1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Brazil was the world’s sixth-largest destination for Foreign Direct Investment (FDI) in 2019, with inflows of $72 billion, according to UNCTAD. The GoB actively encourages FDI – particularly in the automobile, renewable energy, life sciences, oil and gas, and transportation infrastructure sectors – to introduce greater innovation into Brazil’s economy and to generate economic growth. GoB investment incentives include tax exemptions and low-cost financing with no distinction made between domestic and foreign investors. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and insurance sectors.
The Brazilian Trade and Investment Promotion Agency (Apex-Brasil) plays a leading role in attracting FDI to Brazil by working to identify business opportunities, promoting strategic events, and lending support to foreign investors willing to allocate resources to Brazil. Apex-Brasil is not a “one-stop shop” for foreign investors, but the agency can assist in all steps of the investor’s decision-making process, to include identifying and contacting potential industry segments, sector and market analyses, and general guidelines on legal and fiscal issues. Their services are free of charge. The website for Apex-Brasil is: http://www.apexbrasil.com.br/en
In 2019, the Ministry of Economy created the Ombudsman’s office to provide foreign investors with a single point of contact for concerns related to FDI. The plan seeks to eventually streamline foreign investments in Brazil by providing investors, foreign and domestic, with a simpler process for the creation of new businesses and additional investments in current companies. Currently, the Ombudsman’s office is not operating as a single window for services, but rather as an advisory resource for FDI.
Limits on Foreign Control and Right to Private Ownership and Establishment
A 1995 constitutional amendment (EC 6/1995) eliminated distinctions between foreign and local capital, ending favorable treatment (e.g. tax incentives, preference for winning bids) for companies using only local capital. However, constitutional law restricts foreign investment in healthcare (Law 8080/1990, altered by 13097/2015), mass media (Law 10610/2002), telecommunications (Law 12485/2011), aerospace (Law 7565/1986 a, Decree 6834/2009, updated by Law 12970/2014, Law 13133/2015, and Law 13319/2016), rural property (Law 5709/1971), maritime (Law 9432/1997, Decree 2256/1997), and insurance (Law 11371/2006).
Screening of FDI
Foreigners investing in Brazil must electronically register their investment with the Central Bank of Brazil (BCB) within 30 days of the inflow of resources to Brazil. In cases of investments involving royalties and technology transfer, investors must register with Brazil’s patent office, the National Institute of Industrial Property (INPI). Investors must also have a local representative in Brazil. Portfolio investors must have a Brazilian financial administrator and register with the Brazilian Securities Exchange Commission (CVM).
To enter Brazil’s insurance and reinsurance market, U.S. companies must establish a subsidiary, enter into a joint venture, acquire a local firm, or enter into a partnership with a local company. The BCB reviews banking license applications on a case-by-case basis. Foreign interests own or control 20 of the top 50 banks in Brazil, but Santander is the only major wholly foreign-owned retail bank.
Since June 2019, foreign investors may own 100 percent of capital in Brazilian airline companies.
While 2015 and 2017 legislative and regulatory changes relaxed some restrictions on insurance and reinsurance, rules on preferential offers to local reinsurers remain unchanged. Foreign reinsurance firms must have a representation office in Brazil to qualify as an admitted reinsurer. Insurance and reinsurance companies must maintain an active registration with Brazil’s insurance regulator, the Superintendence of Private Insurance (SUSEP) and maintain a minimum solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch ratings of at least BBB-.
Foreign ownership of cable TV companies is allowed, and telecom companies may offer television packages with their service. Content quotas require every channel to air at least three and a half hours per week of Brazilian programming during primetime. Additionally, one-third of all channels included in any TV package must be Brazilian.
The National Land Reform and Settlement Institute administers the purchase and lease of Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district. Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The law also states that prior consent is needed for purchase of land in areas considered indispensable to national security and for land along the border. The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. In December 2020, the Senate approved a bill (PL 2963/2019; source: https://www25.senado.leg.br/web/atividade/materias/-/materia/136853) to ease restrictions on foreign land ownership; however, the Chamber of Deputies has yet to consider the bill. Brazil is not yet a signatory to the World Trade Organization (WTO) Agreement on Government Procurement (GPA), but submitted its application for accession in May 2020. In February 2021, Brazil formalized its initial offer to start negotiations. The submission establishes a series of thresholds above which foreign sellers will be allowed to bid for procurements. Such thresholds differ for different procuring entities and types of procurements. The proposal also includes procurements by some states and municipalities (with restrictions) as well as state-owned enterprises, but it excludes certain sensitive categories, such as financial services, strategic health products, and specific information technologies. Brazil’s submission still must be negotiated with GPA members.
