Brazil has a new Foreign Exchange Law

Written by | Intellectual Property

On 30 December 2021, Brazil’s new Foreign Exchange Law was passed. The new Law introduces material improvements to Brazil’s currency exchange rules and the treatment of foreign investors. It is also part of the continued effort being made by the Brazilian government to modernise Brazil’s business rules.

The Law will come into force on 31 December 2022.

Reciprocity principles to apply to foreign investments

The new Law expressly states that foreign capital “will be given identical legal treatment to that granted to [Brazilian] capital under the same conditions”.

This change makes it clear that reciprocity of treatment is a tenet of Brazilian law.

The Brazilian real is a free-floating currency

The new Law makes it clear that “transactions in the foreign exchange market may be made freely, without limitation of the amount” and that “the exchange rate is freely agreed” by the parties to the transaction.

Moreover, the new Law provides that banks are allowed to receive funds in Brazilian reals from abroad. This will allow for a greater number of agreements to be made in reals.

Non-residents to be allowed to hold bank accounts in Brazilian reals

The new Law confirms that banks will be allowed to hold non-residents’ accounts in Brazilian currency (the real). While this has been allowed for over a decade, the Regulations imposed such strict compliance levels on banks that the fees and bureaucracy involved made it virtually impossible for non-residents to hold accounts in Brazil.

While the new Regulations are yet to be issued by the Central Bank of Brazil, it is expected that the compliance requirements will be eased.

Authorised foreign exchange dealers to comply with AML/CFT rules

The Law provides that entities allowed to trade foreign currency will continue to have the duty to ensure that the transaction is lawful and to have in place measures and controls for preventing illegal activities including money laundering and combating the financing of terrorism (AML/CFT).

This maintains Brazil’s longstanding commitment to keeping with international compliance AML/CFT standards.

Offsetting of credits to be allowed

The new Law does away with Brazil’s currency exchange rules that prevented Brazilian and foreign companies from offsetting credits between them. The prohibition has its roots back in the 1930s, when currency controls were strict.

The offsetting of credits was perhaps the most unconventional of Brazil’s remaining currency control rules and it is now a thing of the past.

Regulations to be implemented by the Central Bank, not Congress

The new Law transfers all regulatory powers to the Central Bank of Brazil, which is by far the better body to deal with complex foreign exchange issues.

Timeline for implementation

The Regulations providing the details for the full implementation of the new Law are likely to take a few months to be published. After that banks and foreign exchange dealers will need to implement the internal rules, especially by the largest Brazilian banks.

Final Remarks

By enacting its new Foreign Exchange Law, Brazil once again shows its commitment to modernising its microeconomic rules and to bring about a better regulatory business environment. This is expected to continue, especially considering Brazil’s commitment to join the OECD.

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Last modified: January 8, 2022