The new Brazilian foreign exchange and foreign capital law

Thursday 28 April 2022

Bruno Balduccini

Pinheiro Neto Advogados, São Paulo, Brazil


José Luiz Homem de Mello

Pinheiro Neto Advogados, São Paulo, Brazil


Raphael Palmieri Salomão

Pinheiro Neto Advogados, São Paulo, Brazil


After more than two years of going through the Brazilian Congress, at the end of last year Law No 14,286 of 29 December 2021 was enacted to revamp, simplify, and consolidate the existing legislation regarding the Brazilian foreign exchange market, Brazilian capital investments abroad and foreign capital investments in Brazil (‘the new foreign exchange law’).

This article provides a summary of the main aspects of said new legal framework and provides some insights about the regulations to be implemented during 2022 by the National Monetary Council (‘CMN’) and the Brazilian Central Bank (‘BCB’).

Reasoning process

Most of the Brazilian laws applicable to the foreign capital investments and the foreign exchange market were developed over periods of foreign currency shortages and restrictions on the country’s balance of payments. Such laws were rigid and often provided for obsolete rules that intended to establish foreign exchange controls and price fixing, measures that are currently incompatible with the globalised economy focused on productive investment and free flow of capital.

Undeniable progress has been made in the last 20 years towards more flexibility in the flow of international funds to or from Brazil, such as the consolidation of the free foreign exchange market in 2005, and, in 2008, the end of the obligation for all Brazilian exporters to transfer back to Brazil the cobertura cambial (foreign currency received from exports). However, the more progressive new laws and regulations that were issued did not completely repeal the former old laws. Accordingly, the foreign exchange legislation was dispersed in dozens of legal instruments, some of them enacted more than 100 years ago, with repetitive, and sometimes conflicting, provisions.

Such ‘patchwork’ brought legal uncertainty and high regulatory costs to private players in the Brazilian foreign exchange market, resulting in expensive, bureaucratic products and bad experiences for users. Moreover, as the CMN and BCB cannot regulate beyond or against what is provided for in federal laws, this outdated legal framework impedes the adoption of structural changes for the sector.

Structure of the new legal framework

The new foreign exchange law provides for a deep restructure because it definitely wipes out the ties that obstructed the adoption of modern concepts compatible with the global guidelines recommended by the Organisation for Economic Cooperation and Development, simultaneously providing simplicity and greater legal certainty.

The new foreign exchange law achieves such goal by means of the following:

First, it revokes several dispersed, old and outdated laws, decrees and normative rules on the matter, such as Law No 4,182 of 1920, which considered jogo sobre câmbio (forex gambling) a crime. In other words, many of the expected benefits do not come from what the new legal framework brings, but from what it excludes from the prior legal framework.

Second, it consolidates the rules applicable to the Brazilian foreign exchange market and to the foreign capital investments into a single concise, simple and principle-based legal instrument. The details will be set in the regulations to be enacted by the BCB, allowing that new changes, when necessary, are made quickly, technically and safely.

The extent of the innovations overall, therefore, will depend on the regulatory changes to be made by the BCB. The agenda is in favour of free competition, and is modern, progressive and innovative.


The new foreign exchange law will enter into force at the end of 2022. During the period of time between the enactment and the entry into force of the law, the BCB will review and enact the regulatory rules to adapt the current ones to the new legal framework. A number of public consultations and dialogues are expected between the regulator and the market.

General principles applicable to the foreign exchange market

The new legal framework consolidates, at the level of federal law, several principles prevailing in the Brazilian foreign exchange market, in particular:

  • foreign exchange transactions may be held freely, without value limitation;
  • exchange rates are to be freely agreed upon;
  • foreign exchange transactions must be carried out through institutions authorised to operate in such market by the BCB; and
  • such authorised institutions are responsible for identifying customers and adopting controls to prevent wrongdoings, especially money laundering.

Opening competition: new licences and new business models

The new foreign exchange law increases the number of possible new institutions authorised to operate in the foreign exchange market, as well as fostering new business models, enabling greater competition and efficiency in the sector. This is done in different ways.

