Foreign direct investment in Brazil: how it works and recommendations 

The country offers great opportunities, but investors must be aware of local requirements and regulations

 
 

Brazil closed the year 2021 occupying the 7th position among the countries that attracted most Foreign Direct Investment (FDI), according to estimates by the United Nations Conference on Trade and Development (UNCTAD). There were USD 58 billion in investments in the country, an increase of more than 100% compared to 2020, with an inflow of USD 28 billion. 

This increase signs the recovery of the Brazilian economy and shows that, from the standpoint of foreigner investors, the country is still attractive for business. 

• Read more: Doing Business in Brazil: initiatives contribute to making the country more attractive to investors

However, before allocating their resources, investors need to get acquainted with some aspects of Brazil, a country that is quite complex legislation-wise, but nevertheless offers great opportunities for those who take their time to understand its singularities. 

Understanding Foreign Direct Investment 

According to the Central Bank of Brazil (BACEN), a direct investment is defined as such by its intention to remain long-term in the country and by its acquisition outside stock or over-the-counter markets.

Brazilian companies can receive foreign direct investment from both Natural Persons and Legal Entities that are not resident in Brazil.  

Foreign direct investment can be made through the opening or expansion of companies, mergers and acquisitions, reinvestment of profits made in operations abroad, among other means.  

It is worth pointing out that investors should ideally seek specialized advice from local companies to guide them through these processes. 

Foreign capital inflow

Investments of foreign capital in Brazil must be carried out formally, through the traditional banking system. Foreign capital may enter freely, with only minor exceptions and restrictions. 

By abiding by such restrictions while fulfilling certain requirements, non-residents in Brazil are, in principle, allowed to invest in the same instruments available to locals.

 

Restrictions and prohibtions on foreign investment

The participation of foreign capital in activities involving nuclear energy, health services, postal and telegraph services, and aerospace industry is prohibited. 

There are also restrictions in place for the acquisition of rural land; launching and orbital missions of satellites, vehicles and aircrafts; acquisition of property located along border regions; financial institutions; operation of public air services; mining; and ownership and management of newspapers, magazines and other publications, as well as radio stations and television networks. 

Registration of foreign capital

All foreign investment are required to be registered at the Central Bank of Brazil, even before entering the country, whether through Natural Persons or Legal Entities.

This registration must be made through the Central Bank Information System - Sisbacen - Module RDE-IED (Registration Statement of Foreign Direct Investment). 

 

Taxation on inflows 

The only tax levied on foreign capital that enters the country for foreign investment is the Tax on Credit, Exchange, and Insurance Transactions or Marketable Securities (IOF), at the rate of 0.38%.

Providing information to the Central Bank 

Companies receiving foreign capital are required to provide the Central Bank with the following information: their initial investment, updates on their net equity, their fully subscribed and paid-in capital stock and the percentage of paid-in capital by each foreign investor, as well as their financing activities and their economic-financial statements (DEF).  

When their net worth or assets are equal to or greater than BRL 250 million, receiving companies are required to submit their Economic-Financial Statements to the Central Bank. The due dates for the documents’ submission are as follows: 

• Until March 31, for statements pertaining to the base date of December 31 of the previous year;

• Until June 30, for those pertaining to the base date of March 31;

• Until September 30, for those pertaining to the base date of June 30;

• Until December 31, for those pertaining to the base date of September 30.

If the due date falls on a day when the Central Bank is not open (e.g. holidays), the deadline will be extended until the next business day. 

As for companies whose shareholders' equity and assets do not reach the BRL 250 million mark, they must inform the Central Bank of a new corporate structure updated for the base date of December 31, 2021, and this information must be provided until March 31. 

 

Related penalties 

Those who fail to submit their DEFs on time as well as those who provide false, incomplete, incorrect, or untimely information will warrant a fine that can go up to BRL 250.000,00. 

 

Plan your entry into the Brazilian market with specialized support 

Planning is crucial to kickstart a successful trajectory in Brazil and having a specialized partner plays a key role at this business stage.

Domingues e Pinho Contadores specializes in implementing domestic and foreign businesses in the country, providing support in all the procedures required for starting and running a company in accordance with the regulations in effect.

DPC offers comprehensive solutions to support foreign investors, assisting them in facing challenges posed by accounting, tax, labor, and social security environments, while also providing guidance regarding the registrations and statements required by the Central Bank of Brazil. Contact our experts: dpc@dpc.com.br.

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See also: Planning brings benefits and security to implementation of business