By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical services where there are no qualified Brazilian firms. U.S. companies need to enter into partnerships with local firms or have operations in Brazil in order to be eligible for “margins of preference” offered to domestic firms participating in Brazil’s public sector procurement to help these firms win government tenders. Nevertheless, foreign companies are often successful in obtaining subcontracting opportunities with large Brazilian firms that win government contracts and, since October 2020, foreign companies are allowed to participate in bids without the need for an in-country corporate presence (although establishing such a presence is mandatory if the bid is successful). A revised Government Procurement Protocol of the trade bloc Mercosul (Mercosur in Spanish), signed in 2017, would entitle member nations Brazil, Argentina, Paraguay, and Uruguay to non-discriminatory treatment of government-procured goods, services, and public works originating from each other’s suppliers and providers. However, none of the bloc’s members have yet ratified it, so it has not entered into force.
Other Investment Policy Reviews
The Organization for Economic Co-operation and Development’s (OECD) December 2020 Economic Forecast Summary of Brazil summarized that, despite new COVID-19 infections and fatalities remaining high, the economy started to recover across a wide range of sectors by the end of 2020. Since the publication, Brazil’s economy is faltering due to the continuing pandemic’s financial impact. The strong fiscal and monetary policy response managed to prevent a sharper economic contraction, cushioning the impact on household incomes and poverty. Nonetheless, fiscal vulnerabilities have been exacerbated by these necessary policy responses and public debt has risen. Failure to continue structural reform progress could hold back investment and future growth. As of March 2021, forecasts are for economic recovery in 2021 and high unemployment. The OECD report recommended reallocating some expenditures and raising spending efficiency to improve social protections, and resuming the fiscal adjustments under way before the pandemic. The report also recommended structural reforms to enhance domestic and external competition and improve the investment climate.
The IMF’s 2020 Country Report No. 20/311 on Brazil highlighted the severe impact of the pandemic in Brazil’s economic recovery but praised the government’s response, which averted a deeper economic downturn, stabilized financial markets, and cushioned income loss for the poorest. The IMF assessed that the lingering effects of the crisis will restrain consumption while investment will be hampered by idle capacity and high uncertainty. The IMF projected inflation to stay below target until 2023, given significant slack in the economy, but with the sharp increase in the primary fiscal deficit, gross public debt is expected to rise to 100 percent of GDP and remain high over the medium-term. The IMF noted that Brazil’s record low interest rate (Selic) helped the government reduce borrowing costs, but the steepening of the local currency yield curve highlighted market concerns over fiscal risks. The WTO’s 2017 Trade Policy Review of Brazil noted the country’s open stance towards foreign investment, but also pointed to the many sector-specific limitations (see above). All three reports highlighted the uncertainty regarding reform plans as the most significant political risk to the economy. These reports are located at the following links:
- OECD Report: http://www.oecd.org/economy/brazil-economic-snapshot/
- IMF Report: https://www.imf.org/en/Publications/CR/Issues/2020/12/01/Brazil-2020-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-49927
- WTO Report: https://www.wto.org/english/tratop_e/tpr_e/tp458_e.htm
A company must register with the National Revenue Service (Receita Federal) to obtain a business license and be placed on the National Registry of Legal Entities (CNPJ). Brazil’s Export Promotion and Investment Agency (APEX) has a mandate to facilitate foreign investment. The agency’s services are available to all investors, foreign and domestic. Foreign companies interested in investing in Brazil have access to many benefits and tax incentives granted by the Brazilian government at the municipal, state, and federal levels. Most incentives target specific sectors, amounts invested, and job generation. Brazil’s business registration website can be found at: http://receita.economia.gov.br/orientacao/tributaria/cadastros/cadastro-nacional-de-pessoas-juridicas-cnpj .
