Brazil: The New Regulation on the Brazilian Export Transactions

Last Updated: 31 May 2005

By Walter Douglas Stuber*

Under the terms of Resolution nº 3266, of March 4, 2005, which makes provisions on the receipt of amounts relating to exports, the Brazilian Monetary Council simplified the exchange rules and procedures governing exporting of goods and services. The Brazilian Central Bank (Bacen) published its new Exchange Market and International Capitals Regulation (RMCCI) by way of Circular nº 3280, of March 9, 2005, which consolidates these rules and procedures. Ahead we will make a few comments in the main rules in force applicable to the exports.

The new system still requires the entry of foreign currency related to the exports, upon execution and settlement of an exchange contract with a bank accredited to operate in the Exchange Market in the Country.1 Exchange transactions are settled by delivering foreign currency or document of settlement to the bank party to the relevant exchange contract.

Exchange contract can be made for spot or forward settlement, prior or subsequent to the shipment of goods or provision of services. The maximum term of an exchange contract is limited to 570 days counted from its execution until settlement, due respect being given to specific regulation of Bacen.2

Payment of Brazilian exports must be made by way of crediting the amount in foreign currency to an overseas account with the bank accredited to trade foreign exchange in the country. Payment may be made in cash, pursuant to Bacen instructions. Receipt of amounts regarding exports worth up to US$ 10 thousand or equivalent in other foreign exchange may also occur via international credit card, international postal money order or other instrument under terms specifically provided in Bacen regulation. Export-related sums received in national currency are allowed so long as they are provided in the export system of the Foreign Trade Integrated System (Siscomex).

Where financing is obtained for the exports from governmental institution, it is up to the body or entity to arrange for it to be designated as ultimate creditor in the transaction and exert the necessary efforts to the proper reception of corresponding amount in foreign exchange.

Instructing payment or crediting abroad directly to the exporter or to third parties, of any sum regarding an export transaction is prohibited. The only exceptions to this rule are the following: (i) agent fees and other payments owing to third parties resident or domiciled abroad, provided that it has been provided in the respective export record at the Siscomex; and (ii) exports carried out by way of intermediation abroad, of individual sum of up to US$ 10 thousand or equivalent in other foreign exchange.

Proof of exchange coverage of exports is required within: (i) 210 days of shipment date or service provision, for transactions not subject to Credit Registration (CR), irrespective of the time provided in the exchange notes and the effective date of receipt of the foreign exchange overseas; and (ii) 30 days of the date indicated in the respective CR, for financed transactions, including in the case of exporter’s own funds.

In the event of exports in consignment, exchange coverage is mandatory within: (i) 210 days of the date of shipment, for transactions whose term of stay or sale abroad does not exceed 180 days of the shipment date, irrespective of the effective receipt of the foreign exchange abroad; and (ii) 30 days of the date set for the stay or sale abroad, in all other situations.

The exchange coverage may be evidenced by way of: (i) connecting the exchange contracts settled to the respective entries of export with shipments recorded with Siscomex; (ii) settling the corresponding exchange contracts related to service provision; and (iii) checking the Corporate Taxpayer ("CNPJ") or Individual Taxpayer ("CPF") Identification Numbers corresponding to the total overseas sales as compared to the overall amount received abroad, for exports of up to US$ 10 thousand paid by means of credit card charge, international money order or simplified export exchange contract.3

Whatever the means of international transportation used (ground, air or sea), current regulation allows the direct remittance of documents abroad by the Brazilian exporter to the foreign importer prior to the execution of the exchange contract. Direct remittances of documents abroad by the Brazilian exporter following the execution of the exchange contract is also allowed, provided that the exporter and the bank have mutually agreed to it.4

From now on, the exporter is now required to deliver the export documentation to bank accredited to operate exchange in view of the deadlines imposed for shipment and proof of exchange coverage,5 but the bank will be discharged from said obligation upon statement from the exporter.6

Exchange contracts entered by other than exporter can be associated with export registration with the Siscomex in the following situations: (i) merger, spin-off or consolidation of companies and in the contractual succession situations provided in the law; (ii) court ruling; (iii) companies in the same economic conglomerate; (iv) exports financed by the National Economic and Social Development Bank (BNDES) or by the National Treasury; and (v) exports subsidized by the Export Guarantee Fund (FGE). "Companies in the same economic conglomerate" are companies and their controlled companies, as well as companies under common control, in either case so long as the exporter serves prior communication to the Federal Revenue Service (SRF) and state or district finance service or equivalent body.

Pursuant to the new regulation, a collection action against the debtor above is only required in the cancellation or retirement of exchange contracts with goods shipped or services provided if the amount equals to or exceeds US$ 50 thousand or equivalent in foreign exchange.7

Redemption of notes of exchange abroad is optional, without right of recourse, provided that separate exchange contracts are made, one for the export amount and the other for the redemption amount, and that said exchange contracts are settled on the same date. The activity of the foreign exchange may occur at net value, after discount.8

In the event of exports financed by the exporter itself, the exchange contract for each principal payment or payment of interest must be settled up to 30 days of the date provided in the RC.9

Rules governing anticipated receipt of exports apply to goods and services.10 Anticipated receipt of exports is the application of funds in foreign exchange in the settlement of export exchange contracts prior to the shipment of goods service provision. Anticipated receipt of export amount is short term where the exchange contract is settled up to 360 days of the date of goods shipment or provision of services, and long term where settlement occurs after 360 days thereof. Early receipt of funds in foreign exchange by Brazilian exporters from importers or any legal entity abroad, including financial institutions, is allowed.

Shipment of goods or provision of services must occur within no later than 360 days of the date of the exchange contract. This timeframe applies irrespective of the any early receipt with exchange contract for spot or future settlement, prior to the shipment of goods.

