Soft Landing – How to establish a subsidiary of a foreign company in Brazil
published on January 19, 2024 by João Gabriel Ferrari In recent decades, the interest of foreign companies in so-called emerging markets has been growing. Factors such as the internal market, labor, costs, bureaucracy, inflation, geographic positioning, access to raw materials, among others, feed a complex equation through which investors decide where to direct their investment. Brazil, due to its set of advantages, has attracted many of these companies, especially those interested in accessing the thriving Latin American market. However, guidance, knowledge and planning are necessary for a smooth and profitable landing in the Brazilian market. Why establish a subsidiary in Brazil? Among the points that place the country on the private investment route, the size of the consumer market stands out often among the 3, 5 or 10 largest markets in each segment, the international logistics network, access to specialized labor at cost competitiveness, and the abundance of natural resources.. The continental dimension, in this sense, combined with a friendly climate throughout the year and abundant nature, facilitates access to inputs and labor, while at the same time offers a heated domestic market with significant consumption power. These are characteristics that, added to the favorable macroeconomic context, which includes significant industrial capacity, monetary estability and potential for economic growth, place Brazil in a privileged position to receive foreign companies. Betting on the country is proving to be an increasingly attractive and rewarding alternative, even if, to do so, it is essential to carefully navigate the treacherous waters of bureaucracy. Brazilian bureaucracy We need to take seriously the cliché that “Brazil is not for amateurs”. Regulatory difficulties and bureaucratic obstacles, in general, can frighten investors who are less prepared to deal with an avalanche of formal requirements involving successive protocols, stamps, licenses and authorizations. On the other hand, these requirements can be overcome with experience and vast knowledge of local legislation and regional procedures, particularly when we are talking about a territory with continental dimensions like Brazil. As a general rule, knowing the regulatory framework will bring greater understanding to comply with local legal requirements. In Brazil, opening a subsidiary of a foreign company takes more than triple the time than the global average. A long wait that, depending on the sector and the complexity of the operation, requires authorizations issued by up to four different ministries and several months of going back and forth to notary offices and public bodies. Brazilian bureaucracy is almost a separate “language”, so it is necessary to master it to be able to operate in the country. Or, as a solution, hire a specialized team accustomed to following this path in a much safer, faster and more efficient way. Assistance that will be necessary not only to overcome the initial obstacles, but also to deal with the complex tax framework, the lack of clarity in the legal environment, the difficulties in bookkeeping and the peculiarities of our banking system, among other obstacles. 7 steps to establish a subsidiary in Brazil In general, except for the specificities of sensitive sectors, as well as differences in procedures in different regions, it is possible to open a subsidiary of a foreign company in Brazil in seven (7) steps: Fiscal/tax and corporate planning; Appoint legal representatives in the country; Define the address of the registered office and branches, if applicable; Prepare constitutive acts with essential clauses that will establish the rights and duties of partners and managers; Obtain licenses/registrations/registrations and certificates at municipal, state and federal levels; Register foreign capital operations with the Central Bank; and Implement or outsource backoffice structure (accounting, human resources tax, billing, accounts payable, accounts receivable, controllership, finance). * *These seven (7) steps are just the main steps for establishing a Brazilian company with foreign partners. There are several other related procedures that must be taken so that a complete opening of a company in Brazil is possible. There are several other related procedures that must be taken so that a complete opening of a company in Brazil is possible. With seriousness, competence and professionalism, we make our experience and reputation of more than 18 years in Brazil available at the service of our clients, enabling the installation of subsidiaries of foreign companies in Brazil in a safe and efficient way. Conclusion The difficulties of operating in Brazil are directly proportional to the growth opportunities for foreign investors. Once the obstacles to start operations have been overcome, the return expectations certainly make up for the bet. It is essential, therefore, that the path is followed with full awareness of the challenges imposed by Brazilian bureaucratic culture and guided by precise, constant and efficient guidance. Our offices in São Paulo and Rio de Janeiro are available to help with this process. Is your foreign company interested to establish a subsidiary in Brazil? Count on the advice of highly specialized professionals to speed up bureaucratic processes. Is your foreign company interested to establish a subsidiary in Brazil? Count on the advice of highly specialized professionals to speed up bureaucratic processes. The team of Legal Representation of PLBrasil Group is available to assist you through the channels below: +55 (11) 3292-5050 nn.sp@plbrasil.com.br
