Nei Zelmanovits, Bruno Racy, Adriano Schnur, Matheus Wassano Ishigaki and Antonio Mesquita

Aligned with the trend of promoting the reduction of obstacles to exports and imports of goods and services and promoting productive investments and the free circulation of capital, the new legal framework of the foreign exchange market, established by Law 14.286/21 (New Foreign Exchange Law), consolidates several of regulations on the subject, also changing various provisions and revoking several regulations in this regard.

In this article, we provide a summary of the main changes that should be implemented once the New Foreign Exchange Law comes into force, which will take place on December 30, 2022, one year after the date of its publication. That being said, we do not intend to dissect all the changes promoted by the upcoming law, but to describe those with the greatest potential of impact and their possible repercussions. Please note that some of the provisions  listed below are not self-applicable and shall be implemented in accordance with the relevant regulations and regulatory requirements established by the National Monetary Council (CMN) and the Brazilian Central Bank (Bacen).

Payment in foreign currency (Article 13)

Previously consolidated in Decree-Law 857/69 and Law 8.880/94, the events in which the fixing of payment in foreign currency of enforceable obligations in Brazil were admitted was expanded by the New Foreign Exchange Law.

In addition to those historically provided for in the preceding regulations (e.g. in the case of assignment, transfer, delegation, assumption or modification of obligations arising from export contracts or which in a way involve a non-resident creditor or debtor), new events have been included, such as:

• contracts executed by exporters in which the counterpart is an entity responsible for granting a concession, permission, authorization or lease in relation to the infrastructure sectors; and
• contracts relating to indirect export, in the terms of Law 9,529/97.

The CMN may authorize the stipulation of payments in foreign currency, if this measure has the potential to mitigate the foreign exchange risk or increase the efficiency of the business. The payments in foreign currency of enforceable obligations in Brazil which do not comply with the new regulation shall be considered null and void in full, as provided for in the previous regulations.

The new events are well-known aspirations in the market. By expressly allowing the indexation of contracts related to indirect export, the new regulation seeks to lay the foundation for the ascension of a market of dollarized operations that may be exploited by companies operating in the export chain.

By determining that contracts executed by exporters in which the counterpart is an entity responsible for granting a concession, permission, authorization or lease in relation to the infrastructure sectors may be paid in foreign currency, the New Foreign Exchange Law eliminates doubts and mitigates risks on an ample range of transactions currently carried out, especially in the energy sector, with Power Purchase Agreements (PPAs) indexed to the US dollar, which constitute a booming market in recent years.

Export (Article 26)

The New Foreign Exchange Law also eliminated the restriction on the use of proceeds held abroad. According to the new law, Brazilian exporters continue to have the prerogative of maintaining proceeds arising from their exports abroad. However, the application of such proceeds is no longer limited to the exporter's own investments, financial applications or obligation payments. In the same direction, the new law also eliminates the prohibition of using these resources for loan or mutual of any nature apply.

Application of funds raised in Brazil and abroad (Article 15)

As an indication of a major change in the legal regime in force since the mid-1960s, the New Foreign Exchange Law expressly provides for the possibility of financial institutions and other institutions authorized to operate by Bacen to allocate, invest and destinate, for credit and financing operations, locally and abroad, the funds raised in Brazil and abroad. This provision is not self-applicable and shall comply with the relevant regulations and regulatory and prudential requirements established by CMN and Bacen to be valid. The expectation generated by such disposition is that Brazilian financial institutions may allocate funds raised in Brazil to credit and financing operations abroad, respecting the specific activities of each institution.

Payment orders in Brazilian Reais (article 6)

In another change in relation to the former legislation, the New Foreign Exchange Law stipulates that banks authorized to operate in the foreign exchange market may send payment orders in Brazilian reais from third parties abroad, by means of accounts in Brazilian reais held in banks controlled by institutions domiciled or based abroad and that are subject to financial regulation and supervision in their country of origin. Such rule is not self-applicable. For it to be effective, the terms of the regulation to be edited by Bacen shall be complied with. Previously, this matter was discussed in Article 126 of Circular 3,691/13, which limited this possibility to residents, individuals domiciled abroad temporarily in the country and to Brazilians residing or domiciled abroad.

This measure aims to encourage the use of the real in international transactions, since it allows the receipt, from third parties abroad, of payment orders from accounts in Brazilian reais held in Brazil through foreign banks. It will be important to develop the international banking correspondence market of the real and will even allow foreign banks directed to Brazilian companies or their partners abroad, to diversify the offer of products and services in Brazilian reais, even those related to investments in the country and the settlement of obligations directly in national currency.

Entry and exit of national and foreign currency from Brazil (Article 14 and Article 19)

In order to expand the flexibility in the flow of resources between individuals, with the creation of a foreign exchange peer-to-peer market up to the transactional limit and conditions mentioned, the limit of cash that each individual can bear when leaving or entering Brazil was increased from R$ 10,000 to US$ 10,000, or its equivalent in other currencies. The New Foreign Exchange Law also admits the purchase and sale of foreign currency in cash, in the amount of up to US$ 500 (or equivalent), in an eventual and non-professional manner, between individuals.

Private compensation (Article 12)

The New Foreign Exchange Law provides authorization for the private compensation of credits or amounts between residents and non-residents. However, once again, this regulation is not self-applicable, as this possibility is restricted to the events regulated by the Bacen. Such measure takes down the previous prohibition on private compensation  derived from Decree-Law 9,025/46.

Prevention of money laundering and combating terrorism (Article 4, §1)

Aligned with the imperatives of prevention and opposition against money laundering and terrorist financing, the New Foreign Exchange Law provides for the adoption of measures and controls aimed at preventing the execution of transactions in the foreign exchange market for the practice of illicit acts, such as money laundering and terrorist financing, adopting precautions regarding enrollment, registration and monitoring, in compliance with the regulations to be edited by Bacen.

The inclusion of money laundering control measures and the fight against terrorism follow the market patterns pursued by financial institutions, which use very strict controls when analyzing their transactions.

Remittances abroad (Article 9)

In response to an long-standing market expectation, the New Foreign Exchange Law establishes that remittances abroad as profits, dividends, interest, amortization, Royalties, scientific, administrative and similar technical assistance are exempt from prior registration in the Bacen, although they remain subject to the presentation of proof of payment of the due income tax, as the case may be.

The exemption from the registration of these remittances has the potential to directly impact companies with foreign shareholders and partners, bringing more operational facilities related to its financial aspects, especially in accountability.

Bank account in foreign currency (Article 5, IX)

One of the most anticipated measures by the financial market, with major impacts on transactions involving investors in Brazil and abroad, the New Foreign Exchange Law also innovated by determining, yet again in an indirect manner, the possibility of opening a foreign currency bank account in Brazil, delegating to Bacen the duty to regulate and implement the requirements for its legitimation.

This change has the potential to generate important impacts on transactions involving investors in Brazil and abroad, as it can mitigate the risk of exchange variation and reduce transactional costs with derivative transactions and exchange closing.

Foreign domiciled account (Article 5, §4)

The accounts in Brazilian reais of non-residents will have the same treatment of the accounts in Brazilian reais of residents, without prejudice to the requirements and procedures that the Bacen will establish, including those with respect to payment orders in Brazilian reais abroad.

As described above, it is expected and, in some cases, necessary that CMN and Bacen regulations are published in the future to regulate some of the provisions stipulated in the New Foreign Exchange Law. Since it is a law that consolidates a series of changes and innovations which is currently in a period of vacancy, new changes can be implemented until its entry into force, to reflect any needs that the various market agents and participants may identify.