The law allows taxpayers to hold foreign currency in Brazilian bank accounts, repeals the registration requirement for foreign capital, and allows residents and nonresidents to offset mutual debts. Because the law is not effective until 30 December 2022, taxpayers should monitor the release of regulations implementing the provisions of the law before the effective date.
On 30 December 2021, the Brazilian Government published Law 14,286 (Bill 5,387), establishing a new legal framework for: (i) the Brazilian foreign exchange market; (ii) Brazilian capital held abroad; and (iii) foreign capital held in Brazil.
The law aims to modernize, simplify, and bring more efficiency to the Brazilian foreign exchange market by unifying the relevant rules in a single normative instrument. These changes are part of the adjustments Brazil needs to implement to join the Organisation for Economic Cooperation and Development (OECD).
Brazilian bank accounts with foreign currency account
Under prior law, Brazilian legal entities and individuals could hold foreign bank accounts in foreign currencies, but they could not hold foreign currency in a Brazilian bank account. This limitation also applied to foreign entities and foreign individuals. Law 14,286 allows legal entities and individuals to create bank accounts in Brazil that hold foreign currency. The Brazilian Central Bank (BACEN) will determine the eligibility for applying for that type of account.
Elimination of rules regulating the registration of foreign capital in Brazil
Prior law required taxpayers to register foreign capital in Brazil with the BACEN (i.e., direct investments – RDE-IED, financial transactions – RDE-ROF, and investments in the Brazilian financial and capital market – RDE-Portfolio). Many foreign investors and companies headquartered abroad believed this provision hampered their day-to-day operations.
The law repeals this provision. The BACEN will determine the information and procedures required for the registration of foreign capital in Brazil.
Payment orders in Brazilian currency to or from abroad
Brazilian banking institutions may carry out payment orders in Brazilian currency received from abroad and sent abroad through the use of foreign bank accounts holding Brazilian reais.
Funding of investments
Financial institutions and other institutions authorized to operate by the BACEN may manage, invest, and allocate for credit and financing operations amounts raised in Brazilian and foreign currencies either in Brazil or abroad, subject to regulatory requirements.
Offset of mutual debts between residents and nonresidents
Prior law prohibited foreign and Brazilian entities that held receivables and payables against each other from offsetting those debts upon the settlement of those transactions. Law 14,286 allows foreign and Brazilian entities to offset mutual debts on settlement of those transactions. BACEN, however, will need to issue regulations to implement this provision.
Foreign exchange market
The law allows payment institutions authorized by the BACEN to operate in the foreign exchange market, subject to certain conditions.
Leasing operations in foreign currency
The law significantly reduces the requirements for leasing transactions in foreign currency by eliminating the registration and assignment authorization requirements.
Prior law allowed Brazilian companies that held amounts abroad to use those amounts for investments or to pay its tax liabilities incurred from exporting goods or services. The new law gives Brazilian companies more flexibility in how to use amounts in accounts abroad (i.e., export revenue).
Royalties for patents and trademarks
Law 14,286 repealed the prohibition on the remittance of royalties for the use of patents for inventions and for trademarks of industry or trade between a Brazilian entity and its foreign head office or the company that holds the majority of the Brazilian entity’s shares.
The law allows Brazilian entities to remit money abroad (1) as profits, dividends, interest, and royalty payments, and (2) for other regulated purposes, without registering with the BACEN. Brazilian entities, however, must prove to the foreign exchange institution that they paid the withholding tax due.
Law 14,286 will be effective 30 December 2022 (i.e., one year from its publication). Until then, the National Monetary Council and the BACEN will need to implement changes to the existing regulations to reflect the new law.
Therefore, taxpayers should monitor the issuance of regulations implementing provisions of the new law.
For additional information with respect to this Alert, please contact the following:
EY Assessoria Empresarial Ltda, São Paulo
Rita A Martins
Ernst & Young LLP (United States), Latin American Business Center, New York
Enrique Perez Grovas
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific
Raul Moreno, Tokyo
Luis Coronado, Singapore
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.