All foreign investments must be registered with the RDE when entering the country. A non-registered investment is not eligible for repatriation and the dividends and profits generated by it cannot be remitted abroad through the commercial exchange rate market.
RDE is a system for registration of foreign capital. This is a computerized system structured in four modules, each designed for a specific kind of foreign investment:
- Foreign Direct Investments (RDE-IED)
- Financial Operations (RDE-ROF)
- Portfolio Investments (RED-PORTFOLIO)
- Brazilian Capitals Abroad (RED-CBE)
To register on the RDE-IED system the holders involved whether individuals or companies, residents and nonresidents in the country, as well as their representatives, are required to register with CADEMP, which will generate a code that will be required while accessing the RDE system afterwards.
The company that is receiving the foreign investments has to be identified in the Sisbacen system as usuário especial, Portuguese for special user.
Once the recipients are registered with Sisbacen, and have their CNPJ also registered with CADEMP, they can access the Sisbacen system to obtain a RED-IED number for its foreign investors.
Apart from the aspects relating to registration, repatriation and certain tax consequences, the non-registered investment is subject to the same rules applicable to the registered investment.
As for taxation:
- Dividends paid out of profits generated on or after January 1996, are not subject to withholding income tax;
- Dividends paid out of profits generated on or before December 1995 are subject to withholding income tax at a rate of 15% or 25%, unless otherwise provided by an applicable tax treaty between Brazil and the other country involved;
Process of Paying Dividends to Abroad
The remittance of dividends must have its destination recorded with the module IED of the RDE system, before the capital is sent abroad. There are no restrictions imposed on the amount of dividends distributed to the shareholders domiciled abroad. The remittance of dividends to investors domiciled abroad is conditional to two precedents:
- The foreign investments made by the partners/shareholders must be duly recorded with the RDE-IED;
- The Brazilian company must provide evidence of operational profitability;
To remit dividends to the shareholders of Brazilian companies abroad it is necessary to:
- Register the shareholders’ intention at the local Board of Trade, with the amount of dividends to be distributed;
- Present the following documentation: Articles of Association, Central Bank and Balance Sheets;
- Register with Sisbacen; signing in as “institution” user and select the option for dividends;
Minimum Mandatory Dividend
Brazilian companies must pay at least 25% of their profits to their shareholders. For the company, dividends are distributed from the net profits, after the payment of income tax and social contributions and fees.
Thus, the amount to be paid in dividends to the shareholders is already exempt of income tax, since the company already made the payment of taxes on those profits.
The remittances will not be allowed when destined for the payment of “royalties” for the use of invention patents and trademark of industry or of commerce between subsidiary or affiliated companies located in Brazil and headquartered abroad.