Brazil: Advantages Of Importing In Reais In Brazil

By Abel Simão Amaro and Andrea Steuer Zago**

I - Introduction

Brazil has strict exchange controls, notwithstanding the fact that the most recent regulations enacted by the Central Bank of Brazil ("BACEN") are gradually reducing such exchange control. The Brazilian exchange market can be divided into two major segments: (a) a formal one, controlled by BACEN; and (b) the informal one, which is a less formal market, where individuals can freely buy and sell exchange, as long as they comply with certain identification requirements.

The controlled segment of the exchange market is said to be under the strict control of BACEN, since no exchange transactions can be carried out in such market unless they are expressly provided for, i.e., authorized by the regulations. Thus, the prevailing rule in the controlled market is that only exchange transactions which are included in the detailed list contained in the regulations are authorized.

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 BACEN has authorized that any person, whether a Brazilian resident or not, may freely make international transfers of Brazilian currency ("Reais").

Although the exchange market is extremely controlled, importing transactions to Brazil are normally made in the currency of the exporter's country or in United States dollars. Such practice leads import transactions into a strict universe of possibilities to negotiate with.

The subject matter of importing in Reais is very complex, and was introduced in the Brazilian legal system on April 30, 1997 by means of Circular No. 2730 issued by BACEN, and it is also governed by the Official Report No. 21 issued by the Secretariat of Foreign Trade ("SECEX"). In order to be implemented, this kind of importation shall be payable in Reais, by means of a deposit expressed in Reais in a non-resident local currency deposit account, formerly known as "CC5" account, or by means of an international transfer of Brazilian currency, which is governed by Circular No. 2677 issued by BACEN on April, 10, 1996.

II - International Transfer of Brazilian Currency

Nowadays, there is no legal restriction imposed by the Brazilian government, limiting the entry and exit of Brazilian currency or any securities denominated in Reais into the Brazilian territory. Therefore, the entry or exit of funds in Reais is free, provided the origin of the money entering or leaving Brazil may be justified to BACEN.

Additionally, it is possible to perform any kind of payment in Reais in Brazil or abroad, for any reason (provided such payment does not result from an illicit act), as long as the creditor agrees to receive such payment in Reais and that the obligations of informing the Brazilian authorities of the operation are accomplished.

Pursuant to Article 19 of Decree No. 42.820 of December 16, 1957, transactions in Reais are not subject to any type of authorization of BACEN. However, if necessary, BACEN can establish restrictions, according to article 20 of the same Decree. So far, the Brazilian government has never imposed any such restrictions.

Presently, Circular No. 2.677 of April 10, 1996, issued by BACEN establishes the procedures and conditions applied to international transfers of Brazilian currency. Pursuant to Circular No. 2.677/96, whenever the value involved in an international transfer of Reais transaction is equivalent or superior to R$ 10.000,00 (ten thousand Reais), the financial institution authorized to operate in the exchange market which is performing such transaction has to:

a) identify the party responsible for the payments;
b) inform to BACEN the entry and exit of the funds;
c) ask the transferor to present the relevant documents justifying the deposit in the bank;
d) retain such documents to present to BACEN, if needed.

An international transfer of Reais transaction can be performed through a deposit in a non-resident account held in a bank in Brazil, or through the remittance to an account in Reais in another country (Uruguay, for instance). Once the funds are located outside Brazil, they can be converted into foreign currency, provided that such conversion is permitted by the applicable regulations of the elected jurisdiction (in the case of Uruguay, there is no exchange control and the conversion of Reais into any other currency can be made without any restriction whatsoever).

III - Non-Resident Local Currency Deposit Account

The non-resident local currency deposit account is presently regulated by Circular No. 2.677, of April 10, 1996, issued by BACEN. It is historically called CC5 account, because it was subject to the provisions of Circular Letter No.5 of February 27, 1969, which has been subsequently revoked.

Pursuant to Circular No. 2.677/96, non-residents are: (i) foreign governments or foreign organizations employees; (ii) foreigners who do not have a Brazilian permanent visa; (iii) Brazilian nationals who have domicile in another country; (iv) branches and subsidiaries of Brazilian companies incorporated outside Brazil; (v) branches of Brazilian financial institutions established outside Brazil and branches of foreign financial institutions in Brazil; and (vi) other entities established outside Brazil.