Real Estate Regularization
Most Brazilians grew up hearing that investing in real estate is a safe way of protecting assets and earning income at the same time. If we consider that the Brazilian real estate market is one of the world’s largest, significant opportunities exist for attentive investors even in times of crisis. However, buying, selling, or maintaining a real estate property requires several obligations often unknown to the general public. If those obligations are not met, many people feel at a loss at how to comply with them. Besides, investors, contractors, developers, and large companies deal with significant bureaucratic obligations and cannot always manage real estate properly. More than knowledge, these situations require a strict control protocol to keep the various certificates inherent to the property up to date. When combined, ignorance and lack of management result in approximately half of the real estate properties in Brazil facing some irregularity, according to data from the Ministry of Integration and Regional Development. This reality affects small and large owners alike. How to regularize real estate? Firstly, one must identify the nature of the irregularity, which normally concerns: the absence of a public deed; a lack of entry registration; the absence of the certificate of occupancy during construction; the absence of a business license; and the non-payment of fees or taxes, such as the real estate conveyance tax (ITBI)/the estate and gift tax (ITMCD), deed fees, registration fees, financing fees, brokerage fees, the urban real estate tax (IPTU), the income tax, and condominium fees. Once the issue is identified, we can establish what action is needed to solve it. Then, the relevant documentation must be gathered, and the applicable amounts paid, to regularize any outstanding fees or taxes. One must bear in mind that regularizing real estate can be a significantly expensive process, and small mistakes can become a huge headache. The best way to avoid getting overwhelmed with fees, taxes, and documents when dealing with real estate is to hire specialized and qualified professionals to deal with this type of process. Real estate documentation management Managing a large portfolio of real estate properties is a task that requires strict methods and trained professionals who can deal with the complex bureaucracy involved. This is highly important not only to facilitate a possible liquidation of real estate but also to ensure that the company is able to take advantage of business opportunities requiring strict tax and accounting compliance. Participation in acquisition, merger, sale, court-supervised reorganization, bankruptcy, or bidding processes, among others, requires companies to maintain strict document regularization. In this context, a simply expired certificate could delay or even make an operation vital for a company’s survival unfeasible. In a country like Brazil, where bureaucracy is chaotic, neglecting such a critical activity can have grave consequences. Conclusion Keeping documentation updated is essential for large companies to remain competitive and permanently prepared to embrace business opportunities. However, dealing with the various Municipal, State, and Federal regulations affecting real estate is not a task for unskilled personnel. The PLBrasil Group has broad experience in controlling and managing real estate documentation and managing the process of obtaining and maintaining permits, registrations, accreditations, records, and licenses. Reach out, learn about our Digital Platform that streamlines certificate management, and count on the help of people with over 15 years of experience in developing due diligence solutions. The Corporate Certificates team of PLBrasil Group is available to assist you through the channels below: +55 (11) 3292-5050 nn.sp@plbrasil.com.br
What to expect from the market in 2024?
The constant challenge of staying competitive
published on January 16, 2024 by João Gabriel Ferrari The year 2023 was marked by uncertainties that kept managers and market analysts up at night. Gradually, the instability inherent to the political transition period dissipated, opening space for more prepared companies to maintain an escalation of growth. In this scenario, artificial intelligence (AI), for example, has proven to be a highly valuable tool in several areas, bringing innovation and efficiency to security systems, self-service robots, content generation, data analysis, accessibility, among others. It is a path of no return that must be followed by all those who wish to stand out in an increasingly competitive market. Competition, in this sense, was not limited to the classic price dispute, which proved to be especially fierce during the period. More than that, the fight was for efficiency, sustainability, anticipation of trends and other advantages. Companies that did only the basics suffered to deal with a macro context of high competitiveness, high interest rates, as well as legal and tax uncertainty. A horizon in which, despite the difficulties, the health and technology sectors stood out in M&A operations. A situation that illustrates that the constant search for new productive arrangements are indispensable actions for survival even in areas whose structures are significantly established and consolidated. A year of learning and innovations The PLBrasil Group was no different. The search for excellence and competitiveness required constant actions from managers and