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The entry or exit of currency from Brazil necessarily involves a currency exchange contract, which must follow the norms set forth by the Central Bank of Brazil. In order to sign a currency exchange contract, a Brazilian company does not need to go to a bank, as it is made through Siscomex with an electronic signature. The negotiation of the exchange rate is set by phone with the bank’s brokers. In the case of a Brazilian import, the Central Bank requires that the buyer link to the Import Declaration the respective currency exchange contract, thereby proving that the payment to the foreign exporter has been made, a procedure known in Brazil as currency exchange coverage.

Regarding the negotiation of the exchange rate from reais to the foreign currency, note that the Brazilian exchange system is one of free fluctuation, that is, its own participants, including the Central Bank, define the market exchange rate to be used on the day the currency exchange contract is signed. The means of payment to the foreign exporter will depend on the modalities agreed with the Brazilian importer.

III.8.1. Means of Payment

There are no currency restrictions in Brazil regarding the means of payment to be employed in imports.

In the case of payment in advance, the currency exchange contract will be made with the banking system without limits to the sums, in which case the financial risk is assumed by the Brazilian importer if the goods are not received.

When the payment is made through documentary credit for payment up-front or in instalments, the Brazilian banks will only deliver the original documents to the importer when the latter has formalized the respective currency exchange contract, thus converting reais into foreign currency to make the payment to the exporter.

If the mode of payment is a letter of credit issued by the Brazilian bank, the payment is guaranteed to the foreign exporter, provided the documentation presented is strictly in compliance with the credit demand. In this case, the currency exchange contract will become a financial settlement between the importer and the bank that issued the letter of credit.

It is important to highlight the existence of the Reciprocal Lending Agreement – CCR, a system agreed on by the central bank of Latin American countries, employed mainly in letter of credit operations, which offers greater guarantees to exporters.

Border trade between Brazil and neighboring countries can also be made in reais, thus exempting the Brazilian importer of the currency exchange contract.

CCR

Effective in Latin America for many years, the Reciprocal Lending Agreement “ CCR — employed in international payments, especially in relation to letters of credit — facilitates the financial relationship among the region’s importers and exporters.

Through this agreement, the central bank of the importing country pledges to reimburse the central bank of the exporting country by means of a payment contract, backing the financial responsibility that the importer has with the exporter. Periodically, the contract account is settled between the central banks of the different Latin American Countries, performing the compensation and adjusting the existing credit and debit.

In the case of Brazilian imports, the Brazilian bank that issued the letter of credit requests the Central Bank of Brazil to bind the credit to CCR, which is formalized by means of a registration number.

The advantage in this system is that the Brazilian letters of credit do not need to be confirmed by a third bank, usually from a developed country, as they are backed by a contract of reimbursement guarantee that the Latin American central banks maintain within the CCR.

Thus, the bank charges to have a letter of credit issued in Brazil are reduced for the importer as the intervention of a confirming bank (which acts as guarantor for the issuing bank) is not required.

III.8.2. Financing of imports

A financed import is understood as the acquisition of goods and services for payment in instalments, classified as a trade operation associated to a financial operation, which can be in the Supplier’s Credit modality (when the financer is the supplier itself) and Buyer’s Credit modality (when financing is made by a third party for cash payment to the exporter).

The Brazilian importer has at their disposal a range of official and private financing options. The Brazilian Development Bank (BNDES) for example, grants financing to importers, mainly for products and supplies that are part of a finished product to be exported, an operation known as drawback.

The private bank network makes available to buyers a variety of lines of credit, ranging from the issuance of letters of credit to short, medium and long term financing. Regarding the costs of financing imports, they are negotiated in line with international interest rates (Libor + spread), over which are imposed income tax. If the financer is a private bank, other charges may apply in addition to currency correction over the principal.