What Foreign Investors Need to Know About Foreign Direct Investment in Brazil

In recent years, many foreign investors are attracted by the large Brazilian market and the economic growth of the country. Besides that, the fact that Brazil will host the 2014 World Cup and 2016 Olympics has also been an important decision making vector for investors. However, before investing in Brazil, it is important to get acquainted with some legal aspects related to foreign direct investments (FDI) in the country. It is true that all forms of FDI are welcome by the Brazilian Constitution, but especially FDI that represents a commitment to economic development. A number of limitations and restrictions to foreign capital for some specific sectors do apply as per the Brazilian Constitution, such as defense and air transport related matters, among others. Expropriation of domestic or foreign investment is prohibited by the Brazilian Constitution, except in exceptional cases such as public interest. Since 1995, Brazilian Constitution places no difference between domestic and foreign capital.

The main legal statute governing foreign investments in Brazil was enacted in 1962, more than forty years ago (Law n. 4,131, as amended by Law n. 4,390 of 1964, both regulated by Decree n. 55,762 of 1965). It is a positive point for investors the fact that the most important law on FDI in the country has been in force for so long time and has not suffered substantial changes during these last years.

Exchange control and foreign investment policies in Brazil are established by the National Monetary Council (Conselho Monetário Nacional), under the supervision of the Ministry of Finance. And, the supervision of the day-by-day control over foreign capital inflows and outflows is performed by the Brazilian Central Bank (Banco Central do Brasil – BACEN).

No prior government authorization neither minimum investment approval nor local participation condition is required for FDI – apart for few exceptions such as financial institutions, insurance companies, and similar entities under the regulatory authority of BACEN. No government approval or consent is required for remittance of profits abroad, as long as the company does not have a negative net equity. No minimum period is imposed by Brazilian law to repatriation of foreign capital. As per Brazilian legislation, BACEN may limit or prohibit remittances of profits and capital repatriation in case of serious balance of payment difficulties. This exception, however, has never been applied by the country not even during the 1980s Brazilian moratorium.

The most common form of FDI in Brazil is in cash capital. Certain restrictions and a rigorous control apply to FDI in assets such as goods, machinery and equipment. FDI has to be registered with BACEN online electronic system called RDE-IED (Registro Declaratório Eletrônico de Investimentos Externos Diretos – Electronic Registration System for Cross-Border Financial Transactions) within 30 days of the date that the cash capital enters Brazil or within 90 days of customs clearance for assets capital contributions. Foreign capital registration is done in the same currency that has entered the country or in the currency of the residence of the investor for foreign capital in the form of assets.

The legal framework for FDI in Brazil is by far quite stable until now, especially if compared with the other three BRIC countries (Russia, India and China). It is a proof of legal certainty and assurance for investors. Besides, the electronic registration system of FDI, mainly cash capital, is easy, fast and efficient. Thus, the bureaucratic problems that investors and locals usually face when doing business in Brazil do no actually apply regarding FDI registration procedures. This is also a very positive point for investors. FDI in Brazil may play a leading role to improve industry diversification, generating employment and strengthening the economic local system in order to assist the country to be ready for the two major world events: the 2014’s World Cup and the 2016’s Olympic Games.