employees, focusing on team training and investment in digitalization and automation tools. In this sense, the improvement of our digital platform meant not only a step forward in terms of internal organization, but also the opportunity to offer customers a tool that speeds up processes, facilitates control and enables the improvement of their own routines. An administrative and technological apparatus unparalleled in the competition, which represents an invaluable competitive advantage. The constant search for perfect communion between hard human work and technological innovations was one of the most relevant strong points of the PLBrasil Group’s. A context of excellence that should be further expanded throughout 2024, through the improvement of what worked and also the incorporation of ESG policies as another of the action priorities. Good prospects for innovative companies Expectations for the year 2024, in general, are quite positive, with projections of controlling inflation and reducing interest rates, both in Brazil and in the United States. This context, if expectations are maintained, positively impacts the willingness of foreign investors to make investments in the Brazilian market. Not to mention the increase in investment in Artificial Intelligence, which promises to perfect Machine Learning to develop algorithms capable of learning and making decisions based on data. In 2024, the PLBrasil Group is firmly committed to its digital platform as a powerful ally to increase the competitiveness of its customers. A tool that, based on integration, automation, monitoring and sharing, simplifies document management, optimizing human work and reducing costs. In the same vein, it points to the adoption of ESG policies as one of the trends that cannot be ignored by companies that seek, through a genuine connection with society’s demands, to attract customers and investors. Far beyond greenwashing, building institutional reputation requires a true commitment to ethical, social and environmental premises. Although there are several challenges to be faced, such as controlling public spending and mitigating the effects of the recently approved tax reform, the year promises to be full of opportunities for the establishment and consolidation of new businesses. It is therefore necessary to always be one step ahead of the competition, paying attention to innovations that could result in competitive advantages. Albert Einstein coined the famous phrase: “Insanity is doing the same thing over and over again and expecting different results.” Managers of large corporations know, in this sense, that, in highly competitive environments, the survival and longevity of the business depend on constant adaptation. Being different, therefore, requires acting differently. The PLBrasil Group is available to assist you through the channels below: +55 (11) 3292-5050 nn.sp@plbrasil.com.br
Central Bank simplifies access to financial information with unification of the Loan and Financing Report (SCR)
The Central Bank, through its Institutional Service Department (Deati), announced a significant update to the Loan and Financing Report (SCR), effective December 6th. Previously divided into summarized and detailed versions, the new layout presents a unified report, optimizing access to the most relevant information for citizens. Sirlene de Freitas, Analyst at Deati, justifies the change, highlighting the origin of this transformation in responding to society’s demands. She clarifies that the Unified Report comes after extensive work analyzing the user journey and simplifying the language over the years. The main objective is to make information more understandable for citizens, following an approach of accessibility and transparency. The Loan and Financing Report continues to be a crucial tool for citizens and companies to view, in a centralized and free manner, information about their loans, financing and other credit operations in the financial system. With unification, it is expected that understanding the content of the report will be easier. The change aims to simplify the language and focus on the data most relevant to society. Sirlene de Freitas highlights that the unified report offers greater clarity about operations, distinguishing between debts to be paid and other financial commitments, such as guarantees, endorsements and credit card limits. This will give users a more detailed look at their financial responsibilities. The new report will allow for a more efficient analysis of debts, indicating their status (whether they are up to date or overdue), in addition to presenting information on credit limits, co-obligations and credits to be released. The search for accessibility is evident, making financial information more understandable for users. The Loan and Financing Report is part of the options offered by Registrato, a Central Bank service that allows you to consult information about accounts and financial relationships of people and companies. In addition to credit operations, the report also covers other relevant information, such as registered Pix keys, returned checks and exchange transactions carried out. Other Registrato reports have recently undergone reformulations, aiming to improve the user experience. These improvements reflect the Central Bank’s commitment to providing easy and understandable access to financial information. Highlighted, the Loan and Financing Report is the most sought after service within the Registrato, recording an average of 700 thousand reports generated per month in 2023. This highlights the importance of this tool for users who seek to understand and manage their financial activities in an effective and transparent manner. Consult the PLBrasil Paralegal team of experts to assist in accessing the new Loan and Financing Report (SCR): +55 (11) 3292-5050 nn.sp@plbrasil.com.br
