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Monday, May 21, 2018

Counselling Aimed at Company Capital Transfers

The regulation of foreign investment in Brazil is regulated by specific laws. In accordance with such laws are included in the concept of foreign capital goods, machinery and equipment introduced in Brazil without spending an initial currency initial, intended for them or production of goods or services, or to financial or monetary policy introduced in the Country and intended in economic activities, provided that, in either case, they belong to individuals or legal entities resident, domiciled in Brazil.

The previous "Brazilian Federal Constitution" contained some restrictions on investment in certain sectors. It narrows the field of action of the foreign physical or legal corporate. These sectors or thematic areas:

  • Research and processing of, oil, gas, mineral and other fluid hydrocarbons.
  • Domestic or foreign oil refining.
  • Maritime transport of crude oil of national origin and derivatives produced in the Country, as well as the transport, by means of the conductor, crude oil, natural gas and derivatives of any kind.
  • Research, processing, enrichment, industrialization, trade in minerals, nuclear minerals and their derivatives.
  • Transport and utilization of radioactive materials in the national territory.
  • Coastal shipping.
  • Telecommunications services.
  • Airmail postal services and national levels.
  • Sound and television broadcasting services.
  • Services and installation of electricity and use of water resources for energy purposes.
  • Aviation, aerospace and airport infrastructures.

Since 1995, as a result of some constitutional revisions and restructuring, have been expanded the opportunities for foreign investors in the areas mentioned above. It was defined that established companies in Brazil through a permanent organization without distinction of origin of the investment capital, it is domestic or foreign, allows companies to be defined Brazilian tax residents therefore considered in all respects and therefore without restrictions.

Under these constitutional novel was also permitted foreign participation in the exploitation of mineral resources, water and the activity of coastal navigation. It was also eliminated the state monopoly in telecommunications, broadcasting of sound, the television industry, the distribution of piped gas which is now open to private initiative and also the exploration and extraction of oil could be implemented by private companies or private participation.

Another intervention has made possible the participation, indirectly, to foreign investors in business journalism and broadcasting. It is also possible the participation up to thirty percent of the share capital by an incorporated company company incorporated under the laws of Brazil.

There are still restrictions on foreign investments  in Brazil that prohibit or limit the participation of foreign capital in the following activities:

  • Carry out work connected with atomic energy and electricity.
  • Ownership of rural areas and commercial activities in the areas of international border.
  • Domestic air transport.
  • Aerospace industry.
  • Fishing industry.
  • Posts and Telegraphs.

Foreign capital must be registered through an electronic declaration. Bright Business Consulting LLP assists the client in all this very delicate stage.

The register shall contain the indication of the values invested in foreign currency, the equivalent in local currency and the number of shares held by the investor. This registration is therefore a necessary precondition for the remittance of profits abroad, for the new investment and for the repatriation of the invested capital.

There are various recording modes according to the type of investment:

  • Cash investment.
  • Investment in nature.
  • Investment by converting loans to foreign Countries.
  • Investment in the capital market.

Consequently, the recording operation of capital and funding from companies based abroad, are now simplified and made directly by using the specialized program of local Central Bank (SISBACEN). In principle there is no limit to the distribution of profits and consequently remittance processing abroad.

The remittance of profits is not subject to tax. Brazil has signed double taxation treaties with the following countries: Germany, Argentina, Austria, Belgium, Canada, China, South Korea, Denmark, Ecuador, Spain, the Philippines, Finland, France, the Netherlands, Hungary, India, Italy , Japan, Luxembourg, Norway, Sweden, Czech Republic and Slovak Republic.

These treaties provide for the rules to avoid the impact of taxation in the two Countries which are signatories to the categories of income mentioned in the same. According to the existing provisions, the profits generated by companies established in Brazil and owned by natural or legal persons resident or domiciled abroad, invested again in the same enterprise or in another domestic sector of the economy, are governed by way of reinvestments of profits. In this case registration is sought so that the same effects can be guaranteed by the registration of foreign capital invested at the beginning.

Such registration shall be made in national currency. The international taxation is often regulated by specific agreements between states. To avoid double taxation, in general the income tax return shall be filed in the state where you are resident for tax purposes, even for foreign income, deducting from the tax debt to the amount already paid in the foreign Country.

Income from real estate investments are normally taxed outright in the State in which the property is located. Anyone in Brazil should enter into a public deed, contract, purchase an immovable or movable property registration or other must have the CPF or CNPJ The possession of the CPF or CNPJ, does not present any particular problems but to obtain it is appropriate to implement the regulatory procedures.

Reported earnings from invested capital (already taxed in Brazil) must be registered with the Central Bank and their value is added to the initial capital for the purposes of calculating the capital gain.


INTEREST ON OWN CAPITAL

Taking into account what stated in the Brazilian Law the partner of Brazilian corporations in addition to the dividend has the chance to earn interest on own capital (equity capital) of the company. Interest shall be calculated by applying the interest rate on long-term loans to the amount of equity capital. In this regard, the scenarios are different and should be considered in each case, so it is advisable a counselling aimed at "Tax Planning". For information purposes, it is useful to refer to our section in "Tax System in Brazil".


DIVIDENDS, CAPITAL GAIN AND LOSS

Dividends paid by a Brazilian company arrive in the hands of resident or non-resident shareholders who are inexemption, in order to avoid double taxation. The distribution of dividends is not subject to withholding if its dividends from profits generated from 1 January 1996, regardless of whether the recipient is a resident or not. The capital gain is from the sale of assets (so-called asset, such as stocks, bonds, real estate etc..) Or other comparable transfe. Losses are not carried back or transferable to other companies, and in the case of acquisition of a company with accumulated losses they can not be carried forward to offset them with the income of the acquiring company newly incorporated or merged, if you changed the social structure and activity. The non-operating losses may be carried forward but only if used to offset operating profits, such as, for example those arising from capital gains.

On certain categories of income listed below, payments to non-resident withholding serving:

  • Interest and interest on capital.
  • Royalty.
  • Technical services.
  • Technical services non-professional.
  • Lease rental and hire.

There are categories of capital gains exempt from tax, such as, for example, those arising from the sale of property whose amounts are reinvested within 180 days of the purchase of another property (with the possibility to do it every 5 years), or properties of low value etc. Dividends paid by Brazilian companies are exempt, and the gains from portfolio investment or other types are subject to different rules.

These are just some brief information about the capital gains or arising losses. In this regard, the scenarios are different and must be considered from case to case, it is therefore advisable a counselling aimed at "Tax Planning". For information purposes, it is useful to refer to our section "Tax System in Brazil."

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