Annual Report on Exchange Arrangements and Exchange Restrictions 2005


International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

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.
Independently floatingThe exchange rate of the real is determined by supply and demand in the foreign exchange market. Transactions in the exchange markets are carried out by banks, brokers, tourist agencies, and providers of accommodation for tourists that are authorized to deal in foreign exchange. Brokers and tourist agencies deal only in banknotes, bank drafts, and traveler’s checks. Providers of accommodation for tourists may only buy banknotes, bank drafts, and traveler’s checks.
Exchange taxA 5% tax is applied to inflows related to external loans with a minimum maturity of up to 90 days. A 2% tax is applied to remittances related to obligations of credit card administration companies to pay for purchases by their clients. The tax is zero for other foreign exchange transactions.
Exchange subsidyNo.
Forward exchange marketBanks are permitted to trade foreign exchange on a forward basis within statutory limits (bought and 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 required only in foreign exchange transactions related to the LAIA covenant. These transactions must be made in dollars.
Use of foreign exchange among residentsThe use of foreign exchange for pricing or settlement of transactions among residents is prohibited.
Payments arrangementsAll interbank transactions and clearinghouse operations must be effected through the Central Bank of Brazil’s (CBB) real-time gross-settlement payments system
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 República 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 NMC, exchange control regulations affecting foreign capital and the management of international reserves are under the jurisdiction of the CBB. Foreign trade policy is formulated by the Chamber of Foreign Trade, which consists of the minister of development, industry, and foreign trade (head); the minister of the civil house; the minister of finance; the minister of planning, budget, and administration; the minister of foreign affairs; and the minister of agriculture and supply. The Ministry of Development, Industry, and Foreign Trade is in charge of implementing trade policy, through the Secretariat of Foreign Trade (SECEX).
International security restrictions
In accordance with UN sanctionsRestrictions are maintained on transactions with the Taliban.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)There are three separate markets for gold transactions: the financial, exchange, and commercial markets. Transactions that occur in the financial market are regulated by the CBB. The first domestic transaction of newly mined gold on this market is subject to a financial transactions tax of at least 1%. Rules regarding gold transactions for industrial purposes are defined separately by the federal states, which also establish different rates for the commercial tax levied thereon.
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 with respect to 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 R$10,000 or its equivalent.
Resident Accounts
Foreign exchange accounts permittedThese accounts may be held by authorized foreign exchange dealers, tourist agencies not authorized to deal in foreign exchange, Brazilian citizens living abroad, the Brazilian Post Office Administration, credit card administration companies, companies responsible for the development and execution of projects in the energy sector, and insurance and reinsurance companies and reinsurance brokers.
Held domesticallyYes.
Accounts in domestic currency held abroadn.r.
Accounts in domestic currency convertible into foreign currencyNo.
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, Brazilian citizens living abroad, and reinsurance companies.
Domestic currency accountsYes.
Convertible into foreign currencyNatural and juridical persons (financial and nonfinancial institutions) may hold these accounts. Only resources deposited in nonresident banks or 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 budgetNo.
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 and Exchange within five days. The time limit for finalizing 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; registration automatically occurs with the first transaction. Imports must be registered in the import subsystem of the Integrated Foreign Trade System (SISCOMEX/IMPORT), which allows importers, carriers, banks, and brokers to register the various stages of an import process directly through the interlinked computers of the SECEX, customs, and the CBB. Imports are grouped into the following three categories: (1) imports that do not require automatic licenses, (2) imports that are subject to automatic import licenses, and (3) prohibited imports. Federal ministries and subordinate agencies and public enterprises are required to submit for approval an annual investment program specifying their expected import requirements. There is a simplified arrangement for foreign exchange transactions related to imports of small amounts.
Domiciliation requirementsThese are required for imports originating or proceeding from countries under restrictions determined by the UN Security Council.
Letters of creditDrafts 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.
Import licenses and other nontariff measuresIn general, imports are exempt from prior approval requirements. However, some imports require prior approval (i.e., an import license) from the SECEX or other government agency. This approval is promptly given to importers whenever the licensing requirements are fulfilled. 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.
Negative listImports of agrochemical products not authorized under Brazilian regulations; weapons; and certain drugs that are not licensed for reasons of security, health, or morals are prohibited.
Licenses with quotasIn addition to imports under Brazilian concessions covered by the LAIA agreement, goods imported through 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. The tariff rate on imports of toys is 20% plus a possible safeguard extension of 9% for 2005 and 8% for 2006.
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%, though higher rates may be exceptionally applied in particular cases, such as 53 products pertaining to the automotive sector, on which a rate of 35% applies. Additionally, the MERCOSUR countries have approved the use of temporary national tariff exceptions, according to which Brazil exempts from the CET 100 tariff lines until December 31, 2005. Exemptions for 302 tariff lines pertaining to information and technology goods will expire on the same date.