On one hand, the BCB received powers to establish different and proportional requirements for the creation and operation of authorised institutions, or even to waive such authorisation, considering the volume, nature, innovation capacity, risks and scope of the intended business model.

On the other hand, the new law provides that its legal framework will not apply to transactions involving the purchase and sale of foreign currency in cash, in the amount of up to US$500, carried out between individuals, on an occasional and non-professional basis. This means that transactions within this scope will not be deemed foreign exchange transactions and may be performed freely, paving the way for peer-to-peer currency exchange models, for example.

Streamlining and bureaucracy reduction: foreign exchange contracts and registration codes

The benefits for companies and citizens is given, initially, with the reduction of bureaucracy, improvement of processes and reduction of costs involving foreign exchange or international transfers of capital.

The new foreign exchange law repealed completely the rules that currently serve as the basis for the entire foreign capital registration system (RDE-IED, RDE-ROF and RDE-Portfolio), as well as for the requirement of exchange contracts and registration codes. At the same time, the BCB received broad powers to regulate and monitor the flow of Brazilian capital abroad and foreign capital in Brazil, including availability and remittance procedures. This law also enables the BCB to request, in a more flexible, selective and efficient manner, the information necessary for compilation of official macroeconomic statistics.

All such changes will contribute to the simplification and rationalisation of exchange contracts, registrations, codes and reports, taking into account reasonable compliance costs, resulting in better and less expensive services.

Offer of financial products and services by Brazilian financial institutions abroad: death of Circular 24 of 1966

One of the most symbolic changes brought about by the new foreign exchange law is that Brazilian financial institutions and other entities authorised by BCB will be expressly authorised, within the limits of their respective licences, to allocate the funds they raise in Brazil to credit and financing transactions abroad. This means the revocation of Circular 24 of 1966, an old and anachronistic rule that prohibited Brazilian institutions from carrying out this type of offshore operations directly.

This will certainly open new alternatives for Brazilian banks that are now authorised to offer their services to clients within Brazil and abroad, deleting a competitive disadvantage that such entities face in comparison to international banks with a presence in Brazil and abroad.

Measures to strengthen the convertibility of the Brazilian real

Another import cornerstone of the new foreign exchange law is the strengthening of the grounds for the conversion process of the Brazilian reais. Several measures were taken to foster and simplify the use of the Brazilian currency abroad, including by international players in Brazil. Such measures are:

Adoption of full international bank correspondents activities in Brazilian reais

A foreign bank may open an account in Brazilian reais with a bank in Brazil and use it to make payments of interest to Brazilians abroad. Currently, only the inverse flow is allowed, which permits only foreigners to use these accounts for payment orders in Brazil.

Maintenance of accounts in Brazilian reais by foreign entities

Foreign central banks and non-resident institutions that provide clearance, settlement and custody services in the foreign market may open and maintain deposit and/or custody accounts in Brazilian reais with the BCB. Accordingly, the Brazilian real may integrate the assets of those institutions, expanding the use of such currency abroad. It will also facilitate participation of foreign investors in government bonds denominated in Brazilian reais directly abroad.

Parity between residents’ and non-residents’ current accounts

The new law expressly provides that accounts in Brazilian reais held by non-residents should receive the same treatment as accounts in Brazilian reais held by Brazilian residents. This repeals the current regime for accounts in Brazilian reais opened by non-residents (formerly CC5), which is highly complex and bureaucratic due to the required reports and the regime applicable to international transfer in Brazilian reais (TIR), among other factors. The investment regime in the financial and capital markets through the so-called 'accounts 4,373' is also expected to be simplified, so that investments may be made with funds from non-residents’ local current accounts.

Mandatory use of Brazilian currency in Brazil

The mandatory use of Brazilian currency continues to be the general rule. The new legal framework only consolidates the exceptions in which payments in foreign currency are permitted in Brazil, which includes: foreign trade transactions; transactions with a counterparty abroad; foreign exchange contracts; indirect export; and assignment/delegation of these obligations, among others.

