Volume 6, Number 9, Page 2

Securitization of Receivables In Brazil: Three Legal Aspects

By Eduardo Amaral Gurgel Kiss

Investors and even bankers are often uncertain as to the means available for sending funds either into or out of Brazil. With this in mind, we present basic guidelines below regarding such remittances.

Brazilian law presently in force contemplates three methods of remitting funds into or out of Brazil.

The first is through the foreign exchange market customarily called the “commercial” market (actually, in accordance with the regulations, its official name is the “free rate foreign exchange market”). The price of foreign currency in this market has been traditionally lower than in the other markets.

Among the most important transactions that take place in this market, we underscore the following: payments on Brazilian imports and exports, investments made in the country by foreign investors (including direct investment in companies), investments in the stock exchange, loans to Brazilian companies, cross border leases, payment of the loans and leases, remittance of dividends and royalties and repatriation of capital.

The utilization of this market is subject to many regulations. In most cases, access to this market requires the approval of the monetary authorities. This approval is normally necessary before the transaction is completed, such as in the case of loans, leases, financing of imports, etc. An important exception is direct investment in companies and in the stock exchange. In the latter cases, prior approval is not required. In almost all cases, however, after the investment is made, in order for the interested party to have access to the commercial market, so as to remit interest, dividends, repatriate the invested capital, pay for imports or import financing, it is necessary to register the transaction with the Central Bank, within 30 days (Law 4,131). Prior authorization, when required and the subsequent registration of the investment enable the investor to utilize the commercial exchange market.

The second foreign exchange market is the so called “tourism market” (actually it is called the “floating rate foreign exchange market”). The acquisition of foreign currency in this market has traditionally cost more than in the commercial market.

This market is subject to less regulation and may be more freely accessed. Among the most significant transactions that can take place in the tourism market, are remittances related to tourism activity, Brazilian investments outside of Brazil, remittance of payments for professional services rendered outside of Brazil and others. In most cases, specific authorization from the Central Bank is not a requisite to access this market such as, for instance, in the case of Brazilian investments in companies outside of Brazil, up to the ceiling of US$5,000,000 (Consolidation of the Exchange Rules, item 2.7.1).

Finally, the third mechanism available is the so-called “international transfer of reais”. In this market, the price of foreign currency has been traditionally superior to the two markets described above.

This is the least regulated market, and the one that may indisputably be considered a “free” market.

The basic importance of this market is that in accordance with Brazilian law, reais may be freely sent in or out of the country. Existing restrictions relate to the remittance of foreign currency rather than to local currency. In this market, local currency is transferred when a Brazilian entity or individual deposits reais in a bank account belonging to a foreign entity, or, on the contrary, by the deposit by a foreign entity of the reais in a bank account of a Brazilian entity. In the former case, we have a “remittance” of reais out of Brazil and in the latter case we have a “remittance” of reais into the country.

Once the reais are “remitted” outside of Brazil, as explained in the preceding paragraph, the foreign entity that receives the local currency can do whatever it wants with it, including selling it for another currency. Normally a bank operating in the Brazilian foreign exchange market will be interested in those reais, and it may acquire them, by paying foreign currency to the foreign entity. This will normally mean that the reais will be “remitted” back to Brazil, as explained above.

The remittances of reais are informed to the Central Bank of Brazil through the SISBACEN (a computer network system).

Finally, it is worthwhile to be aware that in some cases, the rules mandate that one of the above markets must be utilized for a specific purpose.

Eduardo Amaral Gurgel Kiss is an attorney with Felsberg & Associados in Sao Paulo, Brazil.