INFORMATION OF INTEREST TO FOREIGN INVESTORS
HOW TO INVEST IN BRAZIL:
International Investors (institutions and individuals) are allowed to hold any asset class available to domestic investors in Brazil.
According to the CMN (Brazilian Monetary Council) Resolution 2689, since international investors are not established or resident in the country, it is necessary to hire an institution to act as:
The financial assets and securities traded as well as other forms of financial applications must be registered, held in custody or maintained in deposit accounts at an appropriated authorized institution authorized by the CVM or Central Bank.
International investments in equity instruments are tax exempt on capital gains and on CPMF. Investments from countries that do not tax income or where tax rates are lower than 20% are taxed as domestic investors. There is no minimum permanence period requirement for the investments in Brazil.
Prior to starting its operations a non-resident investor must appoint one or more representatives in the Country. When such representative is an individual or a non-financial institution the investor must also appoint a financial institution or institution authorized to operate by the Brazilian Central Bank that will be jointly and severally responsible for the performance of the representative’s obligations.
The representative does not necessarily perform the requirements of the tax legislation although in practice he may also perform such duties.
In case of non-performance of the obligations previously provided to the representative, it will be subject to the suspension of the exercise of its duties and the non-resident investor should appoint its substitute.
In case of omnibus account the participant non-account holder ("passenger") may appoint the same representative as the account holder signing an Adhesion Instrument to the Representation Contract thereof.
The forms of the Representation Contract and the Instrument of Adhesion to the Representation Contract and the Representative Form are in Part II hereof.
After filling out the identification form (see Part II, Item 1), the non-resident investor should, through its representative, obtain registration at the CVM. The rapplication is made electronically forwarding the following documents to the CVM at the e-mail address firstname.lastname@example.org or fax no. (21) 3554-8370.
FORMS FORWARDED FOR CVM ELECTRONIC REGISTRATION
b. Non-Resident Representative Identification Form;
c. Custodian Identification Form.
CVM will respond to the registration within 24 hours from the application made by the representative.
In case of constitution of own or omnibus account the representative shall:
The CVM operational code structure follows the configuration below:
The non-resident investor must qualify under one of the following classifications to be registered with the Central Bank and the CVM:
The non-resident investor can operate through the following types of accounts:
a) as the Account Holder of an Own Account; or
b) as a Account Holder of an Omnibus (Collective) Account; and/or
c) as a Participant (passenger) in an Omnibus Account.
The registration of own account holder enables the investor to operate in its own account. The registration of an omnibus account holder authorizes the account holder to operate both in its own name and on account of other non-resident investors admitted as participants in the omnibus account and known in the market as "passengers". Finally, the registration of an omnibus account participant is granted to the client of the omnibus account holder previously described.
Besides investing its own funds, the Holder of an Omnibus Account has the possibility of bringing clients thus earning revenues for services provided to client participants and pro-rating the costs thereof.
The non-resident investor may be holder and participate in one or more accounts. The holder of an omnibus account may operate its own funds in such account, as long as the registration for that purpose has been applied for in its own name.
The registration number assigned by CVM must appear in all operations carried out in the name of each investor participating in an omnibus account or holder of own account thus allowing:
Corporate investors under qualification or individuals under qualification may not be holders of omnibus accounts.
Depending on the investor’s characteristics, the alternative to operate as a passenger in an omnibus account facilitates its entrance into the Brazilian capital markets. The table below sums up the advantages and disadvantages of each type of account.
5. Types of Applications
Non-resident investors may invest in the same products available to local investors with free transit from equity-related investments to fixed income investments and vice-versa, observing the applicable tax treatment differences.
Financial assets and securities as well as other modes of financial operations carried out by nonresident investors resulting from applications under Resolution 2689/2000 must, according to the nature thereof:
Whenever requested, depository institutions and entities providing custody and registration should make available to the Central Bank and the CVM the registrations concerning the applications, in individualized form, by non-resident investor.
6. Contracting and Registration with Custodian
Non-resident investors intending to operate as account holder must sign, directly or through their representative, a contract for provision of securities custody services with an institution authorized by the CVM to provide such service. Omnibus account participants (passengers) may adhere to the custody contract of the omnibus account holder.
