Brazil: How To Remit Foreign Currency To And From Brazil?*

I. - INTRODUCTION

In comparison to its neighbors such as Uruguay and Argentina, Brazil has strict exchange controls, even though more recent regulations enacted by the government are gradually freeing the exchange market.

Notwithstanding the above, the Brazilian government's exchange policy has somewhat changed in the last few years in the sense that a trend to loosen controls and finally eliminate government supervision is taking place.

II. - CURRENT EXCHANGE MARKETS

The Brazilian exchange market is divided into two major segments: a) the one, strictly controlled by the Central Bank; b) the other, which is a less formal market, where persons can freely buy and sell exchange, as long as they comply with certain identification requirements monitored by the Central Bank. It should be pointed out that another illegal market exists denominated as the "parallel" or "black-market. Such a market is duly prohibited under current laws in effect.

II.1 - Controlled Exchange Market

All major exchanges of Brazilian currency into foreign currency must be recorded on standardized exchange contracts, executed by the agents authorized by Brazil's Central Bank ("BACEN") to transact foreign exchange. Nowadays all contracts are freely executed through the authorized banks and registered on line at BACEN.

The controlled segment of the exchange market is duly under the strict control of the Central Bank, since no exchange transaction can be carried out in such markets unless they are expressly provided for. The prevailing rule in the controlled markets is that only exchange transactions which are included in the detailed list contained in the regulations are authorized.

Banks are allowed to buy and sell spot and forward exchange for their own account during the day, without official interference. At the end of each day, however, they are required to level off their purchased or sold positions according to fixed limits, passing on the excess to BACEN.

This mechanism allows for the expansion of future markets of foreign exchange, operated on the commodity exchanges and swaps with other derivatives which directly impact on BACEN's policies in a movement to an open exchange market.

The segment of the exchange market subject to the strict control of the Central Bank can also be subdivided into two different markets: the so-called commercial-rate market, and the floating-rate market.

II.1.1. - Free or Commercial Rate

The so-called commercial or free rate market is restricted to import/export transactions and to general financial operations, such as loans, commercial papers, all transactions related to foreign registered capital (FRC), royalty payments, dividends, lease payments, etc.

II.2. - Floating or Tourism Rate

The floating rate market, or tourism market, is intended primarily to serve Brazilian and foreign tourists. There is no longer a limit applicable to the amount of dollars that may be bought by a Brazilian traveling abroad. Thus, international credit card payments are also made through this market, and travel agencies also effect their payments of hotels and related expenses through the floating rate.

Additionally, this rate is slowly being extended to other operations such as those including publicity and marketing fee remittances, investments in Mercosul stock market's, retirement and social security allowances, etc...

III.3. - Authorized Informal Exchange Market

The informal exchange market, which is a less controlled market, may be used by any person, whether a Brazilian resident or not.

This informal exchange market derives basically from the fact that the Central Bank has recently authorized that any person, whether a Brazilian resident or not, may freely make international transfers of national currency (Circular no. 2,242/92, of the Central Bank).

Therefore, any person may freely transfer Reais from Brazil to another country. Once the funds are located in another country (preferably Uruguay for such transactions, since it is a jurisdiction well-known to Brazilians, and has a sophisticated financial system, with a convenient tax structure, and where the Brazilian currency is freely convertible), such funds may be freely exchanged into other currencies without going against current Brazilian exchange controls.

III.4. - Parallel or Black Market

In addition to the above official authorized exchange markets, historically Brazil has established a parallel or black market. Foreigners are frequently surprised to learn that this market is an illegal one.

Such a surprise is due to the fact that the practice of buying and selling foreign exchange outside the authorized official exchange system has been so widespread and has gone on so long that it has become an accepted part of the economy. Such is so, that the parallel rate is quoted daily in newspapers and on television news.

The more the official market is extended and the exchange barriers loosened, the more the parallel market's size will be reduced. In the past, transactions under such a market corresponded to 10% (ten percent) of the official market, however, nowadays, the progressive liberalization of foreign exchange operations is leading to the actual elimination of this market in the near future.

II.3. - Rate Comparison

There is a price differential between the rates prevailing in the commercial market, the floating market and the parallel market.

Normally, it is more expensive to buy foreign currency in the parallel market due to the latter`s illegal nature.

However, with respect to the two authorized markets the floating market is found to be more expensive. The spread between the two may vary from zero percent up to 25% (there were times in the past in which such spread went up to 150%, but there were also occasions in which the spread was negative).

* The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.

For more information please contact us.

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