São Paulo, May 2012

FDI & BCBForeign Direct Investment and Banco Central do

Brasil

by H. M. ABBOUD & P. ILLESEstablish Brazil Consultoria Ltda

● According to Article 1º of Law nº 4.131/1962 foreign capital is defined as financial resources, property, machinery and equipment imported into the country for use in economic activities, belonging to individuals or legal entities residents domiciled or headquartered abroad.

Article 1 of Law nº 4.131/1962 considers foreign capitals: (i) the goods, machinery and equipment held by individuals or companies residing or domiciled abroad, which entered Brazil without initial expenditure of hard currency, destined to the production of assets or services, as well as (ii) financial or monetary resources held by individuals or companies residing or domiciled abroad, introduced in Brazil to be invested in economic activities. Therefore, foreign investment, for the Brazilian legislation, includes: (i) assets imported by companies headquartered in the Country, as capital contribution (for instance, machinery and equipment); (ii) capitalization of foreign credits qualified for remittance and (iii) the actual remittance of funds to Brazil, as capital contribution.

● Article 3º of the same law requires the registration in Central Bank of Brazil (In foreign currency, among other forms of foreign capital) of Foreign Direct Investment

The registration of the foreign investment is provided by Law No. 4.131/1962, to allow the remittance of interests and other amounts to the foreign investors, in respect to the investments made thereby in Brazilian companies.

● Until 1996 the records were issued by the Central Bank, in the form of paper certificates, after examination of the documentation sent by interested parties.

● Resolution 2.337/1996, authorized the establishment of Electronic Declaratory Registration (known as RDE-IED "Electronic Registration Statement - Foreign Direct Investment") of foreign capital in the country, including those in domestic currency via the transfer of accounts of non-residents according to Law nº 9.069/1995.

● On December 1st 1996, the first module of the Electronic Declaratory Registration system commenced operations – RDE or RDE-Portfolio.

● The RDE-IED module, for the registration of direct investments, commenced operations during the second semester of the year 2000.

● The registration of foreign investment in Brazilian legal entities is done electronically, through a computerized information system of the Central Bank of Brazil ("SISBACEN")

● The registration of foreign investment with SISBACEN shall be done by the Brazilian legal entity or representative of the Brazilian legal entity receiving the foreign investment or by the representative of the foreign investor, within 30 days counted as of the date of the registration of the event object. (The initial generation of RDE-IDE number)

● The declarant/representative and the legal entity receiving foreign investments shall maintain the documents evidencing the statements made through SISBACEN at the disposal of the Central Bank, for five (5) years.

● The declarant/representative is responsible for the accuracy and legitimacy of the information provided.

Provisional Measure nº 315 (Law nº11.371/2006), requires the registration of foreign investment exclusively in national currency BRL, of unregistered foreign capital.

Modules of the RDE system

● RDE-IED: (Registro de operações de Investimento Estrangeiro Direto) Electronic Registration Statement of Foreign Direct Investment

● RDE-ROF: (Registro de operações financeiras) Electronic Registration Statement and Record of Financial Operations, including credit, leasing, renting, and chartering operations. Also includes the transfer and/or issuing of technology or of brands and patents.

● RDE-Portfólio: (Registro de investimentos estrangeiros nos mercados Financeiro e de Capital)

Registration Statement of foreign investments in financial markets.

● CADEMP: (Cadastro de empresas e pessoas físicas, participantes de operações relativas a Capitais

Estrangeiros) Registration of individuals, legal entities and participants in transactions relating to foreign capital

● CBE: (Declaração anual de Capitais Brasileiros no Exterior) Declaration of Brazilian capital abroad.

Step by Step Guidelines for the Registration of

Foreign Direct Investment

First Step

The foreign investor, (individual or legal entity) becomes a quota-holder/partner in a Newly established Brazilian legal entity through capital contribution. or in an existing one through acquisition of shares and/or increasing paid up capital.

Second Step

The representative of the Brazilian legal entity receiving foreign investments ("Establish Brazil or a financial institution, with accreditation to access and use SISBACEN"), will commence the registration process

Alternatively, The Brazilian legal entity (receiving foreign investments) can request for temporary access to SISBACEN after obtaining digital-signature:www.bcb.gov.br/?SISBACEN

Initial screen of the PASCS10 application which is used to access SISBACEN through the virtual private network (online)

Third Step

The receiver/representative accesses SISBACEN and registers all parties involved ("receiver, investor, etc") on Cademp, using the PEMP500 (registration shortcut 20) then later PEMP600 (consultation shortcut 21) transactions

If the foreign investor is a legal entity and does not have a CNPJ (Brazilian federal taxpayer ID number), then the registration will be analyzed and sent to the Receita Federal (Federal Revenue Service), who will provide the investor with a provisionary CNPJ.