The payment of interest on the foreign exchange amount of the exchange contracts settled upon early receipt of export is subject to the following: (i) counting of time for interest and principal payment shall have as the earliest date the date of disbursement or entry of funds in the country; (ii) interest will be computed over the debtor balance; (iii) interest rate may be freely agreed upon by the parties;11 (iv) beneficiary of interest remittances will be he who is responsible for pre-payment the export; and (v) alternatively, the amount owing as interest will be settled upon shipment of goods abroad.12

Transactions originally made with early receipt of export amount with respect to which the goods have not been shipped or services have not been provided, upon prior consent of the payer abroad will be converted by the exporter in direct capital investment or currency loan. Such a conversion must be registered with Bacen and made within up to 90 days of the expected date of goods shipment or service provision, being a condition precedent for the future execution of the exchange transaction prior to the goods shipment or service provision. Remittances are allowed provided that they constitute the return abroad of residual amount equivalent to up to 5% of the original early amount, due respect being given to the applicable tax laws and regulations. Exporters are required to proof payment income tax accruing on any interest remitted abroad regarding the amount entering and whose goods have not yet been shipped or services rendered, both in the case of conversion or remittance of the residual amount.

Exchange contracting must be total prior to the input of the export information in the Siscomex, while exporter: (i) is involved in the transaction not backed by exchange or foreign trade regulation; (ii) is pending purchase of exchange after shipment, after the regular time fixed to that end; (iii) keeps pending the dependence of its exchange transactions, prior or after the shipment, on the respective export registration at Siscomex; and (iv) is pending compliance with the determinations by the Bacen with respect to any outstanding issue of exchange or foreign trade nature. At the discretion of the Bacen, total contracting of exchange will also precede the registration with the Siscomex of the export, upon occurrence of the events listed in items (ii) and (iii) during a period less than 180 days.

Connecting exchange transactions, made prior or after the shipment of goods, to the respective export registrations with shipments recorded in the Siscomex, within the times and conditions established by Bacen, may be a necessary condition to carry out future exchange transactions prior to the shipment of goods.

It is up to Bacen to examine, on a case-by-case basis, and make decisions regarding the following: (i) retirement and cancellation of export exchange contracts; (ii) return of sums received early from payer abroad by the traditional exporter; (iii) extension of time for shipment of goods or provision of services, for contracting and settling export exchange transaction; (iv) admission of connection of the exchange contract by person other than the exporter to the export registration in the cases not provided in Resolution nº 3266/2005; and (v) waiver of exchange contracting upon proven impossibility to receive foreign exchange.

Footnotes

1 This general rule does not apply in the situations provided in the current laws and regulations.

2 The maximum time allowed between commencement and settlement of exchange contracts was 540 days, considering the time prior and after the shipment of goods.

3 Sale of goods and provision of services abroad, by legal entity or individual, worth up to US$ 10 thousand, or equivalent in other foreign exchange, may, at the discretion of the exporter, have their respective exchange transactions made according to the simplified exchange system, which includes the use of international credit cards issued abroad or international money order. Previously, simplified exchange transactions were limited to exportation of goods only, but now they apply to the exportation of services.

4 Previously, the direct remittance of documents by the exporter to the importer was allowed provided that mutually agreed between the bank and the exporter, in the event of air of surface international transportation of goods. In the case of sea transportation, direct remittances by the exporter were allowed only where indicated on the letter of credit or if the bank buying the foreign exchange is assured the receipt of the corresponding currency.

5 Previously, the exporter was required to deliver the export documentation to the bank within 15 days of the shipment, irrespective of execution or not of an exchange contract. Now, such a requirement no longer applies.

6 The bank negotiating the foreign exchange may, at its own discretion and risk, accept express statement from the exporter of export shipment number registered with the Siscomex and amount to be associated with the respective exchange contract, in replacement of the export documents. In this case, the exporter shall keep in its files, for five years starting on the date of statement, the export documents or copy thereof for submission to the intervening bank or Bacen, upon request.

7 Previously, cancellation or retirement of exchange contracts with shipment of goods was conditioned on the commencement of lawsuit abroad, upon shipment of goods worth more than US$ 30 thousand. Now, this is not required up to US$ 50 thousand.

8 The previous exchange regulation applicable to exportations did not provide about redemption of bills of exchange abroad. The current regulation allows for the redemption of exchange notes abroad, provided that without right of recourse, due respect being given to the following conditions: (i) execution, for the value of exportation, of a type 1 exchange contract for export with shipment of goods to the Siscomex; (ii) execution of type 4 exchange contract, under "45405 – Miscellaneous services – banking, " for the discount amount, and the "Registration of connected exchange contracts" screen must contain the number of the respective export exchange contract referred to in the previous item; and (iii) the contracts referred to in the previous items must be settled on the same date, and the foreign exchange activity can occur at the net value. It is, therefore, the set of operating procedures that need to be followed by banks accredited to operate on the Exchange Market when making transactions with redemption of exchange notes abroad.

9 The previous regulation did not include any provision as to financing exportations with exporter’s own funds.

10 The previous exchange regulation made no provision as to exportation of services. The new regulation deals with and establishes exchange-related procedures that need to be adhered to in service transactions, as far as the possible early purchase of exchange is concerned, listing the services rendered by individuals or legal entities resident, domiciled or based abroad, which are subject to the service exportation regulation.

11 Although the parties can freely agree upon interest rates, the regulation clarifies that the legal threshold, if any, must be observed.

12 Upon that event – interest paid upon shipment of goods abroad – export exchange (type 1) and financial transfer abroad (type 4) transactions will have to be made at the interest amount, with concurrent settlement and without activity of the foreign exchange.

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.

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