Problems relating to Trade and Investment on Brazil
12. Exchange controls |
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Issue |
Issue details |
Requests |
Reference |
| (1) Complex/delayed Licence Acquisition Procedures for External Remittance | - When an expatriate to Brazil, remits the cost of living to his/her family left behind in Japan, a Comfort Letter showing that the recipients are his/her dependant family members must be prepared. In addition, some banks also require the submission of family register (FRG), and proof of earnings of the remitter (POE). - Difficulty in external remittance, vexatiously complex clerical work. - Upon external remittance, Banco central do Brasil requires presentation of "ROF" (Registro de Operacoes Financeiras= Record of Financial Transactions). However, there are cases where remittance is not authorised due to deficiency of documents. - Application and acquisition of ROF (financial operation registration) is necessary for payment of dividends and principals. Reference is made to ROF No. on capital transactions via an intermediary bank. - There has been increasing number of cases where delays by several months occurred on external remittance at the direction of Banco central do Brasil. It affects not only settlement between enterprises but extends to personal remittances from time to time, extending its impact upon individuals' livelihood. |
- It is requested that GOB: -- harmonises the remittance procedure via banks, -- obviates the need for submission of FRG and POE in order that just Comfort Letter suffices, -- accepts submission of alternative documents for those that are not readily obtainable in Brazil such as FRG and -- fundamentally deregulates or eliminates the regulatory requirement for FRG , POE, Comfort Letter, etc. - It is requested that GOB deregulates foreign exchange control. - It is requested that Central Bank of Brazil streamlines the procedures. - It is requested that GOJ causes BCB to expressly identify the regulations that govern external remittance from Brazil, including the terms and conditions that guarantee timely receipt of the remitted fund without delay. |
- BCB Regulation (CIRC1,533 CIRC2,685) |
| (Action) - BCB continues its rigorous control on REAL after introduction of the REAL Plan, imposing restrictions on remittance abroad in various currencies (payment of dividend on: capital gains, debt, consideration for technology transfer, settlement of import account, and foreign investment) and restricting severely as needed. In each instance, GOB requires explanation of the transaction involved, documentary proof (on transaction subject to tax, proof of payment for tax). An authorized foreign exchange bank or BCB approves or disapproves the requested remittance. - It is incumbent upon an Authorised Foreign Exchange Bank to confirm the legitimacy of its customer's Foreign Exchange Transactions and to report its findings to the Central Bank. Customer's foreign exchange transactions must conform to the purposes of the transactions laid down in the Central Bank's Regulations (CNC). |
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| (2) Undeveloped Forward Booking Market for Foreign Exchange | - GOB restricts the means of hedging the foreign exchange risk only to variable bonds in US dollars and SWAP. In the absence of the foreign exchange advance booking market, enterprises are compelled to rely upon extremely restrictive means of hedging the risks of foreign exchange. Also it is expensive to hedge the foreign exchange risk since the cost is linked to interest rate. - Due to the absence of the market of foreign exchange forwards in Brazil, enterprises are left with no alternative but to rely on limited means for hedging the foreign exchange risks, such as NDF (Non-Delivery Forward) and its cost is exorbitantly high. In addition, Brazilian enterprises are prohibited from dealing in NDF, etc. with banks other than the domestic banks. - It is difficult for a member firm' subsidiary (MFS)--purchasing imported goods in foreign currency for local resale in Brazil--to hedge the exchange risk, due to the absence of the foreign exchange forwards market, which is available in the developed countries, while BCRA authorises transactions only in the local currency, Real. The 3-methods for hedging the exchange risk now available are costly, due to be Real not being a hard or strong currency. Non-Deliverable Forward, the most general-purpose method is void of fairness, as income tax liability accrues only when the enterprises generate profits from the transaction. |
- It is requested that GOB establishes foreign exchange advance booking market that parallels to the developed countries. - It is requested that GOB creates the market of foreign exchange forwards in Brazil. - It is requested that BCRA establishes a more concise procedure that does not disfavour local enterprises in Brazil in hedging the exchange risk. In light of the volatility and the difference of the Real's interest rate from hard currencies, there would not be much hope for cost reduction at the time of making the forward booking. |
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| (3) Unauthorised Netting of Debtors/ Creditors | - As GOB disallows the netting of external debtors and creditors account, reciprocal external remittance is necessary. | - It is requested that GOB liberalises the netting. | |
| (4) Contract and Settlement Terms in USD | - GOB prohibits domestic transactions agreement in USD. | - It is requested that GOB takes steps to liberalise the domestic settlement in USD and the domestic contract in USD, such contracts are desirable in certain cases. | |
| (5) Radical exchange fluctuations prevail. | - As it stands, Member Firm's Subsidiary (MFS) benefits from exchange gain on a direct export transaction in yen. Nevertheless, negotiation for raise in price is difficult. In a transaction with its parent company, the prevailing Yen depreciation enables MFS to offer special prices to its customers. However, MFS runs on a thin margin, so that if the exchange rate swings toward appreciation of Yen, it will instantly show operational loss: such is the severity of the fluctuation band. | - t is requested that GOP takes step to: -- stablise foreign exchange fluctuations, and -- holds the fluctuation band within a few percents in 6-months. |
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| (Action) - Exchange rate of real against USD dropped by 12.5% in 2014, but in 2015 (September), it dropped by nearly 50%. |
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