With the general shortage of credit in the international market which resulted of the global crisis, the Brazilian Government decided to reverse a measure adopted in last March, reducing the cost of short-term financing to Brazilian exports and increasing the number of originators of resources (lenders) for these transactions. To be classified as "short-term financing" the transaction must have a maximum repayment term of 360 days. The reversion which is now being implemented will also facilitate the entry of United States Dollars into Brazil.

On March 1, 2012, the Board of the Central Bank of Brazil (Banco Central do Brasil - Bacen) issued Circular No. 3580 limiting the anticipation of funds to the Brazilian exporter by way of advance export receipt (recebimento antecipado de exportação ), also known as Advance Payment (Pagamento Antecipado - PA), to the importer (the foreign buyer of the Brazilian goods or services), as lender1. On that occasion no other type of lender was admitted.

By means of Bacen Circular No. 3604, of June 28, 2012 (Bacen Circular 3604/2012), from now on, in addition to the importer, any legal entity headquartered abroad, including a foreign financial institution, is expressly authorized to lend PA funds to the Brazilian exporter. Consequently, the number of lenders has been substantially increased.

Bacen Circular 3604/2012 consolidates all the applicable rules on PA transactions, which are outlined below.

The payment of interest on the PA must fulfill the following conditions: (a) the count of time limit for payment of interest and principal shall be less than the drawdown date or the date of entry of the funds into Brazil; (b) interest shall be accrued on the outstanding balance; (c) the interest rate is freely agreed by the parties, unless any legal limitation is imposed on the transaction; (d) the beneficiary of the interest is the one who made the advance payment of export; (e) alternatively, the amount due as interest can be settled by the embarkation of the goods abroad.

For values sent to Brazil as PA, within up to 360 days one of the following situations shall occur: (i) the shipment of the goods or the provision of the service; or (ii) the conversion by the Brazilian exporter, with the prior written consent of the foreign payer, in direct investment (equity) or loan currency, registered with Bacen pursuant to Law No. 4131, of September 3, 1962, as amended by Law No. 4390, of August 29, 1964, and relevant regulation.

The entry of the funds into the country may be effected through international transfer of Brazilian currency (Real), including payment orders expressed in Brazilian currency originated from abroad, or exchange contract either for immediate settlement (liquidação pronta) or for future settlement (liquidação futura), to be settled before the shipment of goods or the provision of the service.

The repatriation of the funds which entered into the country for PA is also admitted but in this case the transaction will be subject to the same tax treatment given to loans which are not destined for export financing.

In both situations in which the export transaction does not occur, namely: (i) conversion of the PA in direct investment or loan currency and (ii) repatriation of funds, the Brazilian exporter will have to evidence before Bacen the payment of the Brazilian withholding income tax due by foreign residents with respect to the interest eventually remitted abroad and regarding the installment whose goods have not been embarked or whose service has not been rendered.


1. The justification for this restriction was based on the growth of around 40% in the first couple of months of this year, compared with the same period in 2011, in anticipation for long-term operations (with more than 360 days). There was a suspicion that much of these funds was sent to Brazil for another purpose as to speculate with currency exchange. From January to February of 2012, the anticipation of resources to finance exports totaled US$ 8.9 billion, of which US$ 5 billion in long-term transactions and US$ 3.9 billion in short-term.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.