Legal Exchange Framework: understand the positive impacts for companies

This measure modernized the foreign exchange legislation and should contribute to reducing the operating costs and enhancing predictability

By Jefferson Gonçalves

By the end of 2021, the federal government sanctioned the Exchange Legal Framework. The Law No. 14,286/2021 aims at creating a better business environment in Brazil and at magnifying the insert of the country’s businesses in global value chains. However, what are the positive impacts for companies?

In fact, the Exchange Legal Framework brings important modifications to different aspects of the exchange operations made by corporate taxpayers headquartered in Brazil with other countries.

The focus was in modernizing the pertinent legislation to match them with laws of other economic environments regarding the promotion of business, emphasizing Brazil’s position as a signatory of several international agreements on fighting money laundering and terrorism financing.

These changes reflect the current economic scenario and the global capital flow, both impacted by the internationalization of companies and the radical technological transformations the world has been facing, increasingly fast and disruptive.

What changes with the Exchange Legal Framework?

Some points of the legal framework will significantly impact the reality lived by companies:

US Dollar as the main currency used in international contracts

One of the most important changes is the possibility of maintaining and using the US dollar as the main currency in international contracts.

Import and export companies can keep using the US dollar as the payment currency without the need to previously convert to Brazilian real when executing payments of contract installments. This should reduce the operating costs and the risks with exchange rate fluctuation, especially in long-term operations.

More foreseeability for costs

International investors, for example, may acquire assets in Brazil and make payments directly in US dollars. In the current flow, it is necessary to first convert those resources from USD to BRL. With the new mechanism, the possibility of exchange rate fluctuation is removed, and the foreseeability of the deal costs is enhanced.

Reduction of operating costs

There is also real gain with the reduction of operation costs, especially in long-term transactions that involve futures. Being able to negotiate and perform international contracts in US dollars, companies that make these types of operations will be able to give up the fluctuation risks associated with our currency, and the need to foreign exchange hedge to “protect” themselves from the possibility of financial losses. There is also a gain in the operations’ predictability, as the negotiated values will be kept in the same form throughout the contracts’ validity.

Accounts in foreign currency

With the new legislation, corporate taxpayers are allowed to have a foreign currency bank account in Brazil. This tends to facilitate remittances made to corresponding companies abroad, making international transactions less bureaucratic.

The possibility of US dollar bank accounts in Brazil, so far limited to financial institutions, would grant more practicality to companies. Nowadays, when operations in international accounts are necessary, there might be some conflicts with holidays, closed bank on certain dates, etc. The new mechanism would already allow for the existence of locally dollarized companies and would put them in the same “zone”.

It is important to highlight that US dollar accounts will only be allowed through the presentation of an excuse for using it. National companies that are not within, for instance, the import and export flows are not necessarily authorized to have an account in international currency.

When does the Exchange Legal Framework go into effect?

The law goes into effect on December 30, 2022, after one year of its official publication. Until then, the Central Bank should regulate and operationally structure all issues in case.

Specialized support for foreign exchange operations

DPC’s Financial Management dteam assists clients in exchange rates, negotiation, hiring and execution of foreign exchange operations that involve global capital flow of financial nature, such as loans, revenue and repatriation of capital.

Besides, the teams work on the execution of payments and receipt of the import and the export of goods and services that will be directly impacted by the changes brought by the legal framework.

The FM team will remain alert to the rules to come in order to properly advise its clients in the identification and use of the best solutions and opportunities made available by the new exchange framework.