Foreign investment restrictions and exit mechanisms in Brazil

In recent years, Brazil has become one of the most attractive investment centres globally and the fourth-largest destination for Chinese overseas investment, accounting for 4.8% of its global investment. As economic and trade ties between the two countries deepen, more Chinese enterprises are setting their sights on Brazil.

Overall, Brazil offers a liberal foreign investment regime, a stable political environment and a well-developed legal framework, creating a welcoming atmosphere for foreign investors. This article outlines the restrictions on foreign investment in Brazil and the mechanisms for future exit from the country.

Investment restrictions

In Brazil, except for financial institutions and insurance companies, foreign investment is not subject to government approval or authorisation. There is no requirement on the minimum investment, or local capital ratio, either. Foreign investors are allowed to invest in most economic sectors, with restrictions in only a few industries, as shown below.

Prohibited sectors. Brazil prohibits foreign investment in the following areas:

• Nuclear energy. Unless otherwise specified by law, foreign investors are prohibited by the Brazilian federal government from engaging in the exploration, mining, processing, industrialisation and sale of radioactive minerals and their byproducts. Radioisotopes in certain special circumstances are excluded from this restriction;
• Petroleum and natural gas. The Brazilian federal government prohibits foreign investors from engaging in the research, exploration, refining and transportation of petroleum, natural gas and other natural resources, as well as the import and export of their byproducts, except in legally specified circumstances; and
• Medical services. Except in legally specified cases, Brazil’s Federal Constitution prohibits foreign companies and foreign capital from investing in the national healthcare system, either directly or indirectly.

Restricted sectors. Brazil allows foreign investment in the following areas with certain restrictions:

• Mass media (including newspapers, magazines, radio and television networks). Companies in this sector are required to have at least 70% of their shares directly or indirectly owned by Brazilian residents, or those who have resided in Brazil for more than 10 years. Foreign investors are limited to a maximum of 30% ownership;
• Financial institutions. Equity investments by foreign investors in financial institutions domiciled in Brazil are subject to prior authorisation by the Brazilian federal government in accordance with international treaties, reciprocity treaties, or based on considerations of governmental interest;
• Mineral resources. Brazil imposes restrictions on foreign investment in the mining sector, particularly targeting mining activities in border areas (with the exception of exploration and exploitation of minerals directly used for civil construction). Foreign investors are required to obtain permission from the Brazilian National Defence Council for mining activities in these regions. Additionally, a minimum of 51% of the project shares are to be held by Brazilian entities, while two-thirds of the employees should be Brazilian residents, with the majority of the management team to be Brazilian residents;
• Rural real estate. To purchase a rural property or enter into a rural land lease agreement, any Brazilian legal entity controlled by foreign interests must obtain prior authorisation from the National Institute for Colonisation and Agrarian Reform, or the Brazilian Congress, as prescribed by Brazil’s Federal Law No. 5709/1971; and
• Maritime transport. The Brazilian law stipulates that companies engaged in maritime transport in Brazil shall have a maximum of 49% of shares held by foreign investors, with the majority of the management team to be Brazilian residents.

Exit mechanisms

Brazil enforces stringent foreign exchange controls, with specific requirements for fund transfers. All foreign investments in Brazil must be electronically registered with the Central Bank of Brazil, and deregistration is required upon divestment. Foreign investors are allowed to repatriate funds only after completing the following process.

When a foreign investor acts as the sole shareholder of a Brazilian company, there are two exit options:

• Transfer or sell all the shares they hold in the company; or
• Dissolve and liquidate the company, and repatriate all the remaining funds out of Brazil after settling all existing debts.

When a foreign investor is not the sole shareholder of a Brazilian company, there are two ways to exit:

• Transfer or sell all their shares in adherence to the company documents (such as the articles of association, shareholder agreements and other documents agreed upon by relevant parties), which may include preemptive rights, tag-along rights, drag-along rights and restrictions on sale; or
• Under specific circumstances defined by Brazilian law (such as changes in the company leading to reduced statutory dividends), the foreign investor may formally request an exit by exercising the right of withdrawal under the Brazilian Companies Act, demanding the company buy back its shares.

Notably, when repatriating investment profits or divesting, foreign investors are to present a foreign investment certificate issued by the Central Bank of Brazil. The capital gains tax should also be paid on any repatriated capital.

Conclusion

Overall, foreign investors are free to initiate and exit investments in Brazil, and many Chinese companies have engaged in investment and economic activities in the country. For example, State Grid, Goldwind and CMOC have invested in energy, power and mining, respectively, in Brazil, while CRRC and Sinosteel are setting up subsidiaries focusing on rail transportation and engineering services. Given the current geopolitical landscape, Brazil remains an attractive investment destination.

Wang Jihong is a senior counsel and Yan Erfan is an associate at Zhong Lun Law Firm