This information is derived from the State Department's Office of Investment Affairs’ Investment Climate Statement. Any questions on the ICS can be directed to
Last Published: 7/31/2017

Capital Markets and Portfolio Investment

The Central Bank of Brazil (BCB) embarked in October 2016 on what appears to be a sustained monetary easing cycle, lowering the Selic baseline reference rate from a high of 14.25 percent in October 2016 to 11.25 percent in April 2017. Inflation fell to 6.3 percent by year-end 2016 and is now on course to undershoot the 4.5 percent inflation central target set for 2017-2018, allowing for further monetary policy easing. Financial analysts assert a reduction in the BCB’s target for inflation to four percent in 2019-21 is a growing probability. Because of a heavy public debt burden and other structural factors, the neutral real policy rate will remain higher than those of Brazil’s emerging-market peers (around five percent) over the forecast period.

After a boom in 2004-2012 that more than doubled the lending/GDP ratio (to 55 percent of GDP), the financial services sector was hit hard by the recession and higher interest rates. In real terms, lending turned negative, declining by nearly three percent in December 2016, a slide that would have been worse had it not been for lending by the public banks. This reduced the lending/GDP ratio to 49.3 percent at end-2016. Financial analysts contend that credit will pick up again in the medium term, owing to interest-rate easing and economic recovery.

The role of the state in credit markets grew since 2008, with public banks now accounting for over 55 percent of total loans to the private sector (up from 35 percent). Directed lending (that is, to meet mandated sectoral targets) as a share of the total also rose and accounts for almost half of the total. The GOB is paring back lending by public banks and trying to develop more of a market for long-term private capital.

While local private sector banks are beginning to offer longer credit terms, state-owned development bank BNDES is a traditional Brazilian source of long-term credit, and also provides export credits. BNDES’ lending in 2016 reached its lowest level in 20 years. While some of this reflected a reduction in disbursements due to the Car Wash corruption scandal, at least half reflects a new limited focus in BNDES lending. (For more information on BNDES’ lending programs please see investment incentives section.)

All stock trading is performed on the Sao Paulo Stock Exchange (BOVESPA), while trading of public securities is conducted on the Rio de Janeiro market. In 2008, the Brazilian Mercantile & Futures Exchange (BM&F) merged with the BOVESPA to form what is now the fourth largest exchange in the Western Hemisphere, after the NYSE, NASDAQ, and Canadian TSX Group exchanges. BOVESPA launched in 2000 a “New Market” in which the listed companies comply with stricter corporate governance requirements. A majority of initial public offerings (IPOs) are listed on the New Market. At year-end 2016, there were 129 companies listed under the “New Market” program. Their market value reached USD 185 billion in 2016. At year-end, there were 338 companies traded on the BM&F/BOVESPA. Total daily trading average volume increased from R 6.1 billion (USD 1.8 billion) in 2015 to R 6.6 billion (USD 1.9 billion) in 2016.

Foreign investors, both institutions and individuals, can directly invest in equities, securities and derivatives. Foreign investors are limited to trading derivatives and stocks of publicly held companies on established markets. At year-end 2016, foreign investors accounted for 52 percent of the total turnover on the BOVESPA. Domestic institutional investors were the second most active market participants, accounting for 25 percent of activity. Individual investors comprised 17 percent of activity, followed by financial institutions (five percent), and public and private companies (one percent).

Wholly owned subsidiaries of multinational accounting firms, including the major U.S. firms, are present in Brazil. Auditors are personally liable for the accuracy of accounting statements prepared for banks.

Money and Banking System

The Brazilian financial sector is large and sophisticated. Banks lend at Brazilian market rates, which remain high. Reasons cited by industry observers include high taxation, repayment risk, and concern over inconsistent judicial enforcement of contracts, high mandatory reserve requirements, and administrative overhead, as well as persistently high real (net of inflation) interest rates.

The financial sector is concentrated, with BCB data indicating that the four largest commercial banks (excluding brokerages) account for approximately 72 percent of the commercial banking sector assets. Three of the five largest banks (in assets) in the country – Banco do Brasil, Caixa Economica Federal, and BNDES – are partially or completely federally owned. Lending by the large banking institutions is focused on the largest companies, while small- and medium-sized banks primarily serve small- and medium-sized companies.