Overall, Brazil dropped in the World Bank’s Doing Business Report from 2019 to 2020; however, it improved in the following areas: registering property; starting a business; and resolving insolvency. According to Doing Business, some Brazilian states (São Paulo and Rio de Janeiro) made starting a business easier by allowing expedited business registration and by decreasing the cost of the digital certificate. On March 2021, the GoB enacted a Provisional Measure (MP) to simplify the opening of companies, the protection of minority investors, the facilitation of foreign trade in goods and services, and the streamlining of low-risk construction projects. The Ministry of Economy expects the MP, together with previous actions by the government, to raise Brazil by 18 to 20 positions in the ranking. Adopted in September 2019, the Economic Freedom Law 13.874 established the Economic Freedom Declaration of Rights and provided for free market guarantees. The law includes several provisions to simplify regulations and establishes norms for the protection of free enterprise and free exercise of economic activity.
Through the digital transformation initiative in Brazil, foreign companies can open branches via the internet. Since 2019, it has been easier for foreign businesspeople to request authorization from the Brazilian federal government. After filling out the registration, creating an account, and sending the necessary documentation, they can make the request on the Brazilian government’s Portal through a legal representative. The electronic documents will then be analyzed by the DREI (Brazilian National Department of Business Registration and Integration) team. DREI will inform the applicant of any missing documentation via the portal and e-mail and give a 60-day period to meet the requirements. The legal representative of the foreign company, or another third party who holds a power of attorney, may request registration through this link: https://acesso.gov.br/acesso/#/primeiro-acesso?clientDetails=eyJjbGllbnRVcmkiOiJodHRwczpcL1wvYWNlc3NvLmdvdi5iciIsImNsaWVudE5hbWUiOiJQb3J0YWwgZ292LmJyIiwiY2xpZW50VmVyaWZpZWRVc2VyIjp0cnVlfQ%3D%3D
Regulation of foreign companies opening businesses in Brazil is governed by article 1,134 of the Brazilian Civil Code and article 1 of DREI Normative Instruction 77/2020 . English language general guidelines to open a foreign company in Brazil are not yet available, but the Portuguese version is available at the following link: https://www.gov.br/economia/pt-br/assuntos/drei/empresas-estrangeiras .
For foreign companies that will be a partner or shareholder of a Brazilian national company, the governing regulation is DREI Normative Instruction 81/2020 DREI Normative Instruction 81/2020. The contact information of the DREI is firstname.lastname@example.org and +55 (61) 2020-2302.
- https://investmentpolicy.unctad.org/country-navigator provides investment measures, laws and treaties enacted by selected countries.
- http://www.doingbusiness.org/data/ provides indicators from economies on the ease of starting a limited liability company.
- GER.co provides links to business registration sites worldwide.
Brazil does not restrict domestic investors from investing abroad and Apex-Brasil supports Brazilian companies’ efforts to invest abroad under its “internationalization program”: http://www.apexbrasil.com.br/como-a-apex-brasil-pode-ajudar-na-internacionalizacao-de-sua-empresa . Apex-Brasil frequently highlights the United States as an excellent destination for outbound investment. Apex-Brasil and SelectUSA (the U.S. Government’s investment promotion office at the U.S. Department of Commerce) signed a memorandum of cooperation to promote bilateral investment in February 2014.
Brazil incentivizes outward investment. Apex-Brasil organizes several initiatives aimed at promoting Brazilian investments abroad. The Agency´s efforts comprised trade missions, business round tables, support for the participation of Brazilian companies in major international trade fairs, arranging technical visits of foreign buyers and opinion makers to learn about the Brazilian productive structure, and other select activities designed to strengthen the country’s branding abroad.
The main sectors of Brazilian investments abroad are financial services and assets (totaling 50.5 percent); holdings (11.6 percent); and oil and gas extraction (10.9 percent). Including all sectors, $416.6 billion was invested abroad in 2019. The regions with the largest share of Brazilian outward investments are the Caribbean (47 percent) and Europe (37.7 percent), specifically the Netherlands and Luxembourg.
Regulation on investments abroad are contained in BCB Ordinance 3,689/2013 (foreign capital in Brazil and Brazilian capital abroad): https://www.bcb.gov.br/pre/normativos/busca/downloadNormativo.asp?arquivo=/Lists/Normativos/Attachments/48812/Circ_3689_v1_O.pdf
Sale of cross-border mutual funds are only allowed to certain categories of investors, not to the general public. International financial services companies active in Brazil submitted to Brazilian regulators in late 2020 a proposal to allow opening these mutual funds to the general public, and hope this will be approved in mid 2021.
