Chapter

BRAZIL

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: November 30, 1999.
Exchange Arrangement
CurrencyThe currency of Brazil is the Brazilian real.
Exchange rate structureUnitary.
Classification
Independently floatingBefore February 1, 1999, there were two official exchange markets. In both exchange markets, the rates were freely negotiated between authorized dealers and their clients. Banks conducted arbitrage operations between both markets; spot transactions had to be settled within two working days. The Central Bank of Brazil (CBB) established an adjustable band for the external value of the national currency. Before January 13, 1999, the spread of the intraband was 140 basis points between R$1.1975 per US$1 (floor) and R$1.2115 per US$1 (ceiling). Rates for other currencies were based on the dollar rates in Brazil and the rates for specific currencies in the international market.



Effective January 13, 1999, the CBB widened the exchange rate band within which the real fluctuated to between R$1.20 and R$1.32. Widening the band allowed for a gradual depreciation of the real. The CBB also announced that it was to adjust the band every three days. The new band allowed for a 10% variation between the floor and ceiling rates. On February 1, 1999, the exchange rate was unified.



CBB interventions in the foreign exchange market will be occasional, limited, and designed to counter disorderly market conditions. On June 21, 1999, a presidential decree was issued adopting an inflation-targeting framework as the guide for monetary policy.



