New Foreign Exchange and International Capital Law comes into force: what changes?
On December 31, 2022, Law No. 14,286 came into force. This law aims to modernize, simplify and guarantee greater security and legal stability for the foreign exchange market in Brazil, Brazilian capital abroad and foreign capital in the country, in addition to modernizing the provision of information about these transactions to the Central Bank (New Foreign Exchange and International Capital Law), following the best international standards and practices to even insert Brazil into the globalized economy.
During 2022, the Central Bank dedicated itself to reviewing existing infralegal regulations and adapting them to the new law on the exchange and foreign money market. In addition to the three public consultation notices to receive contributions from society and to disseminate drafts of new normative acts, representatives of the institution participated in several events, in which they presented proposals and clarified doubts.
Although it was an advance, some important issues have not yet been discussed, with an approach expected only in 2023. Among the topics in question are the improvement of the market between banks, the definition of cases in which private compensation of credits will be allowed and the reevaluation of the rules on foreign money invested in Brazil. Some changes will be gradual, slow and transitory, so that greater security and efficiency is guaranteed, mainly due to the technologies involved in the Central Bank's systems (taking into account developments, adjustments, updates, etc.).
The first regulation of the New Foreign Exchange and International Capital Law resulted in eight regulations published by the National Monetary Council (CNM) and the Central Bank in recent months, the main aspects of which will be detailed below.
CMN Resolution No. 5,042, of 11/25/2022: foreign exchange market principles and guidelines
The first regulation is based on principles, defining those that should guide the foreign exchange market and the guidelines for foreign exchange operations to be carried out, for the entry or exit of reais from the country, through an institution authorized to operate in the foreign exchange market.
The text also reaffirms the provision that institutions authorized by the Central Bank can invest and use resources raised both in Brazil and abroad, as long as the legislation is followed. The regulations revoke the old regulations on this subject, such as Circular No. 24 of 1966 and Resolution No. 4,004 of 2011.
The new law also highlights that institutions authorized to operate in the foreign exchange market must maintain financial relationships only with financial institutions authorized, regulated and financially supervised in their country of origin.
CMN Resolution No. 5,056, dated 12/15/2022: financial charge when canceling or writing off advances on exchange transactions
This regulation regulates art. 7th of the New Foreign Exchange and International Capital Law, which determines that the seller of foreign currency pays fees to the Central Bank if it cancels or reduces the exchange position in a foreign currency purchase contract advanced in reais.
The new resolution maintains the current calculation rule, using Libor as the international reference interest rate, showing that the value for the financial charge is the value in reais advanced. Furthermore, if the cancellation or write-off is up to US$5,000.00 (or its equivalent in another currency), the financial charge will continue to be waived, as long as it does not represent more than 10% of the total value of the foreign currency purchase. It will also not be necessary to pay financial charges if the purchase of foreign currency related to exportation is canceled or written off with the merchandise shipped or the service provided.
BCB Resolution No. 277, of 12/31/2022: foreign exchange market
This is an extremely important law, which regulates the c& marketexchange in Brazil, regulating the entry and exit of values in reais and foreign currency, replacing the old laws that were already in force, in particular Circulars 3,691 and 3,690 of 12/16/2013.
Here are the main points of this new law:
I - allows exchange operations to be carried out in a more flexible way, without the need for a specific contract format and without excessive requirements. Following the implementation of the law, the financial institution authorized to operate in the foreign exchange market only needs to prove to the Central Bank that the client complies with the agreed conditions, with the information that must be included in the exchange transaction and sent to the regulator being established in the regulations;
II - allows financial institutions to decide their own criteria to prove foreign exchange transactions, considering the client and the characteristics of the transaction. If the financial institution requires extra documentation, it will need to be kept for at least 10 years after the exchange transaction has been completed or cancelled;
III - The process for indicating the purposes of foreign exchange operations has been simplified and rationalized, enabling the client to do so themselves. In summary:
exchange transactions up to US$50 thousand or the equivalent in another currency, which are not subject to registration with the Central Bank, must be classified by the customer based on 10 generic codes;
For foreign exchange operations with values above US$50 thousand or the equivalent in another currency, the same codes were maintained, with some new features such as specific codes for virtual assets, games/bets, expense reimbursement and credit assignment. Due to adjustments in the Central Bank systems, the forecast is that only on November 1, 2023 there will be a reduction in existing codes by half;
some specific codes remained, regardless of value, for operations such as eFX, postal transfers, interbank, etc.; and
obligation of institutions authorized to operate in the foreign exchange market to assist the customer, offering guidance and technical support, including virtual media, to correctly classify the purpose. The Central Bank published new auxiliary minutes to help classify foreign exchange operations.
IV - Equalizes the requirements for opening, maintaining and operating accounts in reais for non-residents and residents, with some exceptions, which include:
opening and maintenance in an institution authorized to operate in the foreign exchange market;
limit of R$ 100 thousand per transaction in cases of prepaid account in reais;
Provision of information on values handled by embassies and international organizations; and
Restrictions on the movement of third-party interests in accounts held by non-resident institutions, a situation in which there is a need to evaluate documentation and provide information to the Central Bank.