However, it introduced some specific innovations. One of them is the possibility of agreements denominated in foreign currency to be entered into between, on the one hand, exporters, and on the other hand, concessionaires, licensees, authorised entities or lessees in infrastructure sectors.

Another novelty, and perhaps the greatest one, is the granting of powers to the CMN to define new scenarios in which a payment in foreign currency is permitted, as long as it aims to mitigate foreign exchange risks or boost business efficiency.

Currency inflow and outflow in Brazil

Regarding the processing of inflows and outflows of Brazilian and foreign currencies in Brazil, the requirement about the obligation to perform a foreign exchange transaction through an institution authorised to operate in the foreign exchange market is maintained. Historically, statutory rules have restricted this activity to banks, but, recently, there has been a relaxation so that, in fact, any institution authorised to operate in foreign exchange (such as brokerage companies) can have its own foreign exchange account abroad to make these inflows and outflows.

An exception to this general rule is the cash that international travellers can take in or out of Brazil. This limit was raised to US$10,000 or its equivalent (and is no longer set at R$10,000).

Use of export funds held abroad in loan transactions

Brazilian companies holding export earnings may freely use these funds, including to grant loans. Currently, despite the removal of the cobertura cambial, there is still a restriction on this type of use (loans), which will be repealed when the new foreign exchange law becomes effective.

Private cross-border offsetting

The private offsetting of credits or values between residents and non-residents, which is currently prohibited, will become expressly authorised in events to be established by the BCB. Therefore, changes in this regard are still subject to regulation.

Financial charge in case of cancellation or write-off of ACC

The financial charge resulting from the write-off or cancellation of advances on foreign exchange agreements (‘ACC’) becomes limited to the total amount of the advance.

Foreign currency accounts

Despite the press rumour about foreign currency accounts being one of the major innovations of the legal framework, this matter is already currently regulated by the monetary authorities since companies from several industries, such as insurance companies and travel agencies among others, can open a foreign currency account. The new foreign exchange law only established that from now on it is incumbent on the BCB, and no longer on the CMN, to define who can hold a foreign currency account and what the applicable requirements will be.

In the future, the BCB can widen the scope to open foreign currency accounts in Brazil, but the BCB has already issued an opinion about the fact that this will take place in the long term, in a gradual and prudent manner, based on Brazilian macroeconomic fundamentals.

Tax aspects

Tax matters have not been expressly contemplated in the new legal foreign exchange framework on purpose and as a strategy to secure its approval.

In addition, legal provisions assigning the responsibility for checking the payment of taxes on foreign exchange transactions to the institutions that operate in the foreign exchange market (Article 9 of Law 4,131 of 1962 and Article 125, sole paragraph(c) of Decree-Law 5,844 of 1943) remain valid, resulting in a high compliance cost and impacting the price and quality of the service.

Exchange controls in exceptional and emergency cases

For the most alarmist detractors, it is important to make clear that in this last round of foreign exchange liberalisation, the government maintained, through the CMN, the ever-prudent prerogative to impose foreign exchange controls, again in case of emergency (Law 4,595 of 1964, article 4, XVIII). This is a sovereign right, which, evidently, should be implemented only in extremely exceptional cases.

Final comments​​​​​​​

Despite the unquestionable advances within the last years, there are still many aspects to be enhanced in the foreign exchange market and in the international capital regime. It is necessary to improve the business environment, including fostering foreign trade and removing its limitations; to make foreign exchange and financial transactions more expeditious, reducing cost in Brazil and offering a more favourable environment in which to do business; and to open up more possibilities for clients to have access to financial products abroad through local banks.

The new Foreign Exchange makes room for adopting modern and disruptive concepts, bringing Brazilian foreign exchange regulations in line with the guidelines and practices internationally used. The extent of such reform, however, will be also contingent upon the statutory changes to be made by the BCB.

In addition, future initiatives such as the Central Bank Digital Currency and international instant payment have already begun appearing on the horizon. It has become clear that both the CMN and BCB aim at streamlining the foreign exchange rules and creating an environment that enables the Brazilian real to be a convertible currency available on international markets. The first steps have certainly been taken.