On 31 December 2022, Brazil’s new Foreign Exchange Law came into force. The Law introduced material improvements to Brazil’s currency exchange rules and its treatment of foreign investors. It is also part of Brazil’s continued efforts towards the modernisation of its business rules with a view to becoming an OECD member.
Also on 31 December 2022, the Central Bank of Brazil published new regulations that came into force on the same day:
- Regulation 277/2022, which provides rules for buying and selling foreign currency, international payments via transfer service providers (eFX), non-resident accounts, accounts in foreign currency and paper gold transactions;
- Regulation 278/2022, which addresses foreign loans and foreign direct investments into Brazil;
- Regulation 279/2022, which contains the regulations for the international capital flows and holdings as well as the provision of information to the Central Bank of Brazil by Brazilian residents;
- Regulation 280/2022, which provides the definitions of “resident” and “non-resident” for the purposes of the new Law; and
- Regulation 281/2022, which deals with conversion of investments (for instance, from a loan into capital) and the type of information required to be provided to the Central Bank of Brazil by the entities receiving loans and foreign direct investments.
Importantly, transfers of less than US$100,000 sent to Brazil for foreign direct investment purposes and loans for less than US$1 million are no longer required to be declared to the Central Bank of Brazil. The same applies to import finance transactions for less than US$500,000 with a term of up to 180 days. Note, however, that there is a general obligation to keep the supporting documentation relating to all transactions for 10 years.
Even where transactions are to be declared to the Central Bank of Brazil the information is fairly basic and should not cause concerns.
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 basic 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 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 types of contracts
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.
More non-residents allowed to hold bank accounts in Brazilian reals
The new Law confirms that banks may 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 difficult and expensive for non-residents to hold accounts in Brazil.
The new Law also provides that non-residents’ bank accounts are to be treated in the same manner as residents’ accounts and the Regulations have substantially reduced the information required to be provided to the Central Bank of Brazil. For transfers of less than R$1 million the only information required to be provided is:
- amount and date of the transfer;
- identification of the bank account holder; and
- personal details of the sender and final beneficiary.
Although more banks operating in Brazil are allowing accounts to be held by non-residents, bank fees are still much higher than those applicable to residents. As time passes, it is expected that compliance requirements will become less strict and fees will continue to be reduced.
Offsetting of credits allowed
The new Law ends Brazil’s the rules that prevented Brazilian and foreign companies from offsetting credits between them. The prohibition dated back to the 1930s, when currency controls were strict.
The offsetting of credits was perhaps the most unconventional of Brazil’s remaining currency control rules. It is now a thing of the past.
No registration on the remittance of profits/dividends, interest earned and royalties
The new Law does away with the requirement of registration of the remittances of profits/dividends, interest and royalties with the Central Bank of Brazil.
Banks and foreign exchange dealers now merely require evidence that the applicable taxes have been paid, which will reduce the costs and bureaucracy required for remittances.
Authorised foreign exchange dealers to comply with AML/CFT rules
The new 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 now under the jurisdiction of the Central Bank, not Congress
The new Law transfers all regulatory powers to the Central Bank of Brazil, which is far equipped to deal with complex foreign exchange issues than the Congress.
Implementation by banks
Banks have already commenced changing some of their internal rules and procedures.
Now currency exchange agreements are no longer required to be signed for each currency exchange transaction, with one document being signed for all international money transfers.
Also, banks have advised customers that it is up to them (the customers) to inform the grounds under which the funds are being remitted (until the Law came into force, banks were bound to do it).
The new Foreign Exchange Law is another example of Brazil’s commitment to modernising its microeconomic rules and to bringing about a better regulatory business environment. I am hopeful that this will continue despite the recent change of government at the Federal level.
I am confident that the new Law will reduce paperwork and improve the speed with which money can be sent in and out of Brazil.
Contact me if you would like further information. My firm is ready to assist you.
Brazilian Central Bank Brazilian real Compliance Foreign capital Foreign currency Foreign Direct Investment Foreign exchange Forex FX International contracts Non-resident bank accounts OECD
Last modified: April 25, 2023