Doing Business in Brazil

9. Brazilian Exchange Control


9.1. The Brazilian exchange market

In the last few years, the Brazilian Government has been systematically simplifying and flexibilizing the Country’s foreign exchange control rules.

As of March 4, 2005, all exchange transactions are processed through one sole market, called Foreign Exchange Market. According to article 1 of Resolution of the National Monetary Council (“CMN”) No. 3,568 of May 29th, 2008, that currently regulates the Foreign Exchange Market, “The Foreign Exchange Market encompasses transactions referring to the purchase and sale of foreign currency and the transactions with gold – exchange instrument, performed through institutions authorized by the Brazilian Central Bank to operate in the Exchange Market, as well as the local currency transactions in local currency between persons residing, domiciled or with headquarters in Brazil and those residing, domiciled or with headquarters abroad. Sole Paragraph. It is part of the Brazilian foreign exchange market operations related to the receipt, payment and transfers to and from abroad through the use of international cards and international payment-facilitator companies, as well as operations related to international financial postal transfers, including through postal cards and international postal reimbursements”.

9.2. The foreign capital in Brazil

Law No. 4.131 of September 3rd, 1962 (the “Foreign Capital Law”), and its amendments, rule the foreign investments in Brazil. According to this Law, the foreign investments in Brazil shall be registered with the Central Bank to allow the remittance of profits and/or interests on equity (juros sobre capital próprio) to the foreign investors and the repatriation of the capital invested in Brazil, as well as the recording with the Central Bank of the reinvestment of profits and/or interest on equity.

Article 1 of Law No. 4.131/1962 considers foreign capitals: (i) the goods, machinery and equipment held by individuals or companies residing or domiciled abroad, which entered Brazil without initial expenditure of hard currency, destined to the production of assets or services, as well as (ii) financial or monetary resources held by individuals or companies residing or domiciled abroad, introduced in Brazil to be invested in economic activities. Therefore, foreign investment, for the Brazilian legislation, includes: (i) assets imported by companies headquartered in the Country, as capital contribution (for instance, machinery and equipment); (ii) capitalization of foreign credits qualified for remittance and (iii) the inflow of foreign funds to Brazil, as capital contribution.

9.3. Tax on Financial Operations (“IOF”)

As defined by the IOF Regulation1 (Decree No. 6,306/2007), such tax is assessed on different types of events: foreign exchange, credit and related to securities and insurance.

Generally, the IOF-Exchange is assessed on the foreign currency exchange transactions for inflow and outflow of funds into and from Brazil, at the rate of 0.38%. Such rate, however, may vary depending on the nature of the foreign exchange transaction. There are cases of higher IOF-Exchange tax rates and, conversely, some situations when the IOF-Exchange tax may be reduced to zero.

The Brazilian party is the IOF taxpayer; however, the commercial bank in charge of the closing of the foreign currency exchange transaction is responsible for collecting and paying such tax.

The IOF-Exchange is a type of tax over which the Federal Revenue Department has broad powers to change the triggering events and the applicable rates. Thus, it is very important to review the IOF legislation at the time of the actual inflow and outflow of funds, as applicable, to confirm the current rules in force.

9.4. Registration of foreign investment with the Central Bank

The registration of foreign investment in Brazilian companies is done electronically, through a Central Bank’s Electronic System (“SISBACEN”), by means of an electronic declaration record (known as RDE-IED – “Electronic Registration Statement – Direct Foreign Investment”). In order to enable the implementation of such registration, the Brazilian company shall, initially, obtain a SISBACEN access password.

The registration of foreign investment with SISBACEN shall be done by the representative of the Brazilian company receiving the foreign investment or by the representative of the foreign investor, within thirty (30) days counted as of the date of the event object to registration, observing the provisions of the Central Bank Circular Ruling (Circular) No. 3,691/2013 and other rules applicable to the issue.

The companies receiving foreign investments shall maintain the documents evidencing the statements made through SISBACEN at the disposal of the Central Bank, for five (5) years counted as of the date on which the company ceases to have foreign investment.

The registration of the investment will be done in local currency and will correspond to the amount in foreign currency used for the purchase of Brazilian currency in the remittance of funds to pay the subscribed capital of the Brazilian company, according with the exchange rate at the date of the financial operation. The capital increases in the Brazilian recipient by means of the conference of goods, tangible or intangible, imported without exchange coverage are also subject to registration in the Central Bank’s system. The date of payment, the corresponding amount in the currency of the Import Declaration (DI) and the paid-in amount in local currency, must be informed. In case of tangible goods, the number or numbers of the DI(s) must also be informed. In case of intangible goods, the number or numbers of the commercial invoices will be informed in the registration with Central Bank.

