The New Foreign Exchange and Foreign Capital Law, formally known as Law No. 14,286 of 2021, which came into effect in December 2022 (“New Exchange Law”), aims to simplify and modernize foreign trade operations and currency exchange processes. This legislation seeks to expedite international transactions by ensuring easy access to the foreign exchange market for individuals and legal entities engaged in domestic currency exchange activities.
Registration of Foreign Direct Investments (FDI) and Financial Operations (ROF)
Significant changes have been made, particularly regarding the reduction of bureaucracy surrounding the registration of Foreign Direct Investment (FDI) and Financial Operations (ROF). This new regulation intends to streamline and enhance the approval process for FDI and ROF.
As per the provisions outlined in the New Exchange Law, any entity established or organized within the Brazilian jurisdiction is eligible to receive foreign investment. Consequently, there are no exclusions or restrictions on the recipients of Foreign Direct Investments (FDI). Moreover, the previous registrations under the Foreign Direct Investment System (RDE-IED) will be replaced by registrations under the Foreign Capital Information Provision System for Foreign Direct Investment. Under this new system, registration of transactions will be required only when they involve amounts exceeding USD 100,000.00 or the equivalent in other currencies.
With regard to the new procedures for Foreign Direct Investments (FDI), Article 36 of the applicable regulation defines the reporting requirements for transactions in the following cases:
- capitalization through tangible or intangible assets;
- conversion of non-redeemable rights to the foreign country into investments not reported as external credit;
- transfer, exchange, and allocation of shares or stocks between resident and non-resident investors, or between non-resident investors;
- international allocation of shares or stocks;
- corporate restructuring;
- distribution of profits and dividends, payment of interest on equity, sale of ownership, capital restitution, and net assets resulting from liquidation, whether conducted directly abroad or in the national currency within the country;
- payments and receipts in the national currency in accounts held by non-residents;
Furthermore, in accordance with the New Exchange Law, the previous Financial Operations Registrations (ROFs) will be replaced by registrations under the Foreign Capital Information Provision System – External Credit. This updated registration will only be necessary for transactions involving amounts exceeding USD 1,000,000.00 or the equivalent in other currencies. Transactions below this threshold will not require registration. In such cases, the recipient of the funds, provided with the necessary documentation, may directly deal through an exchange contract with their bank. The bank will determine the specific supporting documentation required, as each bank has its own discretion in this matter.
In relation to regular statements such as the Quarterly Economic-Financial Statement (DEF), Annual Statement, and Quinquennial Statement, which are required to be submitted to the Brazilian Central Bank, several significant changes have been implemented, as outlined below:
- Regarding the DEF, entities receiving external resources with total assets equal to or exceeding BRL 300,000,000.00 are required to submit the mentioned statement. The deadline for submitting the DEF declaration with a reference date of December 31, 2022, is March 31, 2023.
- Concerning the Annual Statement, it is required to be submitted by recipients of Foreign Direct Investments (FDI) who, as of the reference date of December 31st of the previous year, have total assets equal to or exceeding BRL 100,000,000.00 (one hundred million Brazilian reais).
- With respect to the Quinquennial Statement (a new type of statement that was not provided for in the previous legislation), which has a reference date of December 31st of a calendar year ending in zero or five (5), it must be submitted by recipients of Foreign Direct Investments (FDI) who, as of December 31st of the previous year, have total assets equal to or exceeding BRL 100,000,000.00 (one hundred million Brazilian reais). No Annual Declaration is required in the years when the Quinquennial Declaration is filed.
In addition to the changes already implemented, the Brazilian Central Bank has indicated that further updates are expected to be released by November 2023. These updates may include the simplification of codes for foreign exchange transactions exceeding USD 50,000.00 (fifty thousand dollars). Martinelli will stay informed about any potential updates related to foreign capital in Brazil.