Regulatory Audit and the role of paralegals
published on November 10, 2023 by João Gabriel Ferrari Corporate paralegals play a key role in relation to regulatory audits, contributing in a variety of areas to ensure that a company complies with the regulations and laws that govern its industry. Below you will find a few ways through which corporate paralegals may contribute: 1. Collecting and Organizing Documents: A paralegal may be responsible for collecting and organizing essential documents related to the company’s operations and practices, facilitating the analysis of information that may be required for the regulatory audit. 2. Legal Research: A paralegal may conduct legal research to identify regulations and laws relevant to the company’s industry, ensuring the audit is aware of all legal obligations. 3. Preparation of Regulatory Documents: This includes the preparation of reports, forms, and other documents required by regulatory authorities. The paralegal can ensure that these documents are correct and submitted within the established deadlines. 4. Conformity Review: The paralegal can assist the company when it reviews practices to ensure they comply with specific regulations and applicable laws. 5. Deadline Management: Keeping track of deadlines is critical in regulatory audits. The paralegal may help the company monitor and meet deadlines for the submission of regulatory documents and reports. 6. Communication with Regulatory Authorities: The paralegal may serve as a point of contact between the company and regulatory authorities, facilitating communication and providing responses to queries or requests. 7. Employee Training: The paralegal team may assist with the creation and provision of training for employees, making sure that they understand regulations and are aware of compliance practices. 8. Records Management: Keeping records organized and accessible is key. The paralegal can help create effective records management systems to meet regulatory requirements. 9. Risk Assessment: The paralegal can collaborate with the audit team to identify and assess regulatory risks, and help create mitigation strategies. In summary, the role played by a corporate paralegal is, among others, to provide valuable support in regulatory audits, helping the company comply with industry regulations, reduce legal risks, and ensure that the company has complied with all requirements. Collaboration between paralegals, auditors, and legal experts is key to ensure that the company is operating within the limits of the applicable regulations. Our team is at your disposal to take care of your company’s bureaucratic procedures swiftly so that you can focus on your core business. +55 (11) 3292-5050 nn.sp@plbrasil.com.br
Suspension of State Registrations – São Paulo State Revenue Office (SEFAZ-SP)
Throughout 2023, São Paulo State Revenue Office suspended thousands of State registrations of Value-Added Tax on the Circulation of Goods and Services (ICMS) taxpayers due to presumed inactivity. In addition, other taxpayers who received the tax visit and were not found, consequently, also had their registrations suspended due to non-location. Currently, SEFAZ-SP has gradually implemented the classification of taxpayers provided in the Supplementary Law that set forth the Tax Compliance Incentive Program – Nos Conformes (Supplementary Law No. 1.320 of 2018 and regulated by Decree No. 64.453 of 2019), i.e., the taxpayer receives a classification based on their behavior with the São Paulo tax authorities. Under this program, many taxpayers are having their State Registration suspended or even disabled. It is important to emphasize that with state registration suspended, companies are no longer allowed to issue invoices or purchase goods. Another punishment is the impossibility to obtain the Debt Clearance Certificate (CND) and the company is subject to fines. We at PLBrasil Paralegal Paralegal have a specialized team to reactivate your state registration quickly and safely. Contact us through the channels below: +55 (11) 3292-5050 nn.sp@plbrasil.com.br
Repealed Rule referring to the Publication of Balance Sheets and Financial Statements for Large Limited Liability Companies
Recently, JUCESP Resolution No. 01/2022, already had its enforceability suspended by JUCESP Resolution No. 02 of 08.31.2022. Now, with the new Normative Administrative Rule JUCESP No. 29/2023, the obligation of “large” limited liability companies, headquartered in the State of São Paulo, to publish their balance sheets and financial statements is definitively excluded. Which companies are exempt? It is understood as large limited liability companies, companies that, in the previous fiscal year, had total assets greater than two hundred and forty million Brazilian Reais (BRL 240,000,000.00) or annual gross revenue greater than three hundred million Brazilian Reais (BRL 300,000,000.00). The Administrative Rule retroacts its effects from the date of August 31, 2022, according to Jucesp Resolution No. 02/2022, of August 31, 2022, published in the DOE (State Official Gazette) on September 9, 2022, which suspended the effects of JUCESP Resolution No. 01/2022. The PLBrasil Paralegal Registry of Commerce teams is availabeto clarify any doubts through the channels below: +55 (11) 3292-5050nn.sp@plbrasil.com.br
SISCOMEX RADAR: How to register your company?
