- The Brazilian Federal Revenue Department (“RFB”, from its original in Portuguese) has issued new rules for the disclosure of ultimate beneficiaries of foreign companies that hold certain assets (including shares in private companies) in Brazil.
- The time for compliance has been postponed to 25 June 2019.
- Among other things, non-compliance will prevent the Brazilian company from managing bank accounts, making investments and obtaining loans in Brazil.
On 28 December 2018 the RFB published Normative Instruction 1,863/2018 (“NI”), which contains replaces the rules governing the National Register of Legal Entities (known as the “CNPJ”).
As per its previous version, the NI requires that most foreign companies disclose certain beneficial owners (as the expression is defined in the NI; these are also referred to as the ultimate beneficial owners – or “UBOs” – in some countries) to the RFB.
The modernisation of the regulations are a reflection of Brazil’s continued commitment to fighting corruption and avoiding money laundering and tax evasion, which is part of Brazil’s efforts to become a member of the OECD.
What entities must disclose the ultimate beneficiaries?
The obligation to disclose falls on those entities domiciled abroad which hold rights over Brazilian:
- real estate, vehicles, ships, aircraft and other types of vessels;
- bank accounts, stock holdings or investments in the financial and capital markets; or
- shares or other types of corporate holdings in entities outside the capital markets.
Further, foreign entities that carry out activities related to leasing, chartering of vessels, equipment and simple leases, or that import goods without foreign exchange coverage for the purpose of paying up capital of Brazilian companies, are also bound to disclose.
What entities are exempt from disclosing the ultimate beneficiaries?
The following entities do not require registration of the ultimate beneficiaries:
- foreign entities registered as public entities (listed or not) in Brazil or in countries where it is mandatory to disclose all relevant shareholders;
- not-for-profit entities that do not act as fiduciary managers (for as long as these are not registered in countries with beneficial or privileged taxes systems – i.e. “tax havens”);
- multilateral institutions, central banks and government entities (including those entities linked to sovereign funds);
- private pension, health funds and investment vehicles with traded securities when they are regulated by the authorities in the country of origin deemed acceptable by Brazil’s Securities and Exchange Commission (CVM).
Who is a “beneficial owner”?
The NI defines “beneficial owner” as the “individual who ultimately, directly or indirectly, owns, controls or influences the entity” or “the individual on whose behalf a transaction is made”. NI provides that “significant influence” is found when an individual who, directly or indirectly:
- holds more than 25% of the capital of the legal entity;
- holds or exercises dominance in corporate resolutions; or
- has the power to elect the majority of the legal entity’s directors, even without having ultimate control over the entity.
What documents must be provided?
Article 20 of NI provides that each foreign entity that holds shares in a Brazilian company must file with the Federal Revenue Department the following documents for the purposes of maintaining its CNPJ registration:
- a copy of the articles of association, bylaws, constitution or equivalent (as applicable) or current company extract;
- a copy of the company director’s legal ID or passport;
- a copy of the minutes of shareholders’ meeting appointing the directors “or equivalent document” showing the powers held by the directors (if this is not available in the company’s registration documents in the foreign country);
- a certified copy of the power of attorney (if the person is not appointed in the company’s foreign registration documents) appointing a Brazilian individual who is a permanent resident with the powers to “manage the assets and rights of the legal entity” in Brazil, represent the company before the tax authorities, and be served on behalf of the company;
- a certified copy of the ID of the person who holds the power of attorney as registered with the Federal Revenue Department; and
- a list of the company’s shareholders and directors.
All documents from outside Brazil need to be apostilled (or legalised at the Brazilian consulate or embassy, if the country where the documents are issued is not a member of the Hague Apostille Convention) and translated by a sworn translator registered in Brazil.
The documents must be filed via the REDESIM portal, which is the latest system put out by the Federal government to attempt to streamline the registration and maintenance of companies in Brazil.
By when do the companies must provide the documents to the tax authorities?
For legal entities that already registered in Brazil, the information and additional documents relating to the beneficial owner must be provided to the RFB by 25 June 2019.
For newly registered legal entities, the ultimate beneficiaries must be provided to the Federal Revenue Department within 90 days of the entity’s registration.
What are the consequences of non-compliance?
The legal entities that do not comply with the new requirements will have their CNPJ registration suspended. Having the suspension of the CNPJ means that the legal entity will be prevented from participating in public procurement processes and, in practice, its Brazilian subsidiary will have issues obtaining credit with suppliers and financial institutions.
Moreover, non-compliant companies will not be allowed to carry out banking transactions (including moving funds in and out of accounts, making investments and obtaining loans), except for the purposes of repatriation of capital and to comply with obligations incurred prior to the suspension taking place.
Last modified: August 19, 2019