Central Bank of Brazil (BCB) Resolution 278/22, published on December 31st of last year, regulates Law 14,286/21 regarding foreign capital in the country in foreign credit operations and foreign direct investment.
The aim of the new rules is to modernize, simplify, and strengthen the legal security for foreign capital operations in order to ensure that they are more transparent, less bureaucratic, and comply with the best international standards.
We summarize below the main changes brought about by Resolution BCB 278 in relation to this subject.
- Expansion of the list of direct investment recipients: the definition of a direct investment recipient was extended to any entity incorporated or organized in the country in accordance with the applicable Brazilian legislation, whether for-profit or not, with or without legal personality, including any company, partnership, sole proprietorship, consortium, and partnership.
- Change in the name of the information reporting system: The system used to report information to the Central Bank was changed and is now called:
- System for Provision of Information on Foreign Direct Investment | SCE-IED, in substitution for the Declaratory Registration of Foreign Direct Investment | RDE-IED; and
- System for the Provision of Information on Foreign Capital - Foreign Credit (SCE-Credit), in substitution for the Declaratory Registration of Financial Operations (RDE-ROF).
- Minimum amount for reporting foreign direct investment and foreign credit: as of December 31, 2022, reporting of foreign direct investment and foreign credit became mandatory only when the reporting thresholds stipulated in BCB Resolution 278 were reached, as indicated below.
For reference, the calculation of the equivalence in other currencies of the values set out below must consider the contract execution date, or the issue date of the securities abroad, taking into account the exchange rate of the prior business day published by the Central Bank.
- In cases of foreign direct investment, when:
- there is a financial transfer related to a non-resident investor (i.e. foreign exchange) of an amount equal to or exceeding USD 100,000 or its equivalent in other currencies;
- there is any transaction (such as corporate reorganizations, assignment, exchange, and contribution of quotas or shares, international contribution of quotas or shares, reinvestments, distribution of profits and dividends, payment of interest on equity, divestiture of holding, etc.) involving an amount equal to or exceeding USD 100 thousand or its equivalent in other currencies; or
- the base date of periodic declarations for recipients subject to such declarations (such as quarterly, annual, and five-year declarations) occurs; and
- In the event of foreign credit, both in those cases of inflow of funds into Brazil and in the cases in which they are kept abroad, in the case of:
- direct loan, issuance of securities in the international market, issuance of privately placed securities in the domestic market, and financing, including from international organizations, whenever the value of the transaction is equal to or greater than USD 1 million or its equivalent in other currencies;
- financed imports of goods or services with payment terms longer than 180 days, whenever the value of the transaction is equal to or greater than USD 500,000 or its equivalent in other currencies;
- advance receipt of exports and external financial leasing, with payment terms longer than 360 days, whenever the transaction value is equal to or greater than USD 1 million or its equivalent in other currencies; or
- external credit operations contracted by entities of the Direct and Indirect Federal, State, Municipal, and Federal District Public Administration, regardless of the value of the transaction.
Furthermore, registration of foreign credit operations carried out before the effectiveness of BCB Resolution 278 must be kept updated until the end of the transaction. Transactions that do not fit into the reporting floors mentioned above are exempt from updating, so that the respective record will remain available only for consultation purposes until December 31, 2023.
- New values and criteria for mandatory quarterly, annual, and five-year periodic declarations in foreign direct investment: the receiver of foreign direct investment must provide:
- quarterly statement: on the base dates of March 31, June 30, and September 30 of each year, when it has total assets worth R$ 300 million or more;
- annual statement: on the base date of December 31 of the prior year, when it has total assets worth R$ 100 million or more; and
- five-year statement: on the base date of December 31 of the calendar year ending in 0 or 5, when it has, on the base date of December 31 of the prior year, total assets worth R$ 100 thousand or more. There will be no annual statement in years where there is a five-year statement.
Also released was BCB Resolution 281, of December 31, 2022, which regulates the transition period of BCB Resolution 278 and maintains the procedure for filling out the Economic and Financial Statement, as a form of delivery of the periodic quarterly statement mentioned above. In this sense, on the base date of December 31, 2022, the recipient of foreign direct investment that has total assets worth R$300 million or more must submit a quarterly statement by March 31, 2023.
In addition, the annual periodic statement of foreign direct investment for the base date of December 31, 2022, must be provided through the Foreign Capital Census system, exclusively by:
- legal entities headquartered in Brazil, with direct participation of non-residents in their capital stock, in any amount, and with equity equal to or higher than the equivalent to USD 100 million, on the respective base date; and
- investment funds with non-resident shareholders and net equity equal to or greater than the equivalent of USD 100 million, on the respective base date, through their officers. The deadline for filing the annual statement begins on July 1 and ends at 6 pm on August 15, 2023.
- Exemption from the need to provide information on foreign credit transactions related to operational leasing, renting, chartering, and technology services: foreign credit transactions related to technology supply agreements, renting, operational leasing, chartering, trademark and patent use and assignment licenses, franchising, and technical and similar services are exempt from providing information and updating, regardless of the amounts involved.
The registry of transactions of the modalities provided for above prepared before the effectiveness of BCB Resolution 278 will remain available only for consultation purposes until December 31, 2023.
BCB Resolution 278 also provides that the supporting documentation of foreign direct investment and/or foreign credit operations must be kept at the disposal of the Central Bank for a period of ten years, as follows:
- in the case of foreign credit, from the date of termination of the transaction obligations; and
- in the case of foreign direct investment, from the date of liquidation of each investor's foreign direct investment in the recipient