Circular No. 2.677/96 also establishes that (a) the entry of funds in the Country are debits made in non-residents' accounts, for payments to Brazilian residents, and (b) the exit of funds from the Country are credits made in non-residents' accounts, as a consequence of payments made by Brazilian residents.

Basically, such regulation enables (i) non-residents to maintain Reais denominated bank accounts in Brazil and, by means of such bank accounts, transfer Reais overseas, and (ii) any person to perform international transfers of Reais.

The rules applicable to international transfer of Reais and the registers required for international transfer of Reais are also applicable and required to the CC5 accounts.

The responsibility of banks in Brazil has substantially increased after the issuing of Law No. 9.613 of March 03, 1998, known as the Money Laundering Law. The CC5 account is an account that imposes a high degree of responsibility on the bank, and, consequently, the banks are very reluctant to open such accounts.

IV - Import in Reais

According to the above-mentioned Circular No. 2730, it is possible to import goods in Brazil without payment in foreign currency. Such imports have to be paid in Reais, by means of (a) a Reais deposit in a CC5 account or (b) an international transfer of Reais.

The payments of imports in Reais have to be made based on their net amount, after deducting the agent's fees, when such payments are due in Brazil. They have to be registered with the Central Bank Information System ("SISBACEN"), and linked to the Import Declaration ("DI"). The importer has to inform: (i) DI number; (ii) amount of the payment in Reais due under the DI; (iii) code of the currency of the DI; (iv) amount of the payment in the currency of the DI; (v) number of the BACEN registration, when necessary.

In order to import any goods in Brazil it is necessary to obtain an import license, which is issued by the Integrated System of Foreign Trade ("SISCOMEX"). SISCOMEX is an electronic data system, which controls Brazilian foreign trade transactions. All import transactions have to be registered with SISCOMEX.

According to SECEX, there is no legal restriction related with the volume or sort of merchandise to be imported in Reais.

V - Advantages on Importing in Reais

Imports in Reais are considered as imports without foreign exchange coverage. Therefore, the rules of BACEN applicable to import transactions concerning interest fees and payment dates are not applicable to imports in Reais. Also, payments to be performed under imports in Reais are not subject to the strict rules of the Brazilian exchange market.

Pursuant to Circular No. 2.677/96, interest fees applicable to import transactions are freely established by the parties, in strict obedience to reasonable and standard international practices. However, when the import is made in Reais, the standard to be used for interest fees can be the Brazilian internal rate, which is most interesting for long term payments.

Another appealing factor for imports in Reais refers to the obligation of paying the import on a determined date, established in the invoice and correspondent DI, which has to be strictly observed, according to Circular No. 2.677/96. The maturity date of the payment of an import in Reais is not monitored by BACEN. Therefore, such payments can be anticipated by the debtor, or paid in parts. For instance, the parties can establish that certain merchandise imported by a Brazilian company has to be paid monthly, within 360 days, according to the company's sales of such merchandise. In this case, the maturity date of the payment for such an import has to be 360 days.

VI - Conclusion

In order to import in Reais the foreign company must have a non-resident account in Brazil or an account denominated in Reais in another country. Additionally, it is important to keep in mind that, pursuant to Circular No. 2677/96, both the deposit in a CC5 account or the remittance to an account in Reais outside Brazil are considered exits of funds from the country, also commonly called international transfer of Reais.

As a result of the lack of interest of foreign companies in receiving payment to their trade credits in Reais, it is very difficult to find someone that has ever done any import in Reais.

The consequence of the above is that both customs agents and trade companies do not have practical experience with imports in Reais. SECEX and BACEN also faced difficulties answering questions in this regard since, as far as we know, there is no precedent whereby an importation contracted in Reais has been performed.

Finally, companies and entrepreneurs that could have interest in importing in Reais do not know of such legal possibility. Therefore, they do not consider the hypothesis of an import in Reais whenever they are implementing their import systems.

However, imports in Reais offers liberty to the parties to establish more favorable conditions to the transaction, without being limited to BACEN's approvals. Moreover, companies that have obligations to fulfill in Brazil can reduce expenses with exchange contracts and bank fees by accepting Reais as a form of payment.

Now that Brazil has a stable economy, the currency is less volatile than in other recent past, foreign companies are considering the Country as a potential investment for their business. Therefore, it is important to consider the possibility of importing in Reais, and to know the benefits that such kind of import logistics can bring to foreign companies.

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.

**Abel Simão Amaro is a founding partner and Andrea Steuer Zago is an associate of Amaro, Stuber e Advogados Associados.

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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