Brazil’s new foreign exchange law comes into force

On December 31, a new Brazilian foreign exchange framework came into force, revoking much of the capital flow rules that prevailed in the country for decades.

One of the most significant changes regards profit remittances. Back in the 1960s, the old law was designed as a mechanism to control capital flows. Capital registration ensured that investors could later repatriate the principal invested and remuneration such as interest payments and remittances of profits and dividends.

Since the early 2000s, investors and companies have not needed prior authorization to put their money in Brazil. But only now, with the new framework, will they not have to declare such investments on the country’s RDE capital registration system. 

Moreover, credit operations will need only be registered if they exceed a value of USD 100,000. And foreign companies that have subsidiaries in Brazil, or those that license trademarks and patents, will be able to dispatch royalties abroad beyond what is deductible for income tax purposes.

The new forex law, however, needs further regulation. The Central Bank has held three public consultations as part of this process and still needs its board to approve suggestions at the beginning of the year. 

Banks, brokerage firms, and payment institutions were hoping for the monetary authority to postpone regulation in the absence of decisions from other bodies, such as the Federal Revenue Service, but that was not the case. The new law gives the Central Bank powers to regulate the forex sector — which the industry welcomes — given the authority’s pro-innovation attitude. Its main goal is to simplify procedures and make room for innovation, besides bringing Brazil’s legislation closer to OECD standards.

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