The dividends, interest on equity, reinvestment and capital repatriation attributed to the quotas/shares originated from foreign investment in local currency can be remitted abroad, according to the applicable legislation.

Central Bank’s Circular No. 3,857 of November 14, 2017 establishes that false, incomplete, incorrect or outdated registration regarding foreign capital in Brazil and Brazilian capital abroad in the Central Bank’s system, subjects the Brazilian company to fine penalties that may be charged by the Central Bank.

9.5. “Tainted capital”

Law No. 11.371/2006 requires the Brazilian companies that have “tainted capital” (capital contaminado) to regularize such investments.

The so-called “Tainted Capital” refers to foreign investments made in Brazilian companies which, for several reasons, were not made in compliance with the provisions of Law No. 4.131/1962 and applicable Brazilian foreign exchange regulations, resulting in the impossibility of being registered as foreign capital with the Central Bank. Therefore, due to such lack of registration, dividends, interest on equity and other funds arisen from such investments could not be remitted abroad.

As of 2006, with the publication of Law no. 11,371, the registration of tainted capital became not only possible but mandatory, and its noncompliance may lead to a fine imposed by the Central Bank, ranging from R$ 1,000.00 to R$ 250,000.00, limited to the amount of capital subject to registration.

The CMN and the Central Bank have established that the registration of tainted capital accounted for in a given year must be carried out until the last business day of the subsequent calendar year.

It is important to emphasize that the ownership of the tainted capital must be duly evidenced by documents, including the accounting records of the Brazilian company receiving the investment.

The tainted capital will be registered with the RDE-IED separately from the foreign investment registered according to Law No. 4.131/1962.

9.6. Direct foreign investment

The remittance of funds into Brazil as capital contribution does not require prior authorization by the Brazilian authorities and the resources may be transferred to Brazil whenever necessary. In order to have access to the funds, the Brazilian company shall convert the funds received from the foreign investor into Brazilian currency. For such purpose, the Brazilian company must have previously obtained access to the SISBACEN. The foreign investor shall also be duly enrolled with the General Taxpayers’ Registry (“CNPJ”) in case of companies or with the Individual Taxpayers’ Registry (“CPF”) in case of individuals. In these cases, the requests for registrations with the CNPJ are submitted directly to the Central Bank by means of an electronic registration in SISBACEN and presentation of corporate documents by e-mail.

The remittances to the direct foreign investor shall be done for (i) payment of shares/quotas subscribed by the non resident investor in the corporate capital of companies headquartered in the Country or (ii) the payment of the acquisition price, by the non resident, of shares/quotas paid-in, held by residents. In both cases, the amounts remitted will be registered with the RDE-IED, through SISBACEN, as foreign investment in the corresponding Brazilian company.

9.6.1. Investment through the Import of Assets without
Exchange Coverage

The import of goods destined to the payment of the corporate capital of a Brazilian company is done without exchange coverage, and, therefore, does not provide for the payment of the goods by the importer. This type of import is subject to registration with the Foreign Trade Integrated System (“SISCOMEX”). SISCOMEX is comprised by governmental authorities directly involved with foreign trade transactions, the Federal Revenue Secretariat, SECEX and the Central Bank. After the registration with SISCOMEX, the transaction shall be registered with SISBACEN, under module ROF (“Registration of Financial Operation”).

The capital contribution with the imported good shall be registered with the RDE-IED as foreign investment within thirty (30) days counted from the customs clearance of such import.

The above rules apply only to the import of new goods. The import of used goods is subject to more restrictive exchange control rules imposed by the Central Bank and by the Ministry of Development, Industry and Foreign Trade. For such cases, usually, a prior authorization of SECEX is required and the process demands the presentation of reports obtained abroad evidencing the remaining useful life of the good, among other documents.

9.6.2. Investment through the Conversion of Credits
Remittable Abroad

Amounts due by the Brazilian company, which, according to the applicable legislation, can be remitted abroad, may be converted by the foreign creditor into investment in the Brazilian company responsible for the debt. Credits remittable abroad, such as those related to principal or interest of loans, service fees and royalties, among others, can be converted into equity in the Brazilian company.

Supported by an irrevocable statement executed by the creditor abroad, consenting with the conversion of the credit into investment, the Brazilian company shall contract with a commercial bank the closing of symbolic/simultaneous exchange transactions. Through such transactions, the hard currency is symbolically sent abroad to pay the debt and the same value of currency enters symbolically into the Country as capital contribution.