The Radar (Registration and Tracking of the Performance of Customs Interveners) is the Brazilian Federal Revenue Service’s mandatory licensing system that verifies whether a company or individual has the technical and financial capacity to legally operate in import and export transactions in Brazil. Without it, expanding a business internationally is impossible. Who can be licensed? The legislation provides that license may be requested by individuals and legal entities that intend to carry out import and export operations. Currently, the license for individuals is no longer required. However, the individual can only act in foreign trade in his own name, and only in the following foreign trade operations: (I.) operations of their professional activities, including as a rural producer, craftsman, artist or similar; (II.) own use and consumption; and (III.) personal collections. What are the modalities of RADAR? Considering the information regarding the licensing process, the Radar modalities are as follows: EXPRESS RADAR: For publicly traded corporations, with shares traded on the stock exchange or on the over-the-counter market, and their wholly-owned subsidiaries, public companies or government-controlled Companies. The legal entity included in the above cases will be subject to authorization in Siscomex in the Express modality and will not be subject to operating limits. LIMITED RADAR: For companies that wish to start their operations in foreign trade with a limit of $50,000.00 (fifty thousand dollars), or the equivalent in another currency, for imports per semester, and unlimited for exports. For companies that wish to start their foreign trade operations with a limit of USD 150,000.00 (one hundred and fifty thousand dollars), or the equivalent in another currency, for imports, per semester, and unlimited for exports. UNLIMITED RADAR: For companies that wish to start their operations in foreign trade above USD 150,000.00 (one hundred and fifty thousand dollars) for imports per semester, and unlimited for exports. For these cases, the company will not be subject to operating limits, either for import or export. What is Estimate Review? The Estimate Review is the process in which the importer demonstrates its financial capacity is greater than previously estimated, through proof of gross revenue, employees, among other possibilities. It is worth remembering that the Federal Revenue system supervises the volume imported by companies up to the pre-established limit, according to their modality. If this value is exceeded, the system may be blocked, and the importer must revise the estimate. It is recommended that the company request a review before exceeding the limit. To learn more about Siscomex Radar and learn about the services that PLBrasil gROUP can offer, get in touch with our specialists: +55 (11) 3292-5050 nn.sp@plbrasil.com.br
Learn about Central Bank of Brazil new changes in the mandatory rules and criteria for periodic quarterly, annual, and quinquennial provision of information concerning capital abroad
Foreign investment beneficiaries must observe the new rules to provide information concerning capital abroad to the Central Bank (BCB). We hereby inform that BCB Resolution No. 278 of December 31, 2022, which regulated Law No. 14,286/21, provides for the new rules and criteria for the mandatory provision of information concerning foreign direct investment, as well as periodic quarterly, annual, and quinquennial provision of information concerning capital abroad. Below is a summary of the new deadlines and criteria established: SUMMARY OF THE NEW DEADLINES AND CRITERIA ESTABLISHED: THIS YEAR: Exempt from the periodic declaration Companies receiving foreign direct investment with total assets of less than R$ 100 million Annual Periodic Statement Base date and submission deadline 12/31/2022 – 07/01/2023 a 08/15/2023 Taxable event Foreign direct investment beneficiaries with total assets equal to or greater than one hundred million Brazilian Reais (BRL 100,000,000.00), but less than three hundred million Brazilian Reais (BRL 300,000,000.00) Quarterly periodic statement Base date and submission deadline 12/31/2022 – 01/01/2023 to 03/31/2023 03/31/2023 – 04/01/2023 to 06/30/2023 06/30/2023 – 07/ 01/2023 to 09/30/2023 09/30/2023 – 10/01/2023 to 12/31/2023 Taxable event Foreign direct investment beneficiaries with total assets equal to or greater than three hundred million Brazilian Reais (BRL 300,000,000.00) Forecast for the following years: Exempt from the periodic declaration Foreign direct investment beneficiaries with total assets worth less than one hundred million Brazilian Reais (100,000,000.00) except for base