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Monday, September 24, 2012


 Foreign Direct Investment (FDI) in the Russian Federation has increased over the last years thanks to its tremendous natural resources, growing domestic market and skilled work force. Besides that, Russia’s new status as WTO member also helped to attract more foreign investments. Global demand restrains, commodities prices decrease, inflation, lack of major infrastructure investments are the key factors that may affect FDI in Russia in the coming years. Another important challenge is the Russian legal framework for FDI, as it is still being developed. Russian legislation on FDI is based on several federal and local laws and regulations. Despite the constant evolution of FDI laws in Russia, some basic concepts shall not be changed in the near future.

For instance, there is no discrimination between foreign investors and local investors in Russia. Expropriation of foreign investment is prohibited by Russian legislation, except in cases of public interest. And, there are no specific legal restrictions on the repatriation of capital by foreign investors or remittance of profits abroad.

Restrictions and limitations to FDI in Russia are established by federal laws, in particular for strategic entities (42 sectors are considered of strategic importance). There are other restrictions to FDI based on the protection of the Russian constitutional system, the morality, the health and rights of individuals or to guarantee state security and defense.

Russian legislation makes a clear distinction between public and private foreign investor. For example, prior authorization is required – or in certain cases post-transaction approval – for foreign private investors carrying out transactions in a strategic entity.  Regardless if it is a strategic or non-strategic entity, prior government approval is required for public foreign investor carrying out transactions to acquire over 25 per cent of a Russian legal entity or to block decisions of the governing bodies of a Russian company. In addition, any foreign investment - public or private - of over 50 million rubles and ∕ or the acquisition of 50 per cent of a Russian entity require previous government approval. Foreign investments in the financial sector and in non-commercial organizations such as charities, scientific and religious associations are subject to specific legislation.
In brief, any transaction executed in breach of federal or local laws of the Russian Federation is deemed null and void. If the status quo is not possible to be obtained, the foreign investor will lose all voting rights related to the transaction deemed null and void. It is clear that Russia and its current legal framework still presents challenges for foreign investors but the country also shows great opportunities to invest.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.



Tuesday, September 4, 2012


In recent years, many foreign investors are attracted by the large Brazilian market and the economic growth of the country. Besides that, the fact that Brazil will host the 2014 World Cup and 2016 Olympics has also been an important decision making vector for investors. However, before investing in Brazil, it is important to get acquainted with some legal aspects related to foreign direct investments (FDI) in the country. It is true that all forms of FDI are welcome by the Brazilian Constitution, but especially FDI that represents a commitment to economic development. A number of limitations and restrictions to foreign capital for some specific sectors do apply as per the Brazilian Constitution, such as defense and air transport related matters, among others. Expropriation of domestic or foreign investment is prohibited by the Brazilian Constitution, except in exceptional cases such as public interest. Since 1995, Brazilian Constitution places no difference between domestic and foreign capital.

The main legal statute governing foreign investments in Brazil was enacted in 1962, more than forty years ago (Law n. 4,131, as amended by Law n. 4,390 of 1964, both regulated by Decree n. 55,762 of 1965). It is a positive point for investors the fact that the most important law on FDI in the country has been in force for so long time and has not suffered substantial changes during these last years.

Exchange