Transactions in the exchange markets are carried out by banks, brokers, and tourist agencies authorized to deal in foreign exchange; the tourist agencies and brokers deal only in banknotes and traveler’s checks.
Exchange taxThe maximum tax on credit, foreign exchange operations, insurance operations, and on transactions in financial instruments or securities (IOF) is limited by law to 25%. For foreign exchange transactions, this tax is zero. A 0.5% tax is applied to the following transactions: (1) investments in Brazilian fixed-income funds; (2) inflows related to interbank operations between foreign financial institutions and banks authorized to conduct foreign exchange transactions in Brazil; and (3) holdings of short-term assets in Brazil by nonresidents. Effective March 12, 1999, the tax applied to fixed-income funds was reduced to 2% from 5%. A 2.5% tax is applied to remittances related to obligations of credit card administration companies to pay for purchases by their customers. This tax was reduced to 2% on December 9, 1999. Effective December 29, 1999, inflows related to external loans with a minimum average maturity of 90 days were allowed, but these remittances are taxed at 5%.
Exchange subsidyNo.
Forward exchange marketBanks are permitted to trade foreign exchange on a forward basis within the statutory limits (bought, sold) of the exchange position; such transactions must be settled within 360 days.
Arrangements for Payments and Receipts
Prescription of currency requirementsPrescription of currency is related to the country of origin of imports or the country of final destination of exports, unless otherwise prescribed or authorized. Settlements with Hungary are made under the terms specified in the bilateral agreement.
Payment arrangements
Bilateral payment arrangements
OperativeSettlements with Hungary are made in dollars every 90 days, and interest rates payable on balances are based on those in the international capital market.
Regional arrangementsBrazil is a member of the LAIA.
Clearing agreementsPayments between Brazil and Argentina, Bolivia, Chile, Colombia, the Dominican Republic, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Republica Bolivariana de Venezuela may be made through special central bank accounts within the framework of the multilateral clearing system of the LAIA.
Administration of controlThe National Monetary Council (NMC) is responsible for formulating the overall foreign exchange policy. In accordance with the guidelines established by the Council, exchange control regulations affecting foreign capital and the management of international reserves are under the jurisdiction of the CBB. The Ministry of Planning, Management, and Budget enforces limits on foreign borrowing by the public sector. Foreign trade policy is formulated by the Ministry of Development, Industry, and Trade, implemented by the Secretariat of Foreign Trade (SECEX) and carried out by the Department of Foreign Trade Operations (DECEX). The Department of International Negotiations (DEINT) or the SECEX is responsible for formulating guidelines for tariff policy. The DEINT also decides on changes in customs duties under the provisions of existing legislation. The MOF coordinates public sector import policy.
International security restrictions
In accordance with UN sanctionsThere are restrictions imposed on Iraq, Libya, the Taliban (the Islamic State of Afghanistan), and the UNITA movement in Angola.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)There are two separate markets for gold transactions: the financial and commercial markets. Transactions that occur in the financial market are regulated by the CBB. The first domestic negotiation of newly mined gold on this market is subject to a 1% financial transactions tax. Rules regarding gold transactions for industrial purposes are defined separately by the federal states, which also establish different rates for the commercial tax levied on them. The CBB and authorized institutions are empowered to buy and sell gold on the domestic and international markets. Purchases of gold are made at current domestic and international prices; the international price is considered a target price.
Controls on domestic ownership and/or tradeYes.
Controls on external tradeThe CBB and authorized institutions may buy and sell gold for monetary use on the international market. Imports and exports of gold for nonmonetary use are subject to the same procedures as those that are applied through the SECEX in respect of other products.
Controls on exports and imports of banknotesTravelers may take out or bring in domestic or foreign banknotes, checks, or traveler’s checks without restriction but must declare to customs any amount over the equivalent of US$10,000.
Resident Accounts
Foreign exchange accounts permittedThese accounts may be held by authorized foreign exchange dealers; Brazilian citizens living abroad; the Brazilian Post Administration; insurance and reinsurance companies and reinsurance brokers; and, effective February 24, 2000, companies responsible for the development and execution of projects in the energy sector.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency convertible into foreign currencyOnly funds deposited in accounts held in Brazil by foreign banks are convertible.
Nonresident Accounts
Foreign exchange accounts permittedThese accounts may be held by embassies, foreign delegations, international organizations, foreign transportation companies, foreign citizens in transit in the country, foreign insurance companies, and Brazilian citizens living abroad. Effective September 10, 1999, the NMC authorized energy companies to open accounts in foreign exchange.
Domestic currency accountsYes.
Convertible into foreign currencyNatural and juridical persons (financial and nonfinancial institutions) may hold these accounts. Only the resources deposited in nonresident banks or the resources that have entered Brazil through foreign currency sales and have not been withdrawn may be repatriated to foreign countries. These resources continue to be available to nonresidents once they are withdrawn, but only in the national currency.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetn.a.
Financing requirements for importsExternal financing of imports for periods in excess of 360 days must be registered in the Financial Operations Registry, an electronic system. Financing is considered approved by the CBB if the registration is not refused by its Department of Foreign Capital (FIRCE) within five days. The time to finalize anticipatory settlements for critical imports is 30 days.
Documentation requirements for release of foreign exchange for importsAll importers must be registered in the SECEX Importer and Exporter Register. Goods may be imported by firms and persons and must be registered by the CBB, except for imports by the public sector (federal, state, and municipal); imports by PETROBRAS (the Brazilian government oil enterprise) and contracting or subcontracting firms engaged in oil exploration through risk contracts; imports of medicine by individuals up to US$5,000; imports of samples without commercial value, except for pharmaceutical products up to US$1,000; imports of products, except for those prohibited or under special control, by individuals for personal consumption; and imports of goods considered as passengers’ baggage for personal use. The import subsystem of the Integrated Foreign Trade System (SISCOMEX/IMPORT) allows importers, carriers, banks, and brokers to register the various stages of an import process directly through the interlinked computers of SECEX, customs, and the CBB. Imports are grouped into the following three broad categories: (1) imports that do not require prior administrative documentation, including samples without commercial value and certain educational materials; (2) imports that require prior import licenses issued by the SISCOMEX/IMPORT; and (3) prohibited imports. Importers were permitted to purchase foreign exchange in the exchange market within 360 days of the settlement date. Effective October 28, 1999, the CBB eliminated the requirement for contracting foreign exchange for transactions related to imports. There is also a limit on the direct importation and purchase on the domestic market of consumer goods by the public sector (the government, autonomous agencies, and public enterprises).
Domiciliation requirementsRequired for imports originating or proceeding from countries under restrictions determined by the UN Security Council and imports of bovines in any form originating or proceeding from the United Kingdom.
Letters of creditThe drafts or LCs must be settled on maturity against the presentation of the appropriate documents by the importer. Exchange contracts for imports financed under LCs must be closed on the date of settlement or two working days before the maturity date of the LCs.
OtherFederal ministries and subordinate agencies and public enterprises are required to submit for approval by the Ministry of Planning, Management, and Budget an annual investment program specifying their expected import requirements.
