Brazilian Central Bank publishes rules that regulate provisions of the new legal framework for the Brazilian Exchange Market

On December 31, 2022, the Central Bank of Brazil (“BCB”) published the rules that regulate certain provisions of Law No. 14,286, of December 29, 2021 (“New Legal Framework for the Brazilian Exchange Market”).

The rules provide for:

• the regulation of the foreign exchange market;

• the inflow and outflow, in Brazil, of amounts in Brazilian reais and in foreign currency; and

• the definition of residents and non-residents for the purposes of the BCB.

They are:

• BCB Resolution No. 277 (“BCB Resolution 277”), which regulates the foreign exchange market and the inflow and outflow of amounts in Brazilian reais and in foreign currency in Brazil;

• BCB Resolution No. 278 (“BCB Resolution 278”), which regulates foreign capital in Brazil and the reporting of information to BCB;

• BCB Resolution No. 279 (“BCB Resolution 279”), which provides for Brazilian capital abroad;

• BCB Resolution No. 280 (“BCB Resolution 280”), which establishes the definition of residents and non-residents for purposes of the New Legal Framework for the Brazilian Exchange Market; and

• BCB Resolution No. 281 (“BCB Resolution 281”), which establishes transitional provisions that must be complied along with BCB Resolution 278.

In order to modernize, simplify and ensure greater legal certainty to the New Legal Framework for the Brazilian Exchange Market, the new resolutions introduce rules that aim to minimize red-tape procedures and increase transparency within the Brazilian exchange market, in addition to adjusting Brazil’s operations to international standards, in order to establish an advantageous business environment and foster international investment in Brazil.

Below are the main changes in each resolution:

BCB Resolution 277:

1. Codes for classification of foreign exchange operations

In line with the New Legal Framework for the Brazilian Exchange Market, the client of the institution authorized to operate in the foreign exchange market must inform the purpose of the foreign exchange operation. Through BCB Resolution 277, the Central Bank reduced to ten the classification codes for exchange operations below USD 50,000.00 and not subject to foreign capital registration with the BCB, except for exchange operations that must be linked to foreign capital operations informed through the BCB’s system.

Eight of these ten codes are already in force, while the two remaining codes are expected to enter into force soon. For operations involving amounts higher than USD 50,000.00, the current exchange classification codes were maintained, with some adjustments, such as the inclusion of specific codes referring to virtual assets, gaming and betting, reimbursement for services rendered or received, assignment of credits and indemnities not related to insurance.

2. Non-residents accounts in reais

Progress has been made to equate accounts in reais of non-resident holders to accounts of Brazilian residents, in regard to the opening, maintenance, transactions and closing of such accounts, subject to a few exceptions, such as:

• the accounts must be maintained in an institution authorized to operate in the exchange market;

• the limit of BRL 100,000.00 per transaction, in case of a prepaid payment account in reais, except for purchase and sale of foreign currency;

• transactions of interest to third parties are limited to accounts held by foreign financial institutions, with increased control over the submission of supporting documentation; and

• the purpose for operations above BRL 1 million must be reported, with the exception of operations subject to the registration of foreign capital, whose operation purpose must be informed to BCB regardless of the amount involved.

3. Extension of maintenance term for supporting documentation.

The term for filing and submission (if requested by BCB) of supporting documentation regarding the exchange transaction carried out by the institution authorized to operate in the exchange market has been extended from five to ten years.

The institution authorized to operate in the exchange market can request supporting documents and information for the carrying out of exchange operations, taking into consideration the profile of its client and the details of the transaction.

As for the supporting documentation related to anti-money laundering measures and to the combat against terrorism financing (PLD/CFT), the provisions of Circular No. 3,978/2020, which provides for this subject, must be followed.

4. Inflow and Outflow of Amounts in Cash

The inflow and outflow of amounts in cash above USD 10,000.00, either in Brazilian reais or foreign currency, can only be carried out with the participation of a bank authorized to operate in the foreign exchange market. Payment institutions will not be allowed to carry out the inflow or outflow of such amounts in cash. Before the New Legal Framework for the Brazilian Exchange Market, this amount was limited to BRL 10,000.00.

5. No change in foreign currency accounts

It is important to highlight that Resolution BCB 277 has not introduced changes regarding foreign currency accounts held in Brazil, which continues to be possible only in specific cases provided for in the regulations, such as deposit accounts in foreign currency held by:

• travel agencies;

• international embassies and organizations;

• issuers of international credit cards;

• companies in charge of the implementation and development of projects in the energy sector;

• insurance companies;

• institutions authorized to operate in the exchange market, etc.