years ending in zero or five. For years ending in 0 or 5, the investment beneficiary that has total assets worth less than one hundred thousand Brazilian Reais. Five-yearly periodic declaration Base date and submission deadline 12/31 – 01/01 to 03/31 Taxable event Foreign direct investment beneficiaries with total assets equal to or greater than one hundred million Brazilian Reais (BRL 100,000.00) for years ending in zero or five. Annual Periodic Statement Base date and submission deadline 12/31 – 01/01 to 03/31 Taxable event Foreign direct investment beneficiaries with total assets equal to or greater than one hundred million Brazilian Reais (BRL 100,000,000.00), but less than three hundred million Brazilian Reais (BRL 300,000,000.00) Quarterly periodic statement Base date and submission deadline 12/31 – 01/01 to 03/31 03/31 – 04/01 to 06/30 06/30 – 07/01 to 09/30 09/30- 10/01 to 12/31 Taxable event Foreign direct investment beneficiaries with total assets equal to or greater than three hundred million Brazilian Reais (BRL 300,000,000.00) Calendar Year 2023 Periodic Provision of Information concerning Capital Abroad Base date Deadline to submit information concerning capital abroad Taxable event Exempted 12/31/2022 n/a Foreign direct investment beneficiaries with total assets worth less than one hundred million Brazilian Reais (BRL 100,000,000.00) Annual 12/31/2022 07/01/2023 to 08/15/2023 Foreign direct investment beneficiaries with total assets equal to or greater than one hundred million Brazilian Reais (BRL 100,000,000.00), but less than three hundred million Brazilian Reais (BRL 300,000,000.00) Quarterly 12/31/2022 01/01/2023 a 03/31/2023 Foreign direct investment beneficiaries with total assets equal to or greater than three hundred million Brazilian Reais (BRL 300,000,000.00) 03/31/2023 04/01/2023 to 06/30/2023 06/30/2023 07/01/2023 to 09/30/2023 09/30/2023 10/01/2023 a 12/31/2023 Forecast for the following years (“after interim provisions”) Periodic Provision of Information concerning Capital Abroad Base date Deadline to submit information concerning capital abroad Taxable event Exempted December 31 n/a Foreign direct investment beneficiaries with total assets worth less than one hundred million Brazilian Reais (100,000,000.00) except for base years ending in zero or five. For years ending in 0 or 5, the investment beneficiary that has total assets worth less than one hundred thousand Brazilian Reais. Quinquennial December 31 01/01 a 03/31 Foreign direct investment beneficiaries with total assets equal to or greater than one hundred million Brazilian Reais (BRL 100,000.00)for years ending in zero or five. Annual December 31 01/01 a 31/03 Foreign direct investment beneficiaries with total assets equal to or greater than one hundred million Brazilian Reais (BRL 100,000,000.00), but less than three hundred million Brazilian Reais (BRL 300,000,000.00). Quarterly December 31 01/01 to 03/31 Foreign direct investment beneficiaries with total assets equal to or greater than three hundred million Brazilian Reais (BRL 300,000,000.00). March 31 04/01 to 06/30 June 30 07/01 a 09/30 September 30 10/01 to 12/31 Pursuant to Article 38 of the foregoing Resolution, the quarterly provision of information concerning capital abroad must be provided by the foreign direct investment beneficiary that, on the base date of the reference quarterly provision, has total assets equal to or above three hundred million reais (BRL 300,000,000.00). The deadline for filing the Quarterly Provision of Information concerning Capital Abroad for the 12/31/2022 base date remains unchanged, i.e., it must be filed by March 31, 2023. PFor companies whose total assets on 12/31/2022 were less than three hundred million reais (BRL 300,000,000.00), but in an amount equal to or greater than one hundred million reais (BRL 100,000,000.00), they will need to make the annual provision of information concerning capital abroad. As an interim provision, the annual periodic provision of information concerning capital abroad for the base date of 12/31/2022 must be filed exclusively through the Foreign Capital Census system (Censo), between July 1st and 6pm on August 15th, 2023. Note: Net Equity is no longer considered as a criterion for making aquarterly, annual, or quinquennial periodic provision of information concerning capital abroad. The PLBrasil Group’s Foreign Capital team is available to assist you with the registrations required by the Central Bank of Brazil through the channels below: +55 (11) 3292-5050 nn.sp@plbrasil.com.br
What changes in the Foreign Exchange Market and in Foreign Credit and Foreign Direct Investment Transactions following the new law?