Import licenses and other nontariff measuresSome imports require prior approval (i.e., an import license) from the DECEX. This approval is usually given promptly to registered importers of nonprohibited items. As a rule, licenses are valid for 60 days, except for imports of custom-made capital goods. The Secretariat of Federal Revenue issues clearance certificates for certain groups of commodities to special bonded warehouse importers. Import licenses for a number of specified imports may be obtained after the commodities have been landed and customs clearance obtained. The importation of certain products requires approval of the Ministry of Science and Technology. For some products, eligibility for exemption from import duties may be precluded by the existence of a satisfactory domestic equivalent. Most imports are exempt from prior approval requirements. As of January 1, 1999, all trade between MERCOSUR partners was liberalized, with the exception of trade in automobiles and sugar.
Negative listImports of agrochemical products not authorized under Brazilian regulations; weapons; and certain drugs that are not licensed for reasons of security, health, morality, or industrial policy are prohibited.
Open general licensesOGLs are no longer issued by the SECEX. Issuance is restricted to their annexes, up to the existing remainder of issued OGLs.
Licenses with quotasIn addition to imports under Brazilian concessions covered by the LAIA agreement, goods imported into the Manaus and Tabatinga free zones are subject to an annual quota. Foreign goods up to the equivalent of US$2,000 imported into the Manaus free trade zone may be transferred to other parts of Brazil (as a passenger’s baggage) free of import taxes. In accordance with WTO rules, quotas are imposed on imports of textiles from China, Hong Kong SAR, Korea, Panama, and Taiwan Province of China due to their effect on the domestic industry. The tariff rate on imports of toys is 25% plus a possible safeguard extension of 15%. For vehicles carrying more than nine persons, the tariff is 65%. For automobiles, transport vehicles, motorcycles, and bicycles, tariffs are 35%, while assemblers established in Brazil may be favored with a special tariff of 17.5%.
Other nontariff measuresSanitation and measurement requirements must be observed.
Import taxes and/or tariffsThe MERCOSUR customs union agreement stipulates a CET ranging from zero to 20% on about 85% of traded goods, and the remaining 15% of goods (including a list of national exceptions, capital goods, and computer goods) are subject to a schedule of adjustments designed to bring them into line with the CET within five or six years. The adjustment regime allowed Brazil and Argentina to maintain tariffs on some intra-area trade until January 1, 1999, and Paraguay and Uruguay to maintain some intra-area tariffs until January 1, 2000. The number of goods on Brazil’s list of national exceptions to MERCOSUR is 450.
Taxes collected through the exchange systemForeign exchange transactions related to imports of goods have IOF exemption, and foreign exchange transactions related to imports of services have a tariff of zero.
State import monopolyImports of petroleum and derivatives are conducted by the state.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsProceeds must be surrendered before 180 days from the shipment date or 20 days after receipt of proceeds, whichever comes first.
Financing requirementsAdvances on foreign exchange contracts are allowed for operations with terms up to 360 days.
Documentation requirementsDocumentation includes invoices, international shipment notification, and export registration. There is a simplified arrangement for foreign exchange transactions related to exports up to the equivalent of US$10,000.
Preshipment inspectionInspection is required for commodities subject to standardization.
Export licensesExports of wild animals and their hides, hair, plumes, or eggs in any form; jacaranda-da-Bahia wood; ipecacuanha plants; red and drab varieties of honey; and antiques of more than 100 years are prohibited. Exports of certain goods require prior approval of the SECEX, including those effected through bilateral accounts, exports without exchange cover, exports on consignment, reexports, commodities for which minimum export prices are fixed by the SECEX, and exports requiring prior authorization from government agencies. SISCOMEX integrates the activities related to the registration, monitoring, and control of foreign trade operations into a single computerized flow of information. The SISCOMEX comprises two subsystems (exports and imports). The exports subsystem allows exporters, carriers, banks, and brokers to register the various stages of an export process directly through the interlinked computers of the SECEX, customs, and the CBB.
With quotasExports of sawed or cleft pine woods, mahogany, Brazilian walnut, and virola are subject to quotas. For exports of ethyl alcohol and sugar in any form, including sugarcane syrup inappropriate for human consumption, the eligibility for exemption from the export tax of 40% is subject to quotas on the basis of an annual quantity exceeding domestic necessity authorized by the Industry, Trade, and Tourism Minister and the MOF. Imports under Brazilian concessions subject to quotas due to agreements in the LAIA member countries and goods imported into the Manaus and Tabatinga free zones are subject to an annual quota. Foreign goods up to the equivalent of US$2,000 imported into the Manaus free trade zone may be transferred to other parts of Brazil (as a passenger’s baggage) free of import taxes.
Export taxesExports are free from these taxes or are subject to a zero rate duty, with the exception of exports of (1) raw hides, which are subject to an export duty of 9%; and (2) cigarettes to Latin America, which are subject to an export duty of 150%. On January 31, 1999, the interest rate equalization feature of the federal export financing facility was eliminated on exports of consumer goods destined to MERCOSUR countries.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersPayments for current invisibles not covered by current regulations require approval from the CBB’s Exchange Department (DECAM) or the FIRCE. Indicative limits/bona fide tests apply to all payments for invisible transactions and current transfers.
Trade-related paymentsFor unloading and storage costs there are established rules and surveillance procedures related to the operations freely conducted in the commercial market. Regulations on insurance and reinsurance transactions in foreign currency are set by the National Council on Private Insurance.
Prior approvalYes.
Indicative limits/bona fide testYes.
Investment-related paymentsIn addition to certain restrictions on remittances stipulated in the Foreign Investment Law, limits on income tax deductions are placed on remittances of royalties and technical assistance fees. It has been possible, however, to make payments of interest on own capital. This kind of payment may be deducted from income tax liability to determine the taxable income of companies, subject to a 15% income withholding tax. Profit remittances related to direct investments are exempt from withholding for income tax purposes. Payments due to depreciation of direct investments are not established by the laws and regulations. As a result, remittances abroad from direct investments are treated as dividends, interest on own capital, capital gains, and return (repatriation) of capital.
Prior approvalPayments for medium- and long-term external debt are subject to prior approval by, and registration with, the CBB’s FIRCE, and require a certificate of registration, which is the authorization to remit abroad the related interest, expenses, and fees, provided that due taxes are paid. Profit and dividend remittances are allowed only when the initial foreign capital concerned, including reinvestments, contracts for patents and trademarks, and for technical, scientific, and administrative assistance, has been registered with the CBB’s FIRCE. Those contracts must be registered with the Financial Registration, which is an electronic system.
Quantitative limitsAmounts due as royalties for patents or for the use of trademarks, as well as for technical, scientific, and administrative assistance and the like, may be deducted from income tax liability to determine the taxable income, up to the limit of 5% of gross receipts in the first five years of the company’s operation. Amounts exceeding this limit are considered profits.
Indicative limits/bona fide testYes.
Payments for travel
Indicative limits/bona fide testYes.
Personal payments
Indicative limits/bona fide testYes.
Foreign workers’ wages
Indicative limits/bona fide testYes.
Credit card use abroad
Indicative limits/bona fide testYes.
Other payments
Indicative limits/bona fide testYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsExchange proceeds from current invisibles must be sold to the authorized banks at the prevailing market rate.
Restrictions on use of fundsn.a.
Capital Transactions
Controls on capital and money market instrumentsResidents are allowed to purchase bonds or other debt securities, money market securities, and collective investment securities through dedicated offshore investment funds (FIEX).



