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 and fully convertible 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.
Prices and payments set in foreign currency likely to be allowed in more contracts
As the law currently stands, only contracts with a direct international connection were allowed to have prices and payments in foreign currency.
The new Law has opened the door for the National Monetary Council (Conselho Monetário Nacional, “CMN”) to add more types of contracts that will be permitted to adopt prices and payments in foreign currency.
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.
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 will be a thing of the past as soon as the new Law comes into force.
No registration on the remittance of profits/dividends, interest earned and royalties
Banks and foreign exchange dealers will merely require evidence that the applicable taxes have been paid, which will reduce the costs and bureaucracy required for the transfers.
The details about how these will operate will be set up in the Regulations.
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.
Regulations to be implemented by the Central Bank, not Congress
Timeline for implementation
The Regulations providing the details for the full implementation of the new Law are expected to be published in the next several months.
After that banks and foreign exchange dealers will need to implement their internal rules, which is likely to take a few months too. However, as the Central Bank of Brazil has been engaging with stakeholders for some time, it appears that they will be ready to operate under less strict rules as soon as the new Law comes into force.
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.
Last modified: February 15, 2022