2. Bilateral Investment Agreements and Taxation Treaties
Brazil does not have a Bilateral Investment Treaty (BIT) with the United States. In the 1990s, Brazil signed BITs with Belgium, Luxembourg, Chile, Cuba, Denmark, Finland, France, Germany, Italy, the Republic of Korea, the Netherlands, Portugal, Switzerland, the United Kingdom, and Venezuela. However, the Brazilian Congress did not ratify any of these agreements. In 2002, the Executive branch withdrew the agreements from Congress after determining that treaty provisions on international Investor-State Dispute Settlement (ISDS) were unconstitutional.
In 2015, Brazil developed a state-to-state Cooperation and Facilitation Investment Agreement (CFIA) which, unlike traditional BITs, does not provide for an ISDS mechanism. CFIAs instead outline progressive steps for the settlement of “issue[s] of interest to an investor”: 1) an ombudsmen and a Joint Committee appointed by the two governments will act as mediators to amicably settle any dispute; 2) if amicable settlement fails, either of the two governments may bring the dispute to the attention of the Joint Committee; 3) if the dispute is not settled within the Joint Committee, the two governments may resort to interstate arbitration mechanisms. The GOB has signed several CFIAs since 2015 with: Mozambique (2015), Angola (2015), Mexico (2015), Malawi (2015), Colombia (2015), Peru (2015), Chile (2015), Iran (2016), Azerbaijan (2016), Armenia (2017), Ethiopia (2018), Suriname (2018), Guyana (2018), the United Arab Emirates (2019), Ecuador (2019), and India (2020). The following CFIAs are in force: Mexico, Angola, Armenia, Azerbaijan, and Peru. A few CFIAs have received Congressional ratification in Brazil and are pending ratification by the other country: Mozambique, Malawi, and Colombia (https://concordia.itamaraty.gov.br/ ). Brazil also negotiated an intra-Mercosul Cooperation and Investment Facilitation Protocol (PCFI) similar to the CFIA in April 2017, which was ratified on December 21, 2018. (See sections on responsible business conduct and dispute settlement.)
Brazil has a Social Security Agreement with the United States. The agreement and the administrative arrangement were both signed in Washington on June 30, 2015 and entered into force on October 1, 2018. Brazil signed a Tax Information Exchange Agreement (TIEA) with the United States in March 2007, which entered into force on May 15, 2013. In September 2014, Brazil and the United States signed an intergovernmental agreement to improve international tax compliance and to implement the Foreign Account Tax Compliance Act (FATCA). This agreement went into effect in August 2015.
In October 2020, Brazil signed a Protocol on Trade Rules and Transparency with the United States, which has three annexes aimed at expediting processes involving trade: I) Customs Administration and Trade Facilitation; II) Good Regulatory Practices; and III) Anti-corruption. The protocol and annexes provide a foundation for reducing border bureaucracy, improving regulatory processes and stakeholder contribution opportunities, and supporting integrity in public institutions.
Brazil does not have a double taxation treaty with the United States, but Brazil does maintain tax treaties to avoid double taxation with the following 33 countries: Austria, Argentina, Belgium, Canada, Chile, China, Czech Republic, Denmark, Ecuador, Finland, France, Hungary, India, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands, Norway, Peru, Philippines, Portugal, Russia, Slovak Republic, South Africa, South Korea, Spain, Sweden, Trinidad & Tobago, Turkey, Ukraine, and Venezuela. Treaties with Singapore, Switzerland, United Arab Emirates, and Uruguay are pending ratification.
Brazilian industry representatives have for years suggested a bilateral taxation treaty between Brazil and the United States would incentivize U.S. FDI. A document produced by Brazil’s National Industry Confederation (CNI) and Amcham Brazil is available on this topic in Portuguese: https://www.portaldaindustria.com.br/publicacoes/2019/10/acordo-para-evitar-dupla-tributacao-entre-o-brasil-e-os-estados-unidos-caminhos-para-uma-possivel-convergencia/
Brazil currently has pending tax reform legislation in Congress which is considered a priority by the government. The current texts propose simplifying tax collection by unifying various taxes, and would generally maintain the tax burden at its current level which is high relative to other countries in the region.