Foreign investment funds are organized in the form of open-end mutual funds. Participation is limited exclusively to natural and juridical persons, and to funds and other collective investment entities resident, domiciled, or headquartered in Brazil. Foreign investment funds may be managed by a multipurpose bank, commercial bank, investment bank, brokerage firm, or securities distributor under the supervision and direct responsibility of the manager of the institution.



Until February 10, 1999, a minimum of 60% of the fund’s investments had to be in securities representative of the federal government’s external debt and a maximum of 40% in other securities traded in the international market. Then, the minimum share of Brady bonds in FIEX funds was increased to 80%. These securities must be kept abroad in a custodian account in the fund’s name. The fund is authorized to conduct operations in organized derivative markets abroad solely for the purpose of hedging the securities making up the respective portfolio.



Inward and outward transfers of resources through foreign investment funds are subject to registration with the CBB for purposes of monitoring and controlling Brazilian investment, as well as the respective income, investment repatriation, and capital gains. Transfers are processed in foreign currency through the free exchange rate market.



On June 17, 1999, a 0.38% tax was levied on all financial transactions.



Earnings from the redemption of shares of foreign investment funds are subject to an IOF of 0.38%. There is also a 20% income tax to be withheld by the managing institution of the foreign investment funds on the date of the redemption payment or credit and to be paid within three working days of the two-week period following the occurrence of the taxable event. Effective July 1, 1999, a 15% tax was levied on foreign investment profits from Brazilian fixed-income funds.
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsThe direct purchase of shares of Brazilian companies by nonresidents basically occurs through direct investments and portfolio investments made by the representatives in the country. Effective March 31, 2000, nonresidents were allowed to purchase shares and other securities listed in the Brazilian stock market. Depositary receipts (DRs) constitute another method of acquiring shares through stock exchanges in the MERCOSUR environment.



The representative of nonresidents in the country is responsible for the registration of foreign investment with the CBB, foreign exchange settlements, the collection of taxes, portfolio bookkeeping, and the safekeeping of documents related to the portfolio.



There is no limit or hold period for financial transfers resulting from inflows, flowbacks, and profits or dividends from capital duly registered with the CBB, provided that the accounting rules and tax laws are complied with. The transfers must be processed through banks authorized to conduct foreign exchange operations, with guaranteed access to the free foreign exchange market to purchase foreign currency.



Natural and juridical persons resident or domiciled in MERCOSUR countries may invest freely in Brazilian stock exchanges without the necessity of trading through investment funds or portfolios. The Brazilian market may be accessed directly by contacting a member institution of the Brazilian securities distribution system, or indirectly through the intermediation of an institution in the securities distribution system of the investor’s country.



The Brazilian intermediary institution, through which the foreign investor trades, represents the investor vis-à-vis the Brazilian authorities with respect to the operational, exchange, and tax aspects, and provides information on the operations executed. These investments may be made in dollars, in the currency of the country of origin of the investment, or in reais. Operations involving the repatriation of capital are exempt from income tax withholding.