Foreign Investor Registration on Cademp

Fourth Step

Provided that the parties involved have registered their CNPJ or CPF on Cademp, the receiver/representative accesses SISBACEN and obtains a RDE-IED number (IA099999) for each investor using the PRDE600 transaction.

These numbers, similar to a checking account with the central bank, will be used to register all relevant events in connection with the Brazilian legal entity and the investor.

Registration of RDE-IED (IA043360)

Fifth Step

The foreign investor sends a payment order to a Brazilian bank, in the receiver's name if it's for capital contribution in a newly established legal entity, or in the name of the participating seller in the case of acquisition of quotas/shares and/or increasing paid up capital of an existing legal entity.

Fifth Step notesAccording to the current applicable legislation:

● The payment order shall be from the registered foreign investor's bank account exclusively and it's not acceptable from a different entity even when it's in the same financial group in the case of legal entities, or relatives in the case of individual foreign investors

● The dividends, interests on equity, re-investment and capital repatriation attributed to the quotas/shares which originated from foreign investment, can only be remitted abroad through the same path the investment took in the first place.

This step "Fifth step" plus the following steps, are not necessary when we are dealing with the acquisition of quotes/shares of another non-resident investor. In this case,the only necessary step is the registration of the transfer of shares/quotas in the PRDE600 transaction.

Sixth Step

The receiver/representative or the equity seller/representative, depending on the case, contracts a currency exchange agency/bank registered with Central Bank of Brazil and authorized to deal with foreign exchange, for the exchange of currency.

The investor's RDE-IED number (in the fourth step) should be provided again and linked to the currency exchange order & agreement.

Contract of exchange of inflow of FDI, where one can see the obligatory RDE-IED numberer in field 16.

Seventh Step

After the settlement of the exchange agreement, the receiver legal entity and the investor's representative, who can be the receiver legal entity itself*, registers the capitalization of resources (subscription of and paying-in of capital) in the RDE-IED through the PRDE600 transaction.

* Only in the case of Establish Brazil packages nº 103, nº 203 and above ("Entity under management"), and nº 305 ("Educational BaseCamps"). This is not applicable for packages nº 5xx or trusts.

Notes● In order to issue Investor visas (permanent

residency) or Work permits to foreigners, the Ministry of Labor & Ministry of Justice calls for the presentation of "statements of contributed and consolidated investment" which can be generated using the PRDE600 transaction*, and/or copy of FDI currency exchange contract issued by the bank operator.

* Screen: MRDE614, MRDE614E, MRDE614A, MRDE612C, MRDE614B e MRDE614C

Notes

● If it is necessary to remit funds before the incorporation of the Brazilian entity, it can be done through the registration of the RDE-IED number in the name of a representative of the entity that will later on be changed to be in the name of the entity.

Notes

● For investment in real estate acquired in the name of the foreign investor there is no registration of foreign investment required, only registration of a currency exchange agreement from the financial institution (bank, currency exchange agency..etc)

● It's possible as well to convert assets belonging to non-residents into foreign direct investments

Notes● Additional information for FDI and legal entity

registration and management, can be obtained through the following link. http://establishbrazil.com/docs/FDI-Company-Formation-LTDA_FAQ_EB111_PRSP

● Additional instructions for the SISBACEN registration can be obtained in the Cademp and RDE-IED manuals, which can be obtained through the following link. www.bcb.gov.br/?MANUAIS

RDE-ROF RDE-IED RDE-Portfólio CBE

Sistema RDE

Sistema Câmbio

Siscomex Empresa Nacional

Banco no País

Pessoa Física ou Jurídica no Exterior

Banco no Exterior

Cademp

InternetAplicativo

Porto etc.

Thank you

Copyright © 2012 Establish Brazil Consultoria Ltda.

REFERENCESBanco Central do Brasil: www.bcb.gov.brMinistério da Justiça - Estrangeiros: portal.mj.gov.br/estrangeirosMinistério do Trabalho e Emprego. M.T.E. www.mte.gov.brDivisão de Capitais Internacionais e Câmbio - DICIC

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