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Foreign Investment Regulations - Chapter 4 - Doing Business in Brazil
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Originally from:
Doing Business in Brazil - Looseleaf
Doing Business in Brazil - Electronic
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Foreign Investment Regulations
A. ACQUISITION AND SALE OF SHARES OR QUOTAS
4.101 The most common method of investment is the remittance of capital for direct investment in a business, by means of the subscription of shares in a sociedade por ações, or quotas in a sociedade limitada.
4.102 Foreign investors may also acquire shares or quotas held by third parties: if they do, the transaction does not directly affect the capital of the company. The acquisition in such case will be made from residents in Brazil or from other foreign investors, with payment being effected either in Brazil or abroad. Such distinctions must be drawn to show whether capital has entered Brazil and the price paid for each share or quota. All these matters are extremely important in relation to registration of the foreign capital with the Central Bank of Brazil.
4.103 In practice, only the foreign investment registered with the Central Bank can be treated as foreign capital. Such registration is regulated by the Central Bank of Brazil must be carried out through the RDE-IED (Electronic Registration System-Foreign Direct Investment), which is an on-line registration system where input is entered by the Brazilian investee and/or foreign investor’s representative. This registration is necessary for: (i) remittance of profits abroad; (ii) calculation of the amount of any reinvestment of profits which increases the amount of the original foreign investment; and (iii) repatriation of the foreign capital invested, together with any capital gain.
4.104 Capital remitted to Brazil for the acquisition and/or subscription of shares or quotas directly in a Brazilian company is registered at full value, together with its corresponding value in Brazilian currency. Reinvested profits, which will be added to the original investment, will be registered in the currency of the country of the investor, at the rate of exchange on the date of their capitalization. Any reinvestment has the result of increasing the base for remittances abroad without incurring capital gains tax, in case of repatriation of the investment.
4.105 As from February 2004, even when foreigners acquire shares or quotas from third parties that are not resident in Brazil, and the transaction takes place abroad, income tax is payable in Brazil on the amounts treated as capital gains. Since, however, no new foreign capital enters the country, the electronic registration data must be changed to indicate the new investor, no changes being made in the capital registered in the name of the vendor, even though the quotas or shares may have been acquired for a sum in excess of or less than the amount registered with the Central Bank.
Pinheiro Neto - Advogados, established in 1942, is Brazil's leading commercial law firm with offices in Sao Paulo, Rio de Janeiro and Brasilia. The founding Editor of this publication, the late J.M. Pinheiro Neto, was the Legal Advisor to the British Chamber of Commerce in Brazil.
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