Earnings from variable-income investments are subject to a 10% income tax withholding (but exempt from income tax on capital gains), and those from fixed-income investments are subject to a 15% income tax withholding, except those from fixed-income funds, which are not taxed.
Sale or issue locally by nonresidentsThe sale of shares of foreign enterprises in Brazil is regulated essentially for the MERCOSUR environment through share custody certificates or directly. The only way to sell other foreign securities in Brazil is through DRs, which allow the placement of certificates representing these shares in the Brazilian market. Inward and outward remittances associated with investments must be processed through banks authorized to conduct foreign exchange operations in the floating exchange rate market for transactions from MERCOSUR countries and in the free exchange rate market for DR transactions. There are no limits or hold periods for the investments, although authorization is required for DR issues.
Purchase abroad by residentsBrazilian natural and juridical persons may make investments through the purchase of custody certificates on Brazilian stock exchanges representing shares issued by companies headquartered in MERCOSUR countries. These securities may be purchased through foreign investment funds or through direct equity investments in enterprises abroad. Regulations permit employees of firms belonging to foreign economic groups to purchase shares of the main company up to US$20,000. Outside MERCOSUR, residents are allowed to purchase depositary receipts issued abroad based on securities issued in Brazil by resident issuers.
Sale or issue abroad by residentsIn addition to the rules already mentioned governing the purchase of shares on stock exchanges by residents and the specific regulations for MERCOSUR, collective investments may be made through Brazilian investment companies and funds.



Issues of securities abroad by residents are accorded the same treatment as direct external borrowing operations. Thus, exchange contracts involving the entry of foreign currencies must be authorized in advance by the CBB. Fund transfers associated with issues of securities abroad are subject to the conditions of the respective certificates of registration issued by the CBB, the conditions of which are set forth in the contract between the debtor and the creditor.
Bonds or other debt securities
Purchase locally by nonresidentsNonresidents are allowed to purchase bonds or other debt securities through dedicated investment funds.
Sale or issue locally by nonresidentsn.r.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsBonds and some other debt securities may be issued by residents but are subject to prior approval by, and registration with, the CBB’s FIRCE and the issue of a certificate of registration, which is the authorization to remit abroad the related interest, expenses, fees, and amortization of principal, provided that due taxes are paid. There is a minimum average maturity of 90 days. Effective December 29, 1999, the minimum average maturity was eliminated. Foreign loans of less than 90 days are instead subject to an IOF of 5%.
On money market instruments
Purchase locally by nonresidentsNonresidents are allowed to purchase money market instruments issued by the central bank through dedicated investment funds.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
On collective investment securitiesResidents are allowed to issue commercial paper subject to approval by and registration with the CBB’s FIRCE and the issue of a certificate of registration, which is the authorization to remit abroad the related principal and other payments, provided that due taxes are paid.
Purchase locally by nonresidentsPortfolio investments by foreign investors in fixed-income instruments are restricted to two classes of fixed-income funds: those that are subject to a transaction tax of 0.5% from March 17, 1999, through June 30, 1999, and 2% thereafter, and the privatization funds, which are tax free.



Effective March 31, 2000, nonresidents were allowed to purchase collective investments in other securities as well as portfolios of stocks and securities, DRs, conversion funds, privatization funds, real estate investment funds, and emerging enterprises investment funds. The constitution of these funds must be announced in writing to the CBB within a maximum of five days. Funds entering the country are subject to registration with the CBB for purposes of controlling foreign capital and future remittances abroad of cash dividends or bonuses and capital gains realized in the sale of the company’s shares.



Inward and outward remittances associated with investments must be processed through banks authorized to conduct foreign exchange operations and having guaranteed access to the free exchange rate market to purchase foreign currency.
Sale or issue locally by nonresidentsn.r.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
Controls on derivatives and other instrumentsEffective July 29, 1999, the CBB allowed forward, future, and options transactions in farm products by nonresidents.