Resolution BCB 278 and Resolution BCB 281:

1. Minimum amounts to trigger the obligation to inform BCB regarding foreign direct investment

The obligation to inform BCB regarding foreign direct investment is now applicable only to transactions involving an amount equal to or higher than USD 100,000.00.

2. Minimum amounts to trigger the obligation to inform BCB regarding Foreign Credit

The obligation to inform BCB regarding foreign credit is now applicable only to certain transactions. The amount ranges are as follows:

(a) USD 1 million for direct loan operations, export pre-payment operations and foreign financial leasing (these last two options with payment terms exceeding 360 days); and

(b) USD 500,000.00 for financing operations for the import of goods or services, with payment terms exceeding 180 days.

3. Economic and Financial Statements

Quarterly economic and financial statements (“DEF”) are now applicable to Brazilian companies with foreign direct investment and with total assets equal to or exceeding BRL 300 million (and no longer BRL 250 million in assets or net worth).

4. Annual Report

As of November 2023, annual reports will apply to Brazilian companies with foreign direct investment and total assets equal to or higher than BRL 100 million. For the base date of December 31, 2022, the annual report must be submitted through the foreign capital census system, between July and August 2023.

5. Five-year Report

The five-year report (which replaces the five-year census) is now applicable to Brazilian companies with foreign direct investment and total assets equal to or higher than BRL 100,000.00. Its base date remains December 31, for years ending in zero or five.

6. Supporting documentation of transactions

According to BCB Resolution 278, documents supporting financial transactions of foreign credit and foreign direct investment must be kept for a period of ten years, as of the conclusion of the transaction or the completion of participation in the capital stock of the receiver, given that BCB can request such information whenever deemed necessary.

7. Simultaneous Foreign Exchange Transactions

Simultaneous foreign exchange transactions consist of a sale transaction and a purchase transaction in the same amount, currency, contract date and settlement date, with immediate settlement, but without effective inflow and outflow of funds. Such transactions are used in specific cases provided for in the regulations, such as in the renegotiation of a direct loan, conversion of a loan into capital stock and assignment of debt between debtors, among others.

According to the new regulation, the provisions on simultaneous exchange operations must be followed only until October 31, 2023.

BCB Resolution 279:

Brazilian Capital Abroad Report (DCBE)

The limits for Brazilian capital abroad report have not been changed, and such report is mandatory:

• on an annual basis, to residents in Brazil that hold goods, assets and rights abroad totaling at least USD 1 million on the base date of December 31; and

• on a quarterly basis, to residents in Brazil that hold goods, assets and rights abroad totaling at least USD 100 million on the base dates of March 31, June 30 and September 30.

2. Documentation to support DCBE Reports

The party in charge of providing information must keep the supporting documentation used to validate the information provided for a period of ten years, as of the base date of the DCBE Report.

BCB Resolution 280:

BCB Resolution 280, which provides for the definition of residents and non-residents for the purposes of the New Legal Framework for the Brazilian Exchange Market, establishes that:

(i) a resident will be defined as an individual:

(a) who resides in Brazil on a permanent basis;

(b) who is absent from Brazil to provide services abroad for the Brazilian Federal Government;

(c) who is in Brazil with a residence authorization granted for an undetermined period of time, as of the date of arrival into the country;

(d) who is in Brazil with a temporary visa, working under an employment agreement or developing economic activity in Brazil or who has been living for more than 12 consecutive months in Brazil, provided that there is no statement from the individual justifying the reduction or increase of this term to the institution authorized to operate in the exchange market;

(e) a Brazilian person that, in the condition of non-resident, arrives in the country with definitive intent to stay, as of the date of arrival; and

(f) a resident who temporarily withdraws from the Brazilian territory during the first 12 consecutive months of absence, provided that there is no statement from the individual justifying the reduction or increase of this term to the institution authorized to operate in the exchange market.

(ii) a non-resident: will be defined as an individual:

(a) who does not meet the conditions provided to be qualified as a resident;

(b) who permanently leaves the Brazilian territory, as of the date of departure from Brazil;

(c) who, as a non-resident, provides services from Brazil as an employee of a foreign government, except as provided for in item (e) of item (i) above; and

(d) a resident who is absent from Brazil on a temporary basis, as from the day to the completion of 12 consecutive months of absence, provided that there is no statement from the individual justifying the reduction or increase of this term to the institution authorized to operate in the exchange market.

(iii) as for legal entities, the legal entity domiciled or headquartered in Brazil will be considered a resident, and the entity domiciled or headquartered abroad and that does not meet the conditions provided to be qualified as a resident will be considered a non-resident.

Demarest’s Banking and Finance team is available to provide any further clarifications that may be necessary.