The BCB strengthened bank audits, implemented more stringent internal control requirements, and tightened capital adequacy rules to better reflect risk. It also established loan classification and provisioning requirements. These measures are applied to private and publicly owned banks alike. The Brazilian Securities and Exchange Commission (CVM) independently regulates the stock exchanges, brokers, distributors, pension funds, mutual funds, and leasing companies with penalties against insider trading.

Foreign Exchange and Remittances

Foreign Exchange

Brazil’s foreign exchange market remains small, despite recent growth. The latest Triennial Survey by the Bank for International Settlements, conducted in April 2016, showed that the net daily turnover on Brazil’s market for OTC foreign exchange transactions (spot transactions, outright forwards, foreign-exchange swaps, currency swaps and currency options) was USD19.7 billion, up from USD17.2 billion in 2013. This was equivalent to around 0.3 percent of the global market in both years.

Brazil’s banking system is adequately capitalized and has traditionally been highly profitable, reflecting high interest rates and fees. In September 2016 all banks exceeded the solvency ratios of 4.5 percent of common equity capital, 6.5 percent of Tier 1 capital and 11 percent of total capital, a comfortable buffer.

There are few restrictions on converting or transferring funds associated with a foreign investment in Brazil. Foreign investors may freely convert Brazilian currency in the unified foreign exchange market where buy-sell rates are determined by market forces. All foreign exchange transactions, including identifying data, must be reported to the BCB. Foreign exchange transactions on the current account are fully liberalized.

All incoming foreign loans must be approved by the BCB. In most cases, loans are automatically approved unless loan costs are determined to be “not compatible with normal market conditions and practices.” In such cases, the BCB may request additional information regarding the transaction. Loans obtained abroad do not require advance approval by the BCB, provided the Brazilian recipient is not a government entity. Loans to government entities require prior approval from the Brazilian Senate as well as from the Finance Ministry’s Treasury Secretariat, and must be registered with the BCB.

Interest and amortization payments specified in a loan contract can be made without additional approval from the BCB. Early payments can also be made without additional approvals, if the contract includes a provision for them. Otherwise, early payment requires notification to the BCB to ensure accurate records of Brazil’s stock of debt.

In March 2014, the Federal Revenue Service of Brazil consolidated the regulations on withholding taxes (IRRF) applicable to earnings and capital gains realized by individuals and legal entities resident or domiciled outside Brazil. The regulation states that the cost of acquisition must be calculated in Brazilian reais. Also, the “technical services” definition was broadened to include administrative support and consulting services rendered by individuals (employees or not) or resulting from automated structures having clear technological content.

Upon registering their investments with the BCB, foreign investors are able to remit dividends, capital (including capital gains), and, if applicable, royalties. Remittances must also be registered with the BCB. Dividends cannot exceed corporate profits. The remittance transaction may be carried out at any bank by documenting the source of the transaction (evidence of profit or sale of assets) and showing that applicable taxes have been paid.

Remittance Policies

Under Law 13259/2016 passed in March 2016, capital gain remittances are subject to a 15-22.5 percent income withholding tax, with the exception of the capital gains and interest payments on tax-exempt domestically issued Brazilian bonds. The tax rate is determined by capital gains: up to USD 1.5 million is taxed at 15 percent; USD 1.5 million to USD 2.9 million is taxed at 17.5 percent; USD 2.9 million to USD 8.9 million is taxed at 20 percent; and more than USD 8.9 million is taxed at 22.5 percent.

Repatriation of a foreign investor’s initial investment is also exempt from income tax under Law 4131/1962. Lease payments are assessed a 15 percent withholding tax. Remittances related to technology transfers are not subject to the tax on credit, foreign exchange, and insurance, although they are subject to a 15 percent withholding tax and an extra 10 percent CIDE (Contribution for Intervening in Economic Domain) tax.

Sovereign Wealth Funds

The Sovereign Fund of Brazil (FSB) was established in 2008 under Law 11887. It is a non-commodity fund with a mandate to support national companies in their export activities and to offset counter-cyclical development, promoting investment in projects of strategic interest to Brazil both domestically and abroad. The GOB also has the authority to use money from this fund to help meet its fiscal targets when annual revenues are lower than expected, and to invest in state-owned companies. The FSB was worth USD 2.2 billion in 2016. FSB resources are derived from GOB financial revenues.

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting

Brazil Economic Development and Investment Law