The CVM Instruction 419/2005 (detailed in Item 8.1) establishes that Central Depositories, the Settlement and Clearing Houses and their respective clients may adopt the Simplified Registration form of the non-resident investor within the scope of the relationship with Global Custodians exercising the activities of custody of securities of such investors.
A non-resident investor may be holder and participate in one or more accounts and in case it elects to maintain its securities in separate custody accounts or in more than one custodian institution, the custody contract should contain clauses providing on operational procedures for the transactions between accounts including information to be provided to the holder and representatives.
In cases where the non-resident investor acts through a foreign institution it is admitted that the contract for provision of services of securities custody may be entered into by the foreign institution in the name of the non-resident investor, provided that, according to provision in the CVM Instruction 419/2005 the custodian institution will make sure that the non-resident investor is duly registered with the foreign institution.
The transfer of securities between the various accounts in which the investor participates is automatic but should be informed to the CVM. Said transfer can only be made when the CVM operational code group (see Item 2) identifying the holder of funds is the same, what ensures the maintenance of ownership of the investment.
The transfers of custody positions between non-resident investors occurred abroad resulting from merger, incorporation, split and other corporate changes as well as those resulting from causa mortis succession depend on the CVM previous authorization. The application should be accompanied by the documentation proving the event.
7. Registration at the Central Bank
The funds brought into the Country under terms of Resolution 2689/2000 are subject to electronic registration at the Central Bank under the electronic declaratory form. The non-resident investor’s representative will be responsible for the registration of operations.
The initial RDE - Electronic Declaratory Registration and updates thereof are a mandatory requirement for any transactions abroad and must be obtained prior thereto. The RDE number should appear on the appropriate field of every foreign exchange contract made in the non-resident investor’s name.
The RDE is mandatory in all applications, redemptions, earnings, capital gains, transfers and other transactions resulting from investments made under terms of Resolution 2689/2000.
The holder of own account or omnibus account, its representative, depository institutions or entities providing registration services must provide to FIRCE – Department of Registration and Supervision of Foreign Capital of the Central Bank, whenever requested, the documentation detailing, by participant, the transactions carried out, the assets portfolio, custody transactions or any other additional information requested.
On remittances abroad by way of earnings, repatriated capital and capital gains, the intervening bank is responsible for checking the documents to be submitted by the custodian or the non-resident investor’s representative, which must prove the distribution of earnings, the ownership and sale of assets that generate them or were sold and the due tax collection.
8. Registration of Non-Resident Investor with Local Brokerage Firms
Non-resident investors as well as resident investors must effectuate the registration with a local brokerage firm and keep it updated. In case of non-resident investors there are two options described below:
9. Portfolio Monitoring and Inspection
The representative shall submit to the CVM, monthly, by the fifth business day of the following month, through electronic medium, such information referring to non-resident investors’ accounts according to the database structure and programs provided by the CVM. Such information should be maintained available to the Central Bank.
All depositary and custodian institutions should also provide whenever requested to Central Bank and the CVM such records referring to applications by investor.
The CVM charges a portfolio monitoring fee from own and omnibus accounts (Law 7940/1989), to be collected quarterly by the representative. The calculation basis is the portfolio net worth value calculated on December 31 of the previous year.
THE CVM QUARTERLY MONITORING FEE
Non-resident investors are forbidden to acquire or sell:
The above prohibitions do not apply to cases of subscriptions (of securities and closed investment fund quotas), bonuses, conversion of debentures into shares, indexes referenced in securities, acquisition and sale of open investment fund quotas and with CVM authorization, cases where the capital is going private, cancellation or suspension of negotiation, court transactions and trading of shares bound to shareholders’ agreements.
Any references or assignments of ownership abroad of investments or securities owned by nonresident investor are forbidden, and in the Country in other forms than those established in Resolution 2689/2000. This prohibition does not apply to cases of transfer resulting from merger, incorporation, split and other corporate changes made abroad as well as the cases of hereditary succession observing the regulation issued by the Central Bank of Brazil and CVM.
It is forbidden to make any transfer of funds brought into the country under Law 4131/1962 (foreign direct investment and foreign indebtedness) or under Circular 3280/2005 (foreign exchange operations applicable to non-resident accounts) into the mechanism provided for in Resolution 2689/2000 and vice-versa.
Non-resident investors shall appoint a Central Bank authorized institution as responsible in the Country for the performance of tax obligations resulting from its operations.