In case of conversion of values subject to tax, such as interest accrued on loans, the evidence of payment of the taxes due must be submitted to the commercial bank hired to implement the symbolic/simultaneous exchange transactions. The external credits, converted into investments, shall be registered as foreign investment in module RDE-IED of SISBACEN, within thirty (30) days.

9.6.3. Reinvestment of dividends and/or interest on equity

The dividends and/or interests on equity due to the foreign investor may be (i) remitted to the foreign investor or (ii) reinvested in the same Brazilian company or in another Brazilian company. The reinvestment is registered with RDE-IED in local currency.

9.6.4. Remittance of dividends and/or interest on equity

Law No. 4,131/1962, as amended, does not constrain a Brazilian company from remitting dividends abroad to its foreign investors. Notwithstanding, under Brazilian law, the Brazilian company may only remit dividends to a non-resident, if (i) it presents profits in its financial statements, and (ii) its foreign investments are duly registered with Central Bank.

According to Law 9.249/1995, the remittance of dividends generated as of January 1st, 1996, is not subject to withholding income tax, even when distributed to non-resident parent companies. On the other hand, the amount paid as profit distribution cannot be deducted as an expense of the Brazilian company for tax purposes.

Law No. 9.249/1995 also provides for the allocation of interest on equity to the investors, provided the Brazilian company evidences accrued profits or profits on the current fiscal year. The total value of interest on equity payable or credited to the partners shall not exceed 50% of the accrued profits or fiscal year, whatever is greater.

The interest on equity has the purpose of compensating the investments based in the net equity of the Brazilian company. Differently from the dividends, the value resolved by the partners/shareholders to pay interest on equity is treated by the Brazilian law as deductible expense. The payment or credit of interest on equity to the partner/shareholder is taxed by withholding income tax.

Currently, there is no Tax on Financial Transactions (IOF) on the remittance of profits, dividends, and interest on shareholders’ equity abroad (zero rate).

9.6.5. Capital repatriation

The expression “capital repatriation” traditionally names, in exchange terms, the remittance abroad of values originated of the disposal of direct foreign investments in companies domiciled in the Country, or the reduction of capital to be returned to the foreign partner or yet the liquidation of the company in the Country holding foreign equity participation. The foreign currency value indicated in the RDE-IED, observing when applicable, the proportionality rule, is used by the tax authorities as base to verify the capital gain in such transactions.

The amount to be repatriated exceeding the value registered in foreign currency observing the proportionality rule, represents capital gain and is taxed by the withholding income tax at the rate of fifteen percent (15%), or twenty-five percent (25%) in case the beneficiary is located in a low-tax jurisdiction.

Also, in the case of sale of the interest, the equity value of the Brazilian company shall be taken into consideration at the time of the repatriation of the foreign investment. An evaluation report of the company sold may be demanded, should the sales value exceed the equity value of the Brazilian company, even if it is inferior to the amount shown in the foreign capital registration.

9.7. Foreign investment in the Brazilian capital market

Resolution CMN No. 4,373/2014 and Instruction No. 325/2000 from the Brazilian Securities and Exchange Commission (“CVM”) and related rules provide for the legal framework applicable to investments in the financial and capital markets carried out by foreign/nonresident investors.

The Brazilian legislation allows the investment in the capital market, by individuals or legal entities, residing or domiciled abroad, by means of the acquisition of shares and other securities. Such investments, called “portfolio investments”, when performed by non residents are subject to registration with the Central Bank and the CVM.

According to the current regulations, individual or collective non resident investors are the individuals or legal entities, funds and other collective investment entities with residence, headquarters or domicile abroad.

Currently, the non resident investors are allowed entrance and free transit to all products available in the local market. Before starting its operations, the non resident investor shall appoint one or more representatives in the Country, who will be responsible, among other features, for providing information and implementing the registrations with the Central Bank and CVM. This representative is not the same individual required by the tax law, although in practice it tends to be the same.

The non resident investor shall, through its representative, obtain registration with the CVM. Such registration is done by electronic means. Additionally, the funds entering the Country as “portfolio investments” are subject to registration with the Central Bank, made in a declaratory manner by electronic means, through SISBACEN. The initial electronic registration (“RDE -Portfolio”) and its updating constitute mandatory requirement for any transactions abroad and shall be provided before they occur.

In the remittances abroad of interest, capital repatriation and capital gains, the intervening bank is responsible for checking the documents to be submitted, which shall evidence the distribution of interests, the title and sale of the assets generating such interest or which were disposed, as well as the taxes due.

