In Brazil, “international capital” can have two legal definitions: (a) foreign capital in Brazil and (b) Brazilian capital abroad. The following comprehend only legal matters related to the internalization of foreign capital in the Brazilian financial system for the purpose of investing in the Brazilian Financial Market.
A brief introduction to the legislation
Resolution nº 4373, from the “National Monetary Council” (Conselho Monetário Nacional - CMN)” is the legal instrument providing rules for the investments of non-resident investors (those who have their tax domicile other than Brazil) in the financial and capital markets in Brazil.
In accordance with the rules of the above-mentioned Resolution nº 4.373 (CMN), the Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued Instruction N. 560, dated 27/03/2015. This Instruction regulates the registration requirements for non-resident investors, their operations, and their disclosure obligations related to the investments made in Brazil.
In addition, Circular nº 3.752 dated 27/03/2015 of the Central Bank of Brazil regulates the CMN’s Resolution nº 4.373, in order to simplify the proceedings and give further clarity in relation the rules of non-residents’ investments.
Although specific rules must be observed by non-resident investors, it shall be noted that they have the same investment products available to resident investors (ie, those who have their tax domicile in the Federative Republic of Brazil).
Furthermore, it is worth to mention that non-resident investors can be either individuals or group of persons (being it a legal entity or not), investment funds, or other collective investments entities, which are able to invest in the Capital Markets, commodities, future market, and other markets regulated by the ‘CVM’.
Procedure to be followed by the non-resident investor
The initial steps to be taken by the foreign investor are:
- Appointment of a legal representative;
- Application to register with the ‘CVM’;
- Appointment of an institution to act as the custodian of the non-resident investor’s capital.
The appointment of the legal representative is carried out through a written agreement between the parties (the non-resident investor and the legal representative), which expressly states its compliance with the provisions of Brazilian Law. The legal representative for investment in the financial market will not necessarily be the representative for tax purposes, but it is possible that both functions are carried out by the same person.
Non-compliance with the rules may result in suspension and penalties to the legal representative. If this happens, the non-resident investor can replace his representative.
With regards to the registration of the non-resident investor, the CVM’s Instruction N. 560 define, in summary, those who can be registered, the types of accounts available (individual or collective) and the registration procedure. In addition, it ratifies the duties and obligations of both the legal representative and the custodian. Furthermore, it also clarifies matters related to the monthly and semi-annual statements that must be sent to the CVM and the Central Bank of Brazil.
The legislation also provides that the investment of a non-resident in the country, as well as any foreign exchange operation (sending capital to Brazil and remitting capital abroad), must be registered with the Central Bank.
All transactions are made through a digital system called "RDE Portfolio", in which all the investments made are recorded.
Finally, all international transactions require "RDE Portfolio Reference Number” to be effective.