Brazil: Macroeconomic Profile

Article Index

Foreign Investments

Foreign capital is seen by the Government as crucial to the development process and as a complementary factor alongside domestic savings in the build-up of fixed capital. However, the domestic need to control the money supply and exchange means that the Government has to take a selective approach in accepting foreign investment. As a general rule, priority has been given to direct investments which come to maturity over a longer period and in sectors which are likely to yield bigger returns in employment and income. Consequently, there has been an emphasis on avoiding the intense and frequent two-way flow of highly mobile capital as these restrict the ability of the government to control domestic interest and exchange rates, which are the pillars of the plan to stabilize the economy.

This attitude has meant that the input of foreign capital is subject to a set of specific regulations which determines the conditions and pre-requisites for the entry and repatriation of capital.

According to the "Law on Foreign Capital," foreign investments are classified as all those pertaining to individuals or legal entities resident, domiciled or based abroad. All foreign investments must be registered at the Central Bank.

Since the 1980s, when foreign portfolio investments were regulated, the capital markets have been increasingly opened up. Various structures were created which were geared to the channelling of foreign capital to the Brazilian capital market.

At the time of writing (1996), beside direct investments, which enjoy fiscal incentives in various Brazilian states, the foreign investor is allowed to enter the Brazilian capital market and take advantage of fiscal incentives by means of these mechanisms:

  • Investment companies
  • Investment funds
  • Managed portfolios
  • Portfolios of institutional investors
  • Debt conversion funds
  • Privatization funds
  • Shares in Real Estate Funds
  • Shares in emerging companies funds

In addition to the mechanisms set out above, Brazilian public companies are allowed to obtain resources in overseas markets through the issue of fixed income bonds and through the mechanism of depositary receipts. From January, 1992, liberation was also given to the investments held by individuals or legal entities domiciled in member countries of the Mercosul treaty - the Common Market of the Southern Cone. These countries are: Argentina, Uruguay and Paraguay, not to mention Brazil itself.

Foreign investments in the Brazilian capital market, provided that they have been made through one of the mechanisms described above, enjoy a differentiated fiscal treatment which confers advantages to the investor.