Andréa Novais

Andréa Novais


The Brazil Business

Updated

Fotos Gov/Ba

Options for foreign investment in Brazil

Andréa Novais

Andréa Novais


The Brazil Business

Updated

It is no news that Brazil has been calling the attention of foreign investors for the last years, so we wrote a dedicated article on how foreigners can invest and what are the main required procedures.

Forms of investment

There are two forms of investment in Brazil: direct and indirect. Direct investments happen through the creation of a new corporate entity or through the acquisition of an equity participation in an already existing Brazilian company.

This equity participation is related to the investment of cash, to the conversion of foreign credit and the investment through the importation of goods without exchange cover.

As for indirect investments, they are made by investing in the financial and security markets where there is no requirement to create or acquire participation in a Brazilian company.

Direct investment

According to Law 4,131/62 and Law 4.390/64, foreign capital is considered to be any goods, machinery and equipment that enter Brazil with no initial disbursement of foreign exchange and are intended for the production of goods and services, as well as any funds brought into the country to be used in economic activities, as they belong to individuals or legal entities headquartered abroad.

In 1995, the constitutional distinction between foreign-owned and Brazilian-owned companies was repealed by a constitutional amendment. Other constitutional barriers against foreign investment in protected sectors have also been removed.

Such reform efforts have led to an increase in foreign investments, especially in capital intensive industries.

Direct investments do not require prior approval from Banco Central do Brasil as they are destined for equity purchases or capital subscription in a Brazilian company. Investors can send their funds through the Free Rate Exchange Market to any bank Banco Central do Brasil has authorized to operate with foreign exchange.

Usually, there is no minimum value for foreign capital investments. It depends on the Brazilian company's financial needs and foreign investor's ability and willingness to invest. Also, there is no deadline within which foreign or Brazilian shareholders must pay up their subscribed shares.

The conversion debt resulting from foreign loans and industrial property rights into direct investments must be registered at SISBACEN, which is the informational system of Banco Central do Brasil.

When a foreign loan is converted into a capital investment, the lender becomes an investor and so becomes entitled to receive dividends in respect of the investment after the conversion is made.

CPF and CNPJ

Non-resident individuals holding assets or rights located in Brazil must enroll with the Federal Individual Taxpayer's Registry (CPF) through the Brazilian diplomatic representation in their country of residence.

Foreign corporate entities holding assets or rights in Brazil must enroll with the Federal Taxpayer's Registry for Corporate Entities (CNPJ).

Foreign corporate entities holding industrial property rights in Brazil, such as trademarks and patents, and foreign investments made in depositary receipts issued abroad and representing securities under custody in Brazil are not required to enroll with the CNPJ.

RDE-IED

Every foreign direct investment must be registered at Banco Central. This registration is mandatory for offshore remittances, capital repatriation and registration of profit reinvestment.

So in order to allow the remittance of dividends and to assure the eventual repatriation of the original capital and subsequent reinvestment, foreign investors must comply with the foreign capital registration rules associated with the entrance of funds.

This registration of foreign capital has to be made within 30 days in the online electronic system by Banco Central, named RDE-IED, short for Electronic Registration of Direct Foreign Investments.

Restrictions

Foreign investors can hold only a minority participation in media, financial institutions and insurance companies. If they have prior authorization from the government or under a reciprocal agreement, they may acquire control of a bank.

There are restrictions on foreign participation in activities subject to national security concerns and on foreign ownership of rural areas and business on border zones. Also, the following economic activities are still restricted to foreign investors:

As for the acquisition of real estate property situated in Brazil, the New Brazilian Civil Code (NBCC) establishes that foreign individuals and entities have the right to acquire real estate property in Brazil according to the same conditions applied to national individuals or entities.

However, have in mind that the federal tax authorities require that non-resident individuals or entities that hold real estate located in the national territory apply for the individual or corporate taxpayer registration number, which are CPF and CNPJ, respectively.

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