The key changes brought by the new Legal Framework of the Foreign Exchange Market in Brazil (Law NO. 14.286/21)

On December 30, 2021, Law 14.286/21, establishing a new legal framework for the Brazilian foreign exchange market, was sanctioned. The measure was considered groundbreaking, since it fully or partially revokes thirty-eight (38) legislative documents, with the purpose of modernizing and streamlining foreign exchange operations in Brazil, promoting the furtherance of the business environment and the debureaucratization of foreign exchange operations. The new legislation also provides for the Brazilian capital abroad, foreign capital in Brazil and the provision of information to the Brazilian Central Bank (BCB).

Although the law has already been sanctioned, some provisions of the law still depend on future regulation by the BCB and by the Brazilian National Monetary Council (CMN), which acquired greater autonomy to regulate the foreign exchange market. The law will come into effect on December 30, 2022, that is, one year after its publication. Therefore, the Brazilian Central Bank should issue the regulations required for the application of the rule this year, and may initiate a public inquiry in order to decide on certain matters. Among the key changes brought by the new law, we highlight the following:

  • Bank Accounts in Foreign Currency: Art. 5, IX of Law 14.286/21 establishes that the BCB has the competent jurisdiction to regulate the requirements to open an account in foreign currency in the country, as well as the procedures that should be observed to open it. The possibility of domestic accounts in dollars, for instance, is currently only available for limited industries, such as brokerage houses, insurance companies and credit managers. With Law no. 14.286/21 and, thereafter, with the BCB regulation, it is expected that individuals may soon have the opportunity to be holders of accounts in foreign currency in the country.
  • Equal Handling between the Capital of Residents and Non-Residents in Brazil: Art. 5. § 4 of the new Law establishes that accounts in reais whose holders are individuals not residing in the country shall have equal treatment of accounts in reais whose holders are individuals residing in the country, with the exception of the requirements and procedures the BCB may establish.
  • Negotiation of Purchase and Sale of Foreign Currency between Individuals (peer-to-peer):   Art. 19 of Law 14.286/21 provides for the authorization of purchase and sale of foreign currency in kind, without intervention, between individuals, provided that such transactions are carried out occasionally and not professionally, and do not exceed the amount of up to five hundred dollars (US$500) per operation. It should be stressed that such provision only legitimizes a common practice that used to be deemed prohibited.
  • Payment of Enforceable Obligations in Foreign Currency: Art. 13 of Law 14.286/21 sets forth and establishes the list of operations in which obligations enforceable in Brazil can be paid in foreign currency. Among them, (i) contracts and securities regarding the foreign trade of goods and services, the financing and guarantees thereof; (ii) in lease-purchase agreements signed between residents, based on the raising of funds generated abroad; and (iii) in contracts signed by exporters in which the counterpart is a concessionaire, dealer, authority or lessee in infrastructure sectors. Regarding the latter issue, the electric power sector is expected to benefit the most from such provision, since the indexation in dollar of power purchase agreements (“PPAs”) should provide a natural hedge to the costs of projects.
  • Investment of Funds Raised in Brazil in Operations Abroad: Art. 15 of the new law establishes that, according to regulation to be edited by BCB and CMN, financial institutions and other authorized institutions will have the power to allocate, invest or apply for credit and financing operation, in the country and abroad, funds raised in the country or abroad.
  • Private Compensation: Art. 12 of Law 14.286/21 authorizes the private compensation of credits or securities between residents and non-residents, in the cases provided for in regulation issued by the Brazilian Central Bank. That is, it is merely a foreign exchange transaction, through simple accounting entries, practice that was previously forbidden by Decree- Law 9025/45.
  • Remittances Abroad: Law 14.286/21 amends art. 9 of Law no. 4.131/62, establishing that companies that remit cash abroad by way of profits, dividends, interests and payments for royalties are exempt from registration with BCB, and should only pay the income tax due, if applicable.
  • New Limit of Foreign Exchange in Kind: Art. 14, §1 of the new Law increases from R$ 10 thousand to US$10 thousand the limit for value in kind for inflow and outflow from the country, not depending on operation by authorized institution. It is important to stress that the previous limit was established in 1995, and an update that reflected the current economic situation of the country was necessary.

Therefore, the new Law 14.286/21 (“New Foreign Exchange Law”) seeks to modernize the foreign exchange legislation, bringing the Brazilian legislation closes to the international standards, as well as seeking to meet the requirements for the country to join the Organization for Economic Cooperation and Development (OECD). It is expected that, in the long term, the new legislation promotes the attraction of foreign investment in Brazil.

Written by Clara Couto, Paralegal at Drummond Advisors

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