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Learn about the best compliance practices for foreign companies in Brazil

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The term “compliance” has its origins in the English verb “comply”, which means to execute, to exercise, to perform. Compliance can be defined as a standard that seeks to comply with legal and regulatory standards, to ensure ethical and transparent relations between companies and the government.

In this article, we will go over the main ancillary obligations for foreign companies in Brazil. Check it out:

Declaration of Final Beneficiary

This refers to the existing person who:

  • Directly or indirectly, it holds more than 25% of the entity’s capital;
  • Directly or indirectly exercises preponderance in corporate decisions and the power to elect the majority of managers, even if without controlling it; or
  • On behalf of which a transaction is conducted.

Regarding the deadline for sending the Declaration, we have two possibilities: if the foreign company does not have a final beneficiary, it must inform the Revenue Service within 90 (ninety) days from the date of registration; it is also necessary to inform whenever there is a change in the final beneficiary in relation to the reporting entity.

Much attention must be paid to the deadline for sending, as any legal entity that fails to inform of the final beneficiary will be subject to an administrative fine and suspension of the CNPJ.

RDE-IED/RDE-ROF

These are statements related to the registration of operations at the central bank for receiving and sending funds abroad as described below:

  • Statement for individuals who received foreign investments in Brasil;
  • Statement for individuals who have taken some kind of international credit.

The deadline for delivering the statements for registration in the RDE-IED and RDE-ROF systems are the same: up to 30 days from the taxable event.

DEF – Economic and Financial Statement

The DEF is an ancillary obligation for the Central Bank of Brazil to update the information on the corporate structure of national companies that is delivered in two periods:

  • Quarterly – For companies that received direct foreign investment and that have assets or shareholders’ equity equal to or greater than R $ 250 million. The deadline for filing the declaration is always on the last business day of the quarter following the quarter of accrual. For example: the DEF for the 1st quarter of 2021 must be delivered by 06/30/2021;
  • Annual – Brazilian companies with direct participation of foreign investors in the corporate scheme and with a net worth below R $ 250 million. The deadline for submission of the declaration is always on the last business day of the quarter following the year of accrual. For example: the 2020 DEF must be delivered by 3/31/2021.

Attention must be paid to the deadlines, since the fine can depend on the delay:

  • Late delivery: 1% of the amount subject to registration limited to R $ 25,000.00.
  • Penalty for non-delivery: 5% of the amount subject to registration limited to R $ 125,000.00.
  • Fine for false information: 10% of the amount subject to registration limited to R $ 250,000.00.

CBE – Brazilian Capital Declaration Abroad

CBE is an ancillary obligation for companies that have invested capital equal to or greater than:

  • USD 1,000,000 for annual reporting. With delivery deadline on April 5 of the following year;
  • USD 100,000,000 for delivery of the quarterly statement. Starting with a base date of March 31st, the declaration must occur by June 5 following the base date. With base date of June 30th and September 30th: by September 5th and December 5th following the base date respectively.

The fines for not declaring, or in other cases provided for in the legislation, vary from R $ 2,500.00 to R $ 250,000.00, which may be increased by 50% in some cases.

Census of Foreign Capital in the Country

This refers to the ancillary obligation to be sent to the Central Bank of Brazil that has the objective of collecting information on direct foreign investments and foreign debt instruments.  We have two types of Census of Foreign Capital in the Country, which must be delivered by the 16th of August 2021:

  • Quinquennial – Delivered in years ending 0 or 5.
  • Annual – Delivered in years not ending in 0 or 5.

Who must submit the annual Census?

  • Legal entities headquartered in the country, with direct participation of non-residents in its share capital, in any amount, and with equity equal to or greater than the equivalent of US $ 100 million on the base date of December 31 of the base year;
  • Investment funds with non-resident shareholders and with equity equal to or greater than the equivalent of US $ 100 million, from the base date of December 31st  of the base year, through their managers; and
  • Legal entities headquartered in the country, with a total debit balance of short-term commercial credits (payable within 360 days) granted by non-residents, in an amount equal to or greater than the equivalent of US $ 10 million, on the base date of December 31 of the year -basic. We are a family owned and operated business.

Who must submit the quinquennial census?

  • Legal entities headquartered in the country, with direct participation of non-residents in their social capital, regardless of the amount, from the base date of the 31st of December of the base year;
  • Investment funds with non-resident shareholders and with equity equal to or greater than the equivalent of US $ 100 million, from the base date of December 31st  of the base year, through their managers; and
  • Legal entities headquartered in the country, with an outstanding balance of short-term commercial credits (payable within 360 days) granted by non-residents, in an amount equal to or greater than the equivalent of US $ 1 million, from the base date of December 31st of the year -basic.

Foreign Currency Resources Statement Due to Reception of Exports (DEREX)

With the shutting down of DEREX, the information that was previously declared through it must be provided in 2021 using the following means:

  • Legal Entities opting for the Simples Nacional regime: via the National Collection system;
  • Other Legal Entities: through a specific block of the Fiscal Accounting Bookkeeping (ECF);
  • Individuals: via Annual Income Tax Adjustment Declaration (DIRPF).

The information related to DEREX must be informed in Block V of the ECF.

Foreign Investments Country by Country Statement (DPP)

Entities required to submit a DPP:

I – R $ 2,260,000,000.00 (two billion, two hundred and sixty million reais), if the final controller is resident in Brazil for tax purposes; or

II – € 750,000,000.00 (seven hundred and fifty million euros), or the equivalent converted by the quotation of January 31, 2020 into the local currency of the jurisdiction of residence for tax purposes of the final controller.

Entities exempted from submitting the DPP:

a) Identify, by completing the ECF Register W100, the final controller of the multinational group (which may itself be the final controller of the group);

b) Inform the RFB, in the W100 Register of the ECF, that the multinational group falls under the DPP delivery waiver situation.

Have any questions?  Get in touch by email info@drummondadvisors.com