Effective March 31, 2000, foreign investors were given access to derivative markets for the first time.
Purchase locally by nonresidentsAny operation by a nonresident investor in derivatives or other future settlements markets may only be performed or registered in stock exchanges, commodities and futures exchanges, or over-the-counter markets organized by an entity authorized by the securities commission or settlement and custody system accredited by the CBB or authorized by the securities commission under their respective jurisdictions. In addition, resident and domiciled natural persons and corporations, including those having their head office abroad; funds; and other entities of foreign collective investment may perform transactions in commodities and futures exchanges involving forwards, futures, and options contracts in farm products. There are no restrictions on investments in derivative operations in Brazil by recipients of direct investments.
Sale or issue locally by nonresidentsNonresident financial institutions are allowed to issue swaps in the domestic market, subject to constituting the regulatory capital charge against the counterparty credit risk of such operations if they are not guaranteed by a clearinghouse.
Purchase abroad by residentsPrivate sector entities may engage in hedging operations with financial institutions or stock exchanges abroad to protect themselves against the risk of variations in interest rates, exchange rates, and commodity prices. The costs of such operations must conform to the parameters in force in the international market. The CBB may, at its sole discretion, require foreign exchange compensation sufficient to eliminate the effects of operations not in line with the established objective, or executed outside those parameters, without prejudice to other sanctions that may apply. Payments and receipts in foreign currency scheduled or expected to occur in the future in connection with commercial or financial rights or obligations may also be protected by hedging. Hedging operations, however, are subject to the following limits at any time: (1) in interest rate and currency swaps, the operations are limited to the amount of the underlying commercial or financial rights and obligations remaining in foreign currency; and (2) in commodities swaps, open positions are limited to the physical volume of the commodity to be exported, imported, or traded in the domestic market.
Sale or issue abroad by residentsThe same regulations apply as for purchases abroad by residents.
Controls on credit operations
Commercial credits
By residents to nonresidentsOnly two forms of credits are permitted: (1) the Exporting Financing Program (PROEX), which is financed with national budget funds—PROEX resources may not be used to establish any facility for foreign public or private entities, insofar as financing is granted on a case-by-case basis and because credit may not be made available to nonresidents for use in several installments spread over a period of time; and (2) the Machinery and Equipment Export Financing Program (FINAMEX), which is operated through agent banks by the Special Agency for Industrial Financing (FINAME). FINAMEX provides funds so that financial institutions (FINAME agents) can grant loans to national exporters at rates and on terms similar to those available to their foreign competitors.
To residents from nonresidentsCommercial credits with terms in excess of 360 days must be authorized by and registered with the FIRCE of the CBB.



Prepayment of exports must be authorized by the CBB prior to the entry of the foreign exchange into Brazil. Operations governed by these regulations have a 361-day minimum term and are exempt from income tax and from the taxes on credit, exchange, insurance operations, and securities operations. The CBB authorizes and registers external financing for imports of capital goods, intermediate goods, raw materials, and other goods and merchandise, regardless of the type of importer or the destination of the merchandise, if the operations have a term of at least one year.



In private sector import operations without the director indirect surety or guarantee of a public sector entity, the financing terms—interest rate, spread, down payment—are freely contracted by the parties. In the case of a public sector entity and in cases involving the direct or indirect surety or guarantee of a public sector entity, interest rates may not exceed the LIBOR rate for the reference period plus specified maximum spreads.
Financial credits
By residents to nonresidentsRequests for authorization may be approved by the CBB, as there is no legal impediment to doing so.
To residents from nonresidentsThe proceeds of financial credits granted to residents must be kept within the country, and the resources must be used for investment in economic activities. Exchange contracts involving the entry of foreign exchange in connection with borrowing are subject to prior approval by the CBB. The minimum average maturity for external loans is 90 days. Effective December 28, 1999, the minimum average maturity was eliminated. Foreign loans of less than 90 days are instead subject to an IOF of 5%.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsGuarantees by nonfinancial juridical persons in credit operations for their foreign subsidiaries are subject to prior authorization by the CBB.



Exchange operations involving financial transfers abroad in the execution of bank sureties and guarantees are carried out exclusively through the floating exchange rate market when such guarantees relate or are linked to (1) imports and other foreign currency operations not covered by certificates issued by the CBB or by a facility; and (2) repatriation of amounts entering the country as advance payment for exports in the event of nonshipment of the goods.



Exchange operations involving financial transfers associated with the execution of payment guarantees for imports, loans, or external financing covered by certificates of authorization or registration issued by the CBB are processed through the free exchange rate market.
To residents from nonresidentsThere are no controls on guarantees provided by nonresidents to residents in connection with foreign capital registered with the CBB, subject to the presentation of a formal statement by the foreign entity furnishing the guarantee. Data concerning the guarantee and the costs incurred in obtaining it are included in the Certificate of Authorization or Registration of the guaranteed operation. If costs are incurred in obtaining the guarantee, the credit operation must be authorized in advance by the CBB.



There are no specific regulations governing other operations. In the event of execution of a guarantee, the beneficiary must arrange for the entry of the corresponding foreign exchange directly through the banking system.
Controls on direct investment
Outward direct investmentBanks authorized to conduct foreign exchange operations may transfer up to US$5 million for each financial group, including all remittances in the last 12 months, and they are basically required to keep on file and make available to the CBB the documents mentioned in said regulations. Transfers exceeding the established limit must first be submitted to the CBB no less than 30 days in advance of the exchange contract, irregardless of the amount. Exchange operations in which the purchaser of the foreign exchange is an entity belonging to the direct or indirect public administration are subject to prior authorization by the CBB. In this case, remittances must be processed through the free exchange rate market.