Law No. 8,981/1995, as amended, together with Provisory Measure No. 2189-49/2001, provides for a Special Tax Regime for nonresident investors that invest in the Brazilian financial and/or capital markets. As a general rule, this Special Tax Regime grants to nonresident investors a beneficial tax regime (when compared to the tax treatment applicable to Brazilian investors) in case of investments in the Brazilian financial and/or capital markets, provided that the investment is made in compliance with the applicable rules.

The rate of the IOF levied on the foreign currency exchange transaction necessary for bringing foreign investments in the Brazilian financial and capital markets is currently zero% according to Decree No. 8.023 of June 4th, 2013. The return of the funds abroad resulting from such investments remains subject to a zero percent rate of IOF-Exchange.

9.8. Cross-border loans

Loans granted by companies or individuals domiciled abroad to individuals or legal entities in Brazil, shall be electronically recorded with the Central Bank, through SISBACEN, under module RDE-ROF. The payment conditions of the principal and interest rates cannot be deemed excessive, according to the policies of the Central Bank in force at the time when the loan is contracted.

The borrower shall make an electronic registration with the ROF of the financial terms and conditions of the loan, before the resources enter the Country. The registration with the ROF shall be done based in a statement of the foreign creditor, defining the terms and conditions of the loan.

Currently, the remittance of the principal amount of the loan to Brazil is subject to the IOF at the rate of zero percent for loans with an average repayment term longer than 180 days. However, if the loan has a maturity date or is repaid in a term shorter than 181 days, the IOF will apply at a 6% rate.

The payment of interest on such loans is subject to the payment of withholding income tax at the rate of 15%. In case of the beneficiaries located in low tax jurisdiction, the tax rate will be 25%. Both the Brazilian borrower and the creditor domiciled abroad may bear of tax payment burden. If the withholding income tax lies under the responsibility of the borrower, the tax calculation base shall be increased to 17,65% (in the case of taxation at 15%) and 33,33% (in the case of Tax Heavens). Generally, foreign governmental entities enjoy better tax treatment.

Currently, the prepayment of foreign loans is accepted. For this purpose, it is necessary only to reflect the such prepayment through the SISBACEN.

Additionally, the prepayment shall only be done upon consent of the foreign creditor, which must execute a statement agreeing to receive the corresponding payment before the originally agreed due date.

9.8.1. Loans in Local Currency

Loans may be denominated in Brazilian currency even if the relevant funds are remitted in foreign currency. In case the funds are to be disbursed and the relevant payments are to be made in Brazilian currency, these transactions will be carried out by means of International Transfer of Reais (“ITR”), through a non-resident bank account in Brazilian currency held by the foreign creditor with a Brazilian bank. These loans are also subject to registration with BACEN, through the ROF.

9.8.2. Loans granted by Brazilian entities to foreign entities

It is currently possible for Brazilian individuals or legal entities to grant foreign currency loans to a foreign entity, without requiring the approval or registration with the Brazilian Central Bank. In order to implement such transaction, the parties shall execute an agreement establishing the terms and conditions of the loan. No open due date is allowed, and the applicable tax rules shall be observed (including, but not limited to the transfer pricing rules).

9.9. Brazilian investment abroad

The local individuals or legal entities are authorized to acquire interest in foreign companies or subscribe shares/quotas representing their capital, without requiring authorization of the Central Bank of Brazil.

The Brazilian investment abroad shall be done based in documents evidencing the legality and economic grounds of the transaction, as well as the observance of the applicable tax aspects, being the commercial bank responsible for the observance of the compliance with such conditions.

Additionally, the investors residing, domiciled or with headquarters in the Country shall maintain documents supporting the remittances made at the disposal of the Brazilian Central Bank for a minimum term of five (5) years, duly vested in the legal formalities and with perfect identification of all signatories.

The reinvestment of resources transferred as investment is allowed, as well as the income earned abroad also in other assets, provided they observe the purposes allowed in the regulation applicable to the matter.

It is possible to deliver shares or assets held in Brazil by Brazilian companies as capital contribution in foreign companies. Likewise, foreign investors are authorized by the Central Bank to contribute shares held in foreign companies or assets held abroad to increase the capital of Brazilian companies, provided the applicable legislation is duly observed.

9.10. Exchange control in the remittance abroad to pay services

The service import transactions involving transfer of technology, license of intellectual property rights and production of scientific knowledge are subject to registration with the Brazilian Trademark & Patent Office (“INPI”) and with the Central Bank (through ROF), to allow: (i) the remittance of payments abroad; and (ii) the use of the amounts paid as deductible expense for income tax purposes.