Taxes collected through the exchange systemForeign exchange transactions related to imports of goods are exempt from the tax on financial operations, and foreign exchange transactions related to imports of services have a tariff of zero.
State import monopolyImports of petroleum and derivatives are subject to prior disclosure from the National Petroleum Agency.
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 requirementsNo.
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, feathers, or eggs in any form; jacaranda-da-Bahia wood; ipecacuanha plants; amber and white varieties of honey; and antiques older 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, and exports requiring prior authorization from government agencies. The 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 cut pine woods, mahogany, Brazilian walnut, and virola are subject to quotas. For exports of ethyl alcohol and sugar in any form, including sugarcane syrup unsuitable 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. An annual quota is in place for imports under Brazilian concessions, subject to quotas due to agreements with the LAIA member countries and for goods imported into the Manaus and Tabatinga free zones. 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 taxesIn general, exports are exempt from export taxes or are subject to a tax of zero. However, export duty applies to the following: (1) cashew nuts with husk, 30% whenever the amount of exports exceed 10,000 tons; (2) fume products exported to Paraguay and Uruguay, 105%; (3) cigarettes to Central America, the Caribbean, and South America, 150%; (4) raw hides, 9%; (5) tanned leather and skins, 7% for 2005 and 4% for 2006; (6) cylinders for cigarette filters to Central America, the Caribbean, and South America (except Argentina, Chile, and Ecuador), 105%; and (7) weapons and ammunition to Central America, the Caribbean, and South America (except Argentina, Chile, and Ecuador), 150%.
Payments for Invisible Transactions and Current Transfers
Controls on these transfers
Trade-related paymentsFor unloading and storage costs there are established rules and surveillance procedures related to 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.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirements
Surrender requirementsExchange proceeds from current invisibles must be sold to authorized banks at the prevailing market rate.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsNonresident capital transactions must be registered electronically at the CBB.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsLimitations apply to participation in certain economic activities.
Sale or issue locally by nonresidentsThe sale of shares of foreign enterprises (essentially from MERCOSUR countries) in Brazil is regulated through share custody certificates or directly. The only way to sell other foreign securities is through Brazilian Depository Receipts (BDRs), which allow the placement of certificates representing these shares in the Brazilian market.
Purchase abroad by residentsResidents are allowed to purchase bonds or other debt securities and money market securities through dedicated offshore investment funds (FIEX).
Residents may invest only on stock exchanges in MERCOSUR countries. Outside MERCOSUR, Brazilians are allowed to purchase BDRs issued abroad by companies headquartered in Brazil. Regulations permit employees of firms belonging to foreign economic groups to purchase shares of the main company up to the equivalent of US$20,000 for each employee, for a period of not less than 12 months.
Sale or issue abroad by residentsCorporations may issue depository receipts abroad. In the MERCOSUR countries, Brazilian enterprises may operate through share custody certificates or directly.
Bonds or other debt securities
Sale or issue locally by nonresidentsNonresidents may offer these instruments only through private placements.
Purchase abroad by residentsResidents may purchase bonds or other debt securities through FIEX.
Controls on derivatives and other instrumentsForeign investors have access to derivative markets. They are required to register locally for identification purposes.
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. In addition, nonresidents may trade any exchange-listed derivative contracts.
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. 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.
Controls on credit operations
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.
Controls on direct investment
Outward direct investmentBrazilian nonfinancial enterprises may transfer up to the equivalent of US$5 million, including all remittances in the previous 12 months. Transfers exceeding the established limit must first be submitted to the CBB before the exchange contract. 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. Investments abroad by institutions authorized to operate by the CBB must obtain the prior approval 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 investmentThere are legal limitations on participation in certain economic activities.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsNo.
Controls on personal capital transactions
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsGifts and endowments require the approval of the CBB.
Settlement of debts abroad by immigrantsYes.
Provisions specific to commercial banks and other credit institutions
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 on-lending of external foreign currency loans.
Purchase of locally issued securities denominated in foreign exchange
Domestic operations in foreign currencies are prohibited.
Investment regulations
Abroad by banksYes.
In banks by nonresidentsYes.
Open foreign exchange position limitsBanks authorized to conduct foreign exchange operations may hold long positions of up to the equivalent of US$6 million, including all currencies and all of each bank’s branches. Amounts exceeding this ceiling have to be deposited with the CBB in dollars. The ceiling on banks’ short exchange position is unlimited, provided that the total amount of combined exposure in gold, assets, and liabilities in foreign exchange does not exceed 30% of each bank’s base capital. Banks must increase capital by their open positions over 5% of capital.
For licensed dealers (brokerage firms; securities distributors; and credit, financing, and investment enterprises), the ceiling on the long exchange position is the equivalent of US$500,000, and no short exchange position is allowed.
Provisions specific to institutional investors
Limits (max.) on investment portfolio held 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 2004
No significant changes occurred in the exchange and trade system.

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