Brazilian enterprises may invest in financial institutions abroad through the floating exchange rate market. However, such investments by nonfinancial enterprises require prior approval of the CBB and must meet some specified conditions. Investments abroad by institutions authorized to operate by the CBB must obtain the prior opinion of the CBB’s Department of Financial System Organization and satisfy several conditions, especially with respect to paid-up capital, net assets, time in operation, fixed-asset ratio, and borrowing ceilings.
Inward direct investmentApplications for the registration of foreign direct investment and technology are not subject to prior authorization. Investments in commercial banks are limited to 30% of the voting capital, if there are controls on the operations of Brazilian banks in the markets where their main offices are located. The establishment in Brazil of new branches of financial institutions domiciled abroad is prohibited. Also, any increase in the percentage of equity participation in financial institutions headquartered in Brazil by natural or juridical persons resident or domiciled abroad is prohibited, except for authorizations resulting from international agreements, from reciprocity arrangements, or in the interest of the Brazilian government as expressed by presidential decree.



In the case of highway freight transportation, there are limitations on equity participation of up to one-fifth of the voting capital stock, except for companies established before July 11, 1980, to which different rules apply. In future capital increases by subscription, however, such entities are required to pay up to four-fifths of said increases in ordinary registered shares through national underwriters.



Foreign participation in journalistic and radio and television broadcasting enterprises is prohibited. Direct or indirect equity participation by foreign enterprises or capital in the health care sector in Brazil is also prohibited, except in special cases.



The registration of foreign investment through the verification of patent or trademark rights as a means of paying in capital is subject to prior recording of the deed of transfer or assignment of the rights to use the patent or trademark with the National Institute of Industrial Property, and is limited to the value stated in the latter. The investment is registered in the currency of the country where the beneficiary is domiciled or headquartered, and must be requested from the CBB by the party receiving the investment.



Foreign investments via the contribution of goods without exchange cover are subject to electronic registration with the CBB and authorization by the SECEX. The goods, machinery, or equipment must be used in the production of goods or the provision of services, must have a useful life of more than five years, and must be part of the enterprise’s assets for at least five years.



Investments through currency transfers are not subject to prior authorization. This type of investment may take place through the free exchange rate market to pay up the subscribed capital of enterprises already operating in Brazil, to organize a new enterprise, or to acquire an interest in an existing Brazilian enterprise.



Branches of foreign companies may be opened, subject to the prior issuance of an authorizing decree by the president of the Republic. A branch is considered an office of a foreign enterprise. Enterprises established in Brazil with any degree of foreign equity participation are not covered by this restriction.



The entry of resources associated with the investment must be processed through a banking institution authorized to conduct foreign exchange operations.
Controls on liquidation of direct investmentRemittances of proceeds must be processed through banks authorized to conduct foreign exchange operations.
Controls on real estate transactionsNo.
Controls on personal capital movements
Loansn.r.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsGifts and endowments require the approval of the CBB.
To residents from nonresidentsThere are no controls, but documentary support is required.
Settlement of debts abroad by immigrantsYes.
Transfer of assets
Transfer abroad by emigrantsThe beneficiary must prove he or she is leaving Brazil, and certificates of the Secretariat of the Federal Revenue are required.
Transfer into the country by immigrantsThere are no controls, but documentary support is required.
Transfer of gambling and prize earningsRemittances for gambling are not permitted.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadForeign borrowing for terms exceeding 360 days is subject to authorization and registration with the CBB. The CBB requires that banks authorized to conduct foreign exchange operations obtain facilities abroad for terms of up to 360 days to extend commercial credit in Brazil.



The National Bank for Economic and Social Development, private investment or development banks, commercial banks authorized to conduct foreign exchange operations, and multipurpose banks with a commercial portfolio (if authorized to conduct foreign exchange operations and holding an investment or development portfolio) are permitted to contract loans abroad to be onlent to enterprises in Brazil by issuing commercial paper. They may also borrow abroad by issuing floating-rate notes, fixed-rate notes, floating-rate certificates of deposit, fixed-rate certificates of deposit, government bonds, and private bonds.



Financial institutions in the National Rural Credit System may borrow abroad to finance costs, investment, or the marketing of agricultural and livestock production.



Banks may raise funds abroad to be onlent to natural or juridical persons to finance the construction or purchase of new real estate. Banks authorized to conduct foreign exchange operations may use facilities contracted for terms exceeding 360 days with banks abroad to finance imports by resident enterprises. The public sector may engage in external credit operations for the settlement of internal debt. The rate of the IOF applied to lending operations in foreign currency is zero.