V - Permission for institutions authorized to operate in the foreign exchange market to send information on foreign exchange transactions of up to US$50 thousand to the Central Bank until the 5th of the month following the month in which they are carried out. Other operations must have their information sent on the same day they are carried out.
BCB Resolution No. 278, of 12/31/2022: foreign capital in the country, in external credit and foreign direct investment operations
This regulationvo regulates issues regarding foreign capital in Brazil in external credit and foreign direct investment operations, the main aspects of which are:
I - The foreign capital registration regime is now called information to the Central Bank, being applicable only to some operations of these types, considering their values and characteristics, namely:
external credit exceeding US$ 1 million;
financing of imports of goods or services above US$500,000, with payment terms greater than 180 days;
advance receipt of exports and external financial leasing above US$ 1 million with payment term greater than 360 days; and
direct foreign investment with turnover above US$ 100 thousand.
II - The restriction on sending money abroad for payments of principal and interest in external credit operations without input into the country is over, however, it is now necessary to inform the Central Bank about these operations within certain criteria;
III - It is no longer necessary to inform the Central Bank about contracts between residents and non-residents related to the use or assignment of patents, industrial or commercial brands, supply of technology, payments for royalties, technical services, external commercial leasing or rental and charter;
IV - From now on, foreign capital censuses, quarterly financial statements and other annual corporate tables will be called "Periodic Statements" and will need to be delivered every 3, 12 or 60 months, depending on the size of the assets of the company that received foreign investments; and
V - From November 1, 2023, simultaneous exchange operations will no longer be necessary, as was previously required for cases such as the renewal of external loans or the conversion of external credit into foreign investment. Until then, a transition regime will be in force that will still require simultaneous operations in these cases, in accordance with BCB Resolution No. 281.
The new regulation revokes other old rules on the subject, including Resolution nº 3,844 of March 23, 2010 and part of Circular nº 3,689 (art. 18 to 107) of December 16, 2013.
Remember that, as previously highlighted, the treatment of foreign capital in the form of portfolio investment will continue to be governed by existing rules, including the need for registration.
BCB Resolution No. 279, of 12/31/2022: Brazilian capital abroad
BCB Resolution No. 279 provides for flows, stocks and provision of information on Brazilian capital abroad, with values being understood as goods, rights and other assets held by residents outside Brazil. Here are the main points:
I - the current rules for declaring Brazilian capital abroad remain the same, namely:
annual declaration, with a base date of December 31st, mandatory when Brazilian capital totals equal to or greater than US$ 1 million or equivalent in another currency; and
quarterly declaration, with base dates of March 31, June 30 and September 30, mandatory when the value of Brazilian capital is equal to or greater than US$ 100 million or equivalent in another currency.
II - equalization to Brazilian capital abroad of financing, direct loans and commercial credits granted in Brazil to non-residents; and
III - possibility of investing capital in any modality regularly practiced in the international market, including derivatives, as long as the necessary laws are followed and the basis is the fundeconomic damentation.
With this Resolution, old regulations on this topic are revoked, such as Resolution No. 3,854, dated 5/27/2010, Circular No. 3,624, dated 2/6/2013 and part of Circular 3,689, dated 12/16/2013 (art. 1 to 17).
BCB Resolution No. 280, of 12/31/2022: definition of non-resident resident
This regulation establishes the definitions of resident and non-resident to be applied to individuals and legal entities.
These definitions must be considered both for foreign exchange market rules and for the regulation of other matters covered by exchange law, such as foreign capital in Brazil and the provision of information to the Central Bank.
The criteria used by the Central Bank are not completely identical to those adopted by the Federal Revenue, making the differences points of attention to be considered by market participants.
BCB Resolution No. 281, of 12/31/2022: transitional provisions relating to foreign capital in the country, in external credit and foreign direct investment operations
As previously mentioned, in view of the complexity of changing the system of some provisions of the new regulation on foreign capital in different forms, it was decided to maintain — on a transitional basis — some procedures currently in force:
I - carrying out exchange transactions simultaneously in cases of:
conversion of assets in the country of non-residents into foreign capital, subject to the provision of information to the BCB;
transfer between different forms of foreign capital, which need to provide information to the Central Bank;
renegotiation and assumption of external credit operations; and
making investments through international conference of shares or other assets; and
II - need to inform in the information system provided by the Central Bank, within 30 days from the date of the event, updates on the net equity, share capital of the company receiving the investment and the percentage of capital invested by the foreign investor, as well as any subsequent movements.
Such transitional rules must remain in force until November 1, 2023.
BCB Resolution No. 282, dated 12/31/2022: amendment to Circular No. 3,978, dated 01/23/2020
This resolution amends in a less circumstantial way Circular nº 3,978, of January 23, 2020, which deals with how to avoid crimes of laundering or concealment of assets, rights and values. From now on, authorized institutions that are part of the foreign exchange market need to keep records and keep important and supporting documents in order to be allowed to carry out operations in this market, in accordance with their internal risk assessment.