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New legal framework for the foreign exchange market
The new legal framework for the foreign exchange market was converted into law, opening the exchange market and expressly extending the possibility of indexation in foreign currency to certain infrastructure contracts
Federal Law No. 14,286/2021 was published today in the Federal Official Gazette setting forth the new legal framework for the Foreign Exchange Market. The new law aims to the modernization, simplification (reduction of bureaucratic obstacles) and greater efficiency of the foreign exchange market in Brazil. The new law regulates the Brazilian exchange market, the Brazilian funds held abroad, the foreign capital in the country and the provision of information to Brazilian Central Bank.
We highlight below some relevant aspects of Law No. 14,286/2021, of 12/29/2021:
- Payment in foreign currency and indexation of contracts in foreign currency: revokes Decree-Law No. 857/1969, which regulated the currency applicable to the payment of obligations enforceable in Brazil. In this sense, we highlight the following situations that are now expressly allowed, in addition to the hypotheses previously indicated in items (i) to (v) of article 2 of the above-mentioned Decree-Law:
- (i) the indexation of contracts in foreign currency executed between exporters and companies that develop projects in different infrastructure sectors through concession, permission, authorization or lease (arrendamento). It is noteworthy that this change to the legal framework has enormous potential to positively impact on the needed long-term financing of infrastructure (such as, for instance, energy, green hydrogen, ports), given that this is a long-standing demand of the market and that it will have the capacity to substantially expand the alternatives for funding in foreign currency – including by multilateral organizations, export credit agencies, development banks, commercial banks and foreign investment funds – by addressing the risks associated to currency depreciation that is consistently present in this type of project, even though legal structures have already been implemented in the Brazilian market that address, from the legal and contractual stand point, risks such as currency fluctuation (including foreign currency indexation in local supply contracts) based on the current regulations; e
- (ii) stipulation of payment in foreign currency in case of indirect export, as provided for in Law No. 9,529/97. It is considered indirect export, for purposes of accessing external lines of commercial credit, the sale of inputs that integrate and are part of the production process, assembly and packaging of goods for export, provided that the final exporting purchaser company declares that the inputs will be used in any of the aforementioned processes, as well as the sale to commercial exporting companies of goods intended for export.
The National Monetary Council (CMN) may provide and regulate additional situations to be expressly permitted, if payment in foreign currency may enable the reduction of the exchange risk or increase the efficiency of the business.
- Foreign currency bank account reinforces that the Central Bank of Brazil (BCB) is the competent authority to regulate who may hold foreign currency bank accounts in Brazil, as well as the applicable requirements. Therefore, by means of regulations to be issued by the BCB, individuals and legal entities could become holders of foreign currency bank accounts in the country.
- Use of funds abroad: allows, by means of regulations to be issued in the future by the BCB, Brazilian banks and financial institutions authorized to operate in the exchange market to be able to invest abroad funds raised in the country or abroad, which will have the potential to facilitate the use of Brazilian currency in international transactions.
- Export money: allows exporters to use funds maintained abroad and resulting from exportation for loan agreements.
- Compensation: loosens the possibilities of private compensation of credit or of values between residents and non-residents in the country, in accordance with regulations to be issued by BCB.
- Remittances abroad: excludes the necessity for registration with the BCB for companies remitting funds abroad as profits, dividends, interest, royalty payments and other purposes, maintaining as the only requirement the payment of the applicable taxes.
- Commercial leasing: excludes the necessity for registration with the BCB, as well as the need for authorization for the assignment of the leasing contract (contrato de arrendamento) to an entity headquartered abroad.
Law No. 14,286/2021 was published in the Official Gazette on 12/30/2021, and, in accordance with its article 29, will come into force 1 year after its official publication.
