Brazil: New legal framework for the Brazilian exchange market

February 2023 – Rossetti Advogados

The new legal framework for the Brazilian exchange market took effect last December 31, 2002. It was established by Law 14.286 of 2021, which changed the rules for currency transactions in Brazil, abroad (for Brazilians), and the form of provision of information to the Central Bank of Brazil.

The new framework for the exchange market updates the former framework, prepared in 1920, considering that it was necessary to update it to the current foreign-trade practices and the purchase of foreign currency in international travel, given the globalization process and technology incorporation of the current era.

With respect to Individuals, one of the main changes brought by the new law is the permission to sell foreign currency, provided this is not made professionally, but rather occasionally. Even though this is usual practice, it was not permitted by law. An example is the sale of currency left after a trip, for example. The limit is five hundred U.S. dollars (USD 500.00) between individuals.

The amount each person may carry in international travel has also been changed. The limit, which was set in Brazilian reais before the new framework, is now set in U.S. dollars. Now, instead of ten thousand Brazilian reais (BRL 10,000.00), each person may travel with up to ten thousand U.S. dollars (USD 10,000.00). The same rule applies to those who leave and those who arrive in Brazil.

In relation to Investments, the new framework allows banks and financial institutions to invest abroad funds raised in Brazil or abroad, and also facilitates the use of Brazilian currency in international transactions. The purpose of the new rule is to aid financing importers of Brazilian products. The flow of funds is now direct among companies of the same group.

Irrespective of such flexibilization, accounts in other currencies in Brazil are still not permitted. In fact, pursuant to the law, it is incumbent upon the Central Bank to regulate who may hold an account in foreign currency in Brazil and the applicable requirements. By granting this possibility, the new legal framework allows that, in the future, the autonomous government agency authorizes individuals to hold accounts in U.S. dollars in Brazil, for example.

The law also increased the list of cases in which payment of accounts in the Brazilian territory in foreign currency shall be permitted. Payments of leasing agreements entered into between residents in Brazil are now permitted if the funds are raised abroad. Indirect exports, when packaging producers, assemblers, or input sellers supply these materials or services to an export company are also permitted. Payments of foreign extensions of credit for transactions of these entrepreneurs may be made in foreign currency.

In addition, to increase the acceptance of Brazilian reais in other countries, there is a provision on rules with respect to payment order, and therefore the law now expressly permits the receipt of third-party payment orders from abroad from accounts in reais held in Brazil by means of foreign banks. For that purpose, banks that engage in this type of transaction will be required to obtain information on the foreign bank. The intention is to increase control with respect to the fight against money laundering and terrorism financing.

Companies that remit funds abroad by way of profits, dividends, interest, payment of royalties, and other regulated purposes may do it without the need for registration with the Central Bank, as it is currently the case. The only requirement is now the payment of tax.

With respect to taxes, the new law revoked the collection of supplementary income tax obtained with the sale of real properties when the owner is resident or has its principal place of business abroad. This tax varies from 40% to 60%.

Another revoked item is the prohibition that foreign banks purchase more than 30% of the voting shares of domestic banks if the buyer’s parent company is located in a country in which the law imposes restrictions on the operation of Brazilian banks.

Finally, as from the date on which the law took effect, various duties of the National Monetary Council (CMN) were transferred to the Central Bank, such as the regulation of foreign-exchange transactions, foreign exchange forward contracts used by the Central Bank to avoid speculation with the Brazilian real (swaps) and the organization and inspection of stock and foreign exchange brokerage firms.

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This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice foreign subsidiary as a comprehensive analysis of the matters referred to herein.