5. Protection of Property Rights
Brazil has a system in place for mortgage registration, but implementation is uneven and there is no standardized contract. Foreign individuals or foreign-owned companies can purchase real estate property in Brazil. Foreign buyers frequently arrange alternative financing in their own countries, where rates may be more attractive. Law 9514 from 1997 helped spur the mortgage industry by establishing a legal framework for a secondary market in mortgages and streamlining the foreclosure process, but the mortgage market in Brazil is still underdeveloped, and foreigners may have difficulty obtaining mortgage financing. Large U.S. real estate firms are, nonetheless, expanding their portfolios in Brazil.
Intellectual Property Rights
Intellectual property (IP) rights holders in Brazil continue to face challenges. Brazil has remained on the “Watch List” of the U.S. Trade Representative’s (USTR) Special 301 Report since 2007. For more information, please see: https://ustr.gov/sites/default/files/files/reports/2021/2021%20Special%20301%20Report%20(final).pdf.Brazil
Brazil has one physical market, located in Sao Paolo, listed on USTR’s 2020 Review of Notorious Markets for Counterfeiting and Piracy. The Rua 25 de Marco area is reportedly a distribution center for counterfeit and pirated goods throughout Sao Paulo. Enforcement actions in this region continue. Authorities used these enforcement actions as a basis to take civil measures against some of the stores. For more information, please see: https://ustr.gov/sites/default/files/files/Press/Releases/2020%20Review%20of%20Notorious%20Markets%20for%20Counterfeiting%20and%20Piracy%20(final).pdf.
According to the National Forum Against Piracy, contraband, pirated, counterfeit, and stolen goods cost Brazil approximately $74 billion in 2019. (http://www.fncp.org.br/forum/release/292 ) (Yearly average currency exchange rate: 1 USD = 3.946 R)
For additional information about treaty obligations and points of contact at local IP offices, please see the World Intellectual Property Organization (WIPO)’s country profiles: http://www.wipo.int/directory/en
6. Financial Sector
Capital Markets and Portfolio Investment
The Brazil Central Bank (BCB) embarked in October 2016 on a sustained monetary easing cycle, lowering the Special Settlement and Custody System (Selic) baseline reference rate from a high of 14 percent in October 2016 to a record-low 2 percent by the end of 2020. The downward trend was reversed by an increase to 2.75 percent in March 2021. As of March 2021, Brazil’s banking sector projects the Selic will reach 5 percent by the end of 2021. Inflation for 2020 was 4.52 percent, within the target of 4 percent plus/minus 1.5 percent. The National Monetary Council (CMN) set the BCB’s inflation target at 3.75 percent for 2021, at 3.5 percent for 2022 and at 3.25 percent at 2023. Because of a heavy public debt burden and other structural factors, most analysts expect the “neutral” policy rate will remain higher than target rates in Brazil’s emerging-market peers (around five percent) over the forecast period.
In 2020, the ratio of public debt to GDP reached 89.3 percent according to BCB, a new record for the country, although below original projections. Analysts project that the debt/GDP ratio will be at or above92 percent by the end of 2021.
The role of the state in credit markets grew steadily beginning in 2008, with public banks now accounting for over 55 percent of total loans to the private sector (up from 35 percent). Directed lending (that is, to meet mandated sectoral targets) also rose and accounts for almost half of total lending. Brazil is paring back public bank lending and trying to expand a market for long-term private capital.
While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional source of long-term credit in Brazil. BNDES also offers export financing. Approvals of new financing by BNDES increased 40 percent in 2020 from 2019, with the infrastructure sector receiving the majority of new capital.
The São Paulo Stock Exchange (BOVESPA) is the sole stock market in Brazil, while trading of public securities takes place at the Rio de Janeiro market. In 2008, the Brazilian Mercantile & Futures Exchange (BM&F) merged with the BOVESPA to form B3, the fourth largest exchange in the Western Hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges. In 2020, there were 407 companies traded on the B3 exchange. The BOVESPA index increased only 2.92 percent in valuation during 2020, due to the economic impact of the COVID-19 pandemic. Foreign investors, both institutional and individuals, can directly invest in equities, securities, and derivatives; however, they are limited to trading those investments on established markets.
Wholly owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil. Auditors are personally liable for the accuracy of accounting statements prepared for banks.
Money and Banking System
The Brazilian financial sector is large and sophisticated. Banks lend at market rates that remain relatively high compared to other emerging economies. Reasons cited by industry observers include high taxation, repayment risk, concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates. According to BCB data collected for final quarter of 2019, the average rate offered by Brazilian banks to non-financial corporations was 13.87 percent.
