The Registration of Foreign Investment in Reais

National Monetary Council Resolution No. 3.455, dated May 30, 2007, establishes the obligation of registration in reais of foreign capital invested in Brazilian legal entities not yet registered and not subject to any other forms of registration – so-called "tainted capital."  Thus, relay of profits or dividends and interest on net equity, and interest on loans, generated by tainted capital to non-resident foreign investors or the capitalization of these amounts, are now possible. 

Examples of foreign investment subject to registration in reais are:  (i) investments made prior to Law No. 4.131, dated September 3, 1962, that remained unregistered; and (ii) investments that are not the result of the effective entry of foreign capital into the Country nor can be regularized via simultaneous exchange transactions. 
 
The registration must be made via the Electronic Declaratory Registry – Foreign Direct Investment Module (RDE-IED) or the Financial Transactions Registry (RDE-ROF) of the Information System of the Central Bank of Brazil (Sisbacen).  The foreign investment must be documentarily proven and duly recorded in the accounting books of the recipient company.

The registration in reais of foreign capital must be effected within the following deadlines:  (i) by June 30, 2007, for foreign capital recorded as existing on December 31, 2005; and (ii) by the last business day of the calendar year subsequent to the reporting of the annual balance sheet of the legal entity obligated to effect the registration, including the foreign capital registered as existing as from the year 2006.  In the case of investments in financial institutions or other legal entities authorized to operate by the Central Bank of Brazil, the registration can only be made with the prior authorization of the Central Bank.
 
A fine of up to R$250,000.00, or the total amount of the capital subject to registration, whichever the lesser of the two, is applicable in the following situations:  (i) provision of incorrect or incomplete information within the above-referenced time period; (ii) failure to correct or supplement incorrect or incomplete information within the timeframe established by the Central Bank; (iii) registration after the deadline or in a manner other than as required in the regulation; (iv) failure to effect the registration; and (v) providing false information.