before permitting capital to leave the country.
- Obtain CVM Registration: Once the representative and custodian are in place, the representative will apply for the investor’s registration with CVM. This registration provides the NRI with an operational code, officially enabling them to trade on B3 other regulated markets.
4.4 Cross-Border Instruments: The Two-Way Bridge
4.4.1. An Alternative Route: Depositary Receipts (DRs)
Besides direct investment, foreign investors can gain exposure to Brazilian equities through Depositary Receipts (DRs).
A DR is a negotiable certificate issued by a depositary bank in a foreign market that represents underlying Brazilian assets held in custody in Brazil. The new regulation (Joint Resolution no. 13/2024) has significantly expanded the range of eligible underlying assets. This now includes not only (i) securities (shares) from publicly held companies and (ii) certain debt securities issued by authorized institutions, but also assets from securitization companies and shares of investment funds. These DRs trade on international stock exchanges—such as the New York Stock Exchange (NYSE) or the Luxembourg Stock Exchange—in the local currency. This mechanism allows investors to invest in Brazilian companies without directly registering in Brazil under the regime applicable for NRI. The underlying Brazilian assets are held in custody in Brazil by a local bank, which acts on behalf of the foreign depositary bank.
When considering investing via DRs, an investor should observe the following:
- Liquidity and Trading Venue: Assess the trading volume of the DR on its respective foreign exchange. Higher liquidity ensures easier entry and exit from the position.
- Underlying Company: Due diligence on the Brazilian company itself remains paramount. DR’s performance is directly tied to the health and prospects of the underlying asset.
- Depositary Bank: The reputation and service quality of the bank issuing the DR are important, as it manages dividend distributions and corporate action communications.
- Voting Rights: DR holders may not have direct voting rights. The deposit agreement specifies how (or if) voting instructions from DR holders are passed through to the corporation. This is a critical distinction for activists or strategic investors.
- Tax Implications and Jurisdictional Shift: Opting for DRs fundamentally alters the jurisdictional footprint of the investment. Considering that the DR is traded overseas, the tax treatment of capital gains is governed strictly by the laws of the investor’s home country and the foreign exchange’s jurisdiction, placing the secondary market trading of these instruments generally outside the reach of Brazilian taxation. While dividends paid by the underlying Brazilian corporation to the foreign depositary bank currently benefits from the same domestic Withholding Income Tax exemptions as those paid to local shareholders, the ultimate tax burden on these dividends, and any capital gains, will depend entirely on the investor’s local tax laws. Consequently, foreign investors must carefully weigh these offshore tax rules against the specific tax exemptions available to direct NRIs operating within the Brazilian market, as the net yield and compliance obligations can differ significantly.
4.4.2. Brazilian Depositary Receipts (BDRs): gateway for local investor to access foreign assets
On the other hand, while Joint Resolution 13/2024 is the gateway for foreign capital into Brazil, the market also offers a sophisticated instrument for foreign corporations to raise funds with Brazilian investors: Brazilian Depositary Receipts (BDRs).
A BDR is a security issued and traded in Brazil that represents shares of a publicly traded company headquartered abroad. In essence, it allows domestic investors to buy into foreign corporations like Nestlé, Roche and Novartis directly on the B3, using Brazilian Reais.
To do so a depositary institution in Brazil purchases shares of the foreign company, which have been deposited with a foreign custodian bank or institution. The securities underlying the BDRs must be deposited with institutions that are in countries which have signed agreements with the CVM or have signed a memorandum of understanding with the International Organization of Securities Commissions (IOSCO). The depositary institution in Brazil issues the BDRs backed by these shares.
BDR programs are offered in two main categories: Unsponsored and Sponsored. The Unsponsored BDR program, always classified as Level I, is initiated by a Brazilian depositary institution without a formal agreement with the foreign company. This program benefits from simplified CVM registration requirements.
Sponsored BDRs, on the other hand, are created in partnership with the foreign corporation and are subdivided into three tiers:
- Sponsored Level I: Also has simplified requirements, but with the foreign company’s direct involvement and sponsorship.
- Sponsored Levels II and III: These require full registration with the CVM and are listed for public trading to all investors (not only qualified investors). This structure guarantees a much larger market reach but demands the strictest compliance and disclosure obligations.
The choice between these programs is a strategic decision for the foreign corporation, which must evaluate the costs of compliance against the benefits of broader access to Brazilian investors.
Regardless of the specific instrument chosen, from domestic equity and debt offerings to cross-border receipts, Brazil provides a market designed to efficiently connect capital-seeking corporations with a global base of investors.
Authors: Anneliese Velasco Burkert Eger, Beatriz Floriano and Maria Paula Pereira de Andrade
Gaia Silva Gaede Advogados
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