The banking sector in Brazil is highly concentrated with BCB data indicating that the five largest commercial banks (excluding brokerages) account for approximately 80 percent of the commercial banking sector assets, totaling $1.58 trillion as of the final quarter of 2019. Three of the five largest banks (by assets) in the country – Banco do Brasil, Caixa Econômica Federal, and BNDES – are partially or completely federally owned. Large private banking institutions focus their lending on Brazil’s largest firms, while small- and medium-sized banks primarily serve small- and medium-sized companies. Citibank sold its consumer business to Itaú Bank in 2016, but maintains its commercial banking interests in Brazil. It is currently the sole U.S. bank operating in the country. Increasing competitiveness in the financial sector, including in the emerging fintech space, is a vital part of the Brazilian government’s strategy to improve access to and the affordability of financial services in Brazil.
On November 16, 2020, Brazil’s Central Bank implemented a twenty-four hour per day instant payment and money transfer system called PIX. The PIX system is supposed to deconcentrate the banking sector, increase financial inclusion, stimulate competitiveness, and improve efficiency in the payments market.
In recent years, the BCB has strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to reflect risk more accurately. It also established loan classification and provisioning requirements. These measures apply to private and publicly owned banks alike. In December 2020, Moody’s upgraded a collection of 28 Brazilian banks and their affiliates to stable from negative after the agency had lowered the outlook on the Brazilian system in April 2020 due to the economic unrest. The Brazilian Securities and Exchange Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies with penalties against insider trading.
Foreigners may find it difficult to open an account with a Brazilian bank. The individual must present a permanent or temporary resident visa, a national tax identification number (CPF) issued by the Brazilian government, either a valid passport or identity card for foreigners (CIE), proof of domicile, and proof of income. On average, this process from application to account opening lasts more than three months.
Foreign Exchange and Remittances
Brazil’s foreign exchange market remains small. The latest Triennial Survey by the Bank for International Settlements, conducted in December 2019, showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps, and currency options) was $18.8 billion, down from $19.7 billion in 2016. This was equivalent to around 0.22 percent of the global market in 2019 versus 0.3 percent in 2016.
Brazil’s banking system has adequate capitalization and has traditionally been highly profitable, reflecting high interest rate spreads and fees. Per an October 2020 Central Bank Financial Stability Report, despite the economic difficulties caused by the pandemic, all banks exceeded required solvency ratios, and stress testing demonstrated that the banking system has adequate loss-absorption capacity in all simulated scenarios. Furthermore, the report noted 99.9 percent of banks already met Basel III requirements and possess a projected Common Equity Tier 1 (CET1) capital ratio above the minimum 7 percent required at the end of 2019.
There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil. Foreign investors may freely convert Brazilian currency in the unified foreign exchange market where buy-sell rates are determined by market forces. All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized.
The BCB must approve all incoming foreign loans. In most cases, loans are automatically approved unless loan costs are determined to be “incompatible with normal market conditions and practices.” In such cases, the BCB may request additional information regarding the transaction. Loans obtained abroad do not require advance approval by the BCB, provided the Brazilian recipient is not a government entity. Loans to government entities require prior approval from the Brazilian Senate as well as from the Economic Ministry’s Treasury Secretariat and must be registered with the BCB.
Interest and amortization payments specified in a loan contract can be made without additional approval from the BCB. Early payments can also be made without additional approvals if the contract includes a provision for them. Otherwise, early payment requires notification to the BCB to ensure accurate records of Brazil’s stock of debt.
Brazilian Federal Revenue Service regulates withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities resident or domiciled outside Brazil. Upon registering investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties. Investors must register remittances with the BCB. Dividends cannot exceed corporate profits. Investors may carry out remittance transactions at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing payment of applicable taxes.
Under Law 13259/2016 passed in March 2016, capital gain remittances are subject to a 15 to 22.5 percent income withholding tax, with the exception of capital gains and interest payments on tax-exempt domestically issued Brazilian bonds. The capital gains marginal tax rates are: 15 percent up to $874,500 in gains; 17.5 percent for $874,500 to $1,749,000 in gains; 20 percent for $1,749,000 to $5,247,000 in gains; and 22.5 percent for more than $5,247,000 in gains. (Note: exchange rate used was 5.717 reais per dollar, based on March 30, 2021 values.)