published on 01/20/2023 by Thiago Moliani Law 14,286, enacted on December 29, 2021 (“Law 14,286/2021”), establishes, in article 5, item I, that it is the responsibility of the Central Bank of Brazil (BACEN) to regulate the foreign exchange market and its transactions and sets forth the types and characteristics of products, forms, limits, rates, terms and other conditions. The provisions of this law extensively revise the current requirements, but keep those used for supervision and statistical purposes, adopting the criterion of proportionality, which considers the values of the transactions, their purposes and the profiles of the individuals and companies that are party to them. The main changes resulting from the process were: 1. Bringing the handling of exchange transactions into line with other transactions made in the National Financial System (“SFN”), observing that, in the case of transactions with a client, the institution authorized to operate in the foreign exchange market must be able to prove to BACEN that the client consents to the agreed conditions. The Law sets forth the minimum information that must be included in the foreign exchange transaction and which must be sent to BACEN, and removes excessively prescriptive requirements concerning the subject, such as details on the signatures of the parties to foreign exchange transactions. 2. Simplification and rationalization of the process for classifying the purpose of foreign exchange transactions. Previously, institutions authorized to operate in the foreign exchange market were responsible for indicating the purpose (“nature”) based on client information, observing approximately 180 codes for transactions with clients, regardless of the value of the transaction. Now, the new Law establishes that the purpose will be indicated by the client, and reduces to ten the classification codes for foreign exchange transactions under fifty thousand US dollars (US$50,000.00), or the equivalent in other currencies, except foreign exchange transactions that need to be linked to foreign capital transactions reported in the BACEN system. Of these ten codes, eight will already be activated when the new regulation comes into effect and the remaining two, related to foreign credit transactions, are expected to be activated by November 1, 2023. For indicating the purpose of foreign exchange transactions in excess of this amount or those that, regardless of the amount, need to be linked to foreign capital transactions in the BACEN system, it is expected that, on November 1, 2023, the number of current codes for classifying the purpose of these transactions will be reduced by around half. This deadline is necessary due to the need for adjustments in the information systems of BACEN and institutions authorized to operate in the foreign exchange market. During this period, the current transaction classification tables, including the group code as part of the transaction’s purpose, will be maintained with specific modifications. 3. Institutions authorized to operate in the foreign exchange market may, according to their assessment, request or waive supporting information and documents for the course of transactions, considering the client’s assessment and the characteristics of the transaction. The provisions regarding the criteria to be adopted in relation to information and supporting documents for the purposes of preventing money laundering and combating the financing of terrorism (PLD/CFT) are now included in Circular 3,978, of January 23, 2020 (“Circular 3,978/2020”), which details the policy, procedures and internal controls to be adopted to prevent such illicit acts. Moreover, the text establishes that, if institutions authorized to operate in the foreign exchange market request the ancillary documentation, it must have it available to BACEN for a minimum period of ten years, as from the end of the fiscal year in which the contracting event occurs, or, as the case may be, the liquidation, cancellation or write-off of the exchange transaction. This period used to be five years, and the purpose of the modification was to make it compatible with Circular 3,978, of 2020. 4. Bringing the requirements for opening, maintaining, operating and closing accounts in reais for non-residents in line with those for resident accounts. The following exceptions remain, which have not been modified: (i) Necessity of maintaining these accounts with an institution authorized to operate in the foreign exchange market; (ii) Limit of one hundred thousand reais (BRL 100,000.00) per transaction in the case of a prepaid payment account in reais, except for transactions in exchange for the purchase or sale of foreign currency; (iii) Provision of information on aggregate amounts of credit and debit activity in accounts held by embassies and international organizations; (iv) Activity of interest of third parties limited to an account held by a non-resident institution subject to regulation and financial supervision in the country of origin, in which case the presentation of ancillary documentation must be assessed with the same criteria adopted in foreign exchange transactions and information must be provided about each activity. Changes in Provision of Information to the Central Bank of Brazil regarding Foreign Credit and Foreign Direct Investment Transactions We list below the main changes in relation to foreign capital in the country, in foreign credit transactions and foreign direct investment, as well as to the provision of information to the Central Bank of Brazil: I – Simpler, more concise rules, excluding requirements that are no longer necessary; II – Provision of information to BACEN regarding foreign credit and foreign direct investment only for a limited set of transactions, considering amount ranges and specific conditions; III – End of the requirement to provide information to BACEN regarding contracts between residents and non-residents concerning the use or assignment of patents, industry or trademarks, provision of technology, as well as those related to the provision of technical and similar services, foreign operating leasing and renting and chartering; IV – End of the restriction on remittances abroad for payments of principal and interest in foreign credit transactions in which there is no inflow of funds into the country, at the same time that it now requires the provision of information regarding foreign credit transactions with no inflow of funds, within certain criteria; V – Use of proportionality