On the other hand, the agreements of professional services provided by foreign companies which do not involve the above mentioned services are not subject to registration with the INPI and with the Central Bank. The remittances related to payments based in such contracts shall be converted by a commercial bank authorized to operate in the Exchange Market. To close the exchange transaction, the Brazilian client of the services shall submit to the commercial bank the services agreement executed between the parties, accompanied by translation to the national language, the corresponding commercial invoice and the evidence of payment of taxes assessed on such payments. It is important to emphasize that the commercial bank may also request the submission of any other documents deemed necessary to analyze the legality and economic grounds of the transaction.

9.11. Exchange control in the import and export transactions

9.11.1. Imports

Currently, the import transactions, financial and operational leasing of equipment, with payment terms exceeding 360 days are subject to registration with the Central Bank, under the ROF module.

9.11.2. Exports

Payments of Brazilian exports must be made directly to the relevant exporter, whether by a cross border remittances or the deposit in a bank account maintained by the exporter abroad. Indeed, Law No. 11.371/2006 introduced important flexibilization to the export rules, authorizing the Brazilian exporters to maintain abroad values received as payment for the products and services exported thereby. Such values shall only be used by the Brazilian exporter for investments, financial investments or payment of its own obligations, and cannot be used to make loans of whatever nature.

Pursuant to Central Bank’s Ruling No. 3,691/2013, the Brazilian exporters may maintain abroad the totality of the revenues related to the payments of their exports. Foreign Currency Resources originated from the
Receipt of Exports

Export resources may be kept abroad by a Brazilian exporter, provided that the limits established by the CMN are observed, bookkeeping is maintained and that the Brazilian Federal Revenue is authorized to access the information on the destination of the resources, according to the Normative Instruction of the Brazilian Federal Revenue No. 1,801, dated March 26, 2018. The exporters maintaining or using the resources abroad in disagreement with the applicable legislation, or which fail to inform the Federal Revenue about the existence of such resources, will be subject to a fine to be imposed by that entity.

The taxpayers, in compliance with the provisions of art. 8 of Law 11,371/2006, shall provide the Brazilian Federal Revenue with information on the use of funds held abroad, arising from exports of goods and/or services, through the Tax Accounting Bookkeeping (“Escrituração Contábil Fiscal – ECF”), in the case of legal entities , and the Annual Income Tax Return (“Declaração do Imposto de Renda de Pessoa Física – DIRPF”), in the case of individuals.

9.12. Declaration of assets maintained abroad

CMN Resolution 3,854/2010 provides that individuals (Brazilian or expatriates equivalent to residents for tax purposes) or legal entities residing, domiciled or with headquarters in the Country shall prepare and submit to the Central Bank a list of amounts of whatever nature, assets in currency and assets held outside the national territory which, added, correspond to or exceed US$100.000,00 or corresponding amount in other currencies.

The following types of assets maintained abroad shall be informed to the Central Bank: (i) deposits in foreign bank accounts; (ii) loans; (iii) finance (export of assets and/or services); (iv) financial and commercial leasing; (v) direct investments; (vi) “portfolio investments”; (vii) investments in financial derivatives and (viii) other investments, including investments in real estate properties and other assets.

Furthermore, if the total sum of the assets mentioned above is equal to or higher than US$100,000,000.00 (one hundred million US Dollars) or its equivalent in other currencies, such individuals and legal entities must also submit the same declaration on a quarterly basis.

Those declarations are mandatory and the individual or legal entity subject to the above-mentioned regulation must maintain for a term of 5 (five) years as of the declaration’s date, the documentation related to the declared information. The delay or the non-compliance with the delivery of the declaration, as well as the provision of incorrect, incomplete or false information, will be subject to penalties to be applied by Central Bank.

9.13. Enrollment of individuals and foreign companies with the CPF and CNPJ

According to the Brazilian Federal Revenue Ruling (Instrução Normativa) No. 1,634/2016, legal entities domiciled abroad, which hold in Brazil assets and rights subject to public registration, are required to register with the CNPJ (National Register of Legal Entities). Individuals, according to Brazilian Federal Revenue Regulation No. 1,548/2015, must register with the Individual Taxpayer’s Registry (CPF) if they have a bank or investment account, operate in the financial and capital markets, or have assets and rights subject to public registration.

The procedure referring to the enrollment with the Individual Taxpayers Registry (CPF) will be performed through the Brazilian Federal Revenue, whilst the one related to the enrollment of foreign legal entities (CNPJ) will be done exclusively through the Electronic Information System of the Central Bank (SISBACEN).


Authors: Carolina Secches and Lígia Kirsten.

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