Effective January 3, 2000, banks may borrow funds abroad to be applied freely in the domestic market.
Lending to nonresidents (financial or commercial credits)There are no legal provisions authorizing banks or credit institutions headquartered in Brazil to grant financial loans to nonresidents or to purchase securities issued abroad for terms exceeding 360 days. This restriction does not apply to the foreign branches of Brazilian banks with regard to commercial credit.
Lending locally in foreign exchangeAll contracts, securities, or other documents, as well as any obligations executable in Brazil that require payment in foreign currency, are null and void. Consequently, banks are prohibited from granting foreign currency loans within Brazil. However, this regulation does not apply to the onlending of external foreign currency loans.
Purchase of locally issued securities denominated in foreign exchangeDomestic operations in foreign currencies are prohibited.
Open foreign exchange position limitsUntil February 1, 1999, the limits differed according to the exchange market in which the transactions took place. After February 1, 1999, the following limits were in effect:



(1) Banks authorized to conduct foreign exchange operations could hold long positions of up to US$6 million, including all currencies and all of each bank’s branches. Amounts exceeding this ceiling had to be deposited with the CBB in dollars. The ceiling on banks’ short exchange position was contingent upon each bank’s adjusted net worth. Effective May 27, 1999, open positions in foreign exchange are not to exceed 60% of capital, and banks must increase capital by 50% of the excess of their open positions over 20% of capital.



(2) For licensed dealers (brokerage firms; securities distributors; and credit, financing, and investment enterprises), the ceiling on the long exchange position is US$500,000, and no short exchange position is allowed.



(3) Licensed tourism agencies may not maintain exchange positions, but they are required to observe the daily operational ceiling (cash) of US$200,000; any surpluses have to be sold to licensed banks or dealers.



(4) Providers of tourist accommodations may have cash holdings in foreign currencies of up to US$100,000 to meet their operational needs; any surplus has to be sold to licensed banks or dealers.



Effective October 28, 1999, banks’ short foreign exchange position became unlimited.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investors
Limits (max.) on portfolio invested abroadInstitutional investors may invest up to 10% of their technical reserves in investment fund shares abroad. Private social security agencies may also invest up to 50% of their reserves, together with other investments up to the same ceiling, in shares of open companies, publicly issued convertible debentures, bonds for subscriptions to shares issued by open companies, and certificates of deposit for shares issued by companies headquartered in MERCOSUR countries.
Other controls imposed by securities lawsn.a.
Changes During 1999
Status under IMF Articles of AgreementNovember 30. Brazil accepted the obligations of Article VIII.
Exchange arrangementJanuary 13. The exchange rate band was widened to R$1.20–R$1.32.



February 1. The exchange rate became determined by market forces.



February 1. The exchange rate was unified.



March 12. The tax applied to foreign capital fixed-income funds was reduced to 0.5% from 2%.



June 21. A presidential decree was issued adopting an inflation-targeting framework as the guide for monetary policy.



December 9. The tax applied to remittances related to obligations of credit card administration companies to pay for purchases by their clients was reduced to 2% from 2.5%.
Nonresident accountsSeptember 10. The NMC authorized oil and energy companies to open accounts in foreign currency.
Imports and import paymentsJanuary 1. All trade between MERCOSUR partners was liberalized, with the exception of trade in automobiles and sugar.



October 28. The CBB eliminated the requirement for contracting foreign exchange for transactions related to imports.
Exports and export proceedsJanuary 31. The interest rate equalization feature of the federal export financing facility was eliminated on exports of consumer goods destined to MERCOSUR.
Capital transactionsFebruary 10. The minimum share of Brazilian Brady bonds in FIEX funds was increased to 80% from 60%.



December 29. The minimum average maturity was eliminated. Foreign loans of less than 90 days are instead subject to an IOF of 5%.
Controls on capital and money market instrumentsJune 17. A 0.38% tax was levied on all financial transactions.



July 1. A 15% tax was levied on foreign investment profits from Brazilian fixed-income funds.
Controls on derivatives and other instrumentsJuly 29. The CBB allowed forwards, future, and options transactions in farm products by nonresidents.
Controls on credit operationsJanuary 27. The minimum average maturity for external loans was reduced to 90 days.
Provisions specific to commercial banks and other credit institutionsFebruary 1. The ceiling on banks’ short-exchange position was made equal to each bank’s net worth.



May 27. Open positions in foreign exchange are not to exceed 60% of capital, and banks must increase capital by 50% of the excess of their open positions over 20% of capital.



October 28. Banks’ short foreign exchange positions became unlimited.
Changes During 2000
Exchange arrangementFebruary 1. The IOF applied to remittances related to obligations of credit and administration companies was reduced to 2% from 2.5%.
Resident accountsFebruary 24. The NMC authorized companies in the energy sector to operate foreign currency accounts.
Capital transactionsMarch 31. Nonresidents were allowed to purchase shares and other securities listed in the Brazilian stock market.
Controls on capital and money market instrumentsMarch 1. Foreign investors were given access to derivative markets for the first time.
Provisions specific to commercial banks and other credit institutionsJanuary 3. Banks were allowed to borrow funds abroad to be applied freely in the domestic market.

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