Repatriation of a foreign investor’s initial investment is also exempt from income tax under Law 4131/1962. Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance, although they are subject to a 15 percent withholding tax and an extra 10 percent Contribution for Intervening in Economic Domain (CIDE) tax.
Sovereign Wealth Funds
Brazil had a sovereign fund from 2008 – 2018, when it was abolished, and the money was used to repay foreign debt.
Brazil has laws, regulations, and penalties to combat corruption, but their effectiveness is inconsistent. Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years. Bribery is illegal, and a bribe by a Brazilian-based company to a foreign government official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts. A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level. U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).
Brazil signed the UN Convention against Corruption in 2003 and ratified it in 2005. Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery. It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.
In 2020, Brazil ranked 94th out of 180 countries in Transparency International’s Corruption Perceptions Index. The full report can be found at: https://www.transparency.org/en/cpi/2020/index/nzl
From 2014-2021, the complex federal criminal investigation known as Operação Lava Jato (Operation Carwash) investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras. The investigation led to the arrests and convictions of Petrobras executives, oil industry suppliers, including executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operators. Appeals of convictions and sentences continue to work their way through the Brazilian court system. On December 25, 2019, Brazilian President Jair Bolsonaro signed a packet of anti-crime legislation into law, which included several anti-corruption measures. The new measures include regulation of immunity agreements – information provided by a subject in exchange for reduced sentence – which were widely used during Operation Carwash. The legislation also strengthens Brazil’s whistle blower mechanisms, permitting anonymous information about crimes against the public administration and related offenses. Operation Carwash was dissolved in February 2021. In March 2021, the OECD established a working group to monitor anticorruption efforts in Brazil.
In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world. The U.S. Department of Justice case stemmed directly from the Lava Jato investigation and focused on violations of the anti-bribery provisions of the FCPA. Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve
In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for $3 billion, which was one of the largest securities class action settlements in U.S. history. The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of $853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.
Resources to Report Corruption
Petalla Brandao Timo Rodrigues
International Relations Chief Advisor
Brazilian Federal Public Ministry
Setor de Autarquias Sul (SAS), Quadra 01, Bloco A; Brasilia/DF
R. Bela Cintra, 409; Sao Paulo, Brasil
+55 (11) 3259-6986
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance and Development Finance Programs
Programs of the U.S. International Development Finance Corporation (DFC) are available, although DFC reports that certain new authorities established by the BUILD Act of 2018, including equity investments, technical assistance, grants, and feasibility studies, may require a new bilateral Investment Incentive Agreement with the Government of Brazil. DFC stated in 2019 its intent to invest in infrastructure and women entrepreneurship projects as its primary focus in Brazil. Brazil has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1992. In October 2020, DFC announced $ 984 million in investments in Brazil, mostly focused on small and medium enterprises. In October and November 2020, the DFC held two substantive discussions on the Investment Incentive Agreement (IIA) with over a dozen Brazilian government (GOB) agencies led by the Ministry of External Relations and the Ministry of Economy.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2020||$1.43 trillion||2019||$1.84 trillion||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2019||$145.1 billion||2018||$81.731 billion||BEA data available at https://apps.bea.gov/international/
|Host country’s FDI in the United States ($M USD, stock positions)||2019||$21.956||2019||$4.617 billion||BEA data available at
|Total inbound stock of FDI as % host GDP||2019||$34.6%||2019||34.9%||UNCTAD data available at https://unctad.org/en/Pages/DIAE/
[Select country, scroll down to “FDI Stock”- “Inward”, scan rightward for most recent year’s “as percentage of gross domestic product”]
* Source for Host Country Data: https://www.bcb.gov.br and https://www.ipea.gov.br/portal/
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (U.S. Dollars, Billions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||648.353||100%||Total Outward||247.605||100%|
|The Netherlands||147.688||22.8%||Cayman Islands||74.298||30%|
|United States||117.028||18.0%||British Virgin Islands||56.184||22.7%|
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||45,085||100%||All Countries||36,161||100%||All Countries||8,923||100%|
|United States||19,451||43%||United States||15,754||44%||United States||3,697||41%|
|Cayman Islands||4,727||10%||Cayman Islands||4,378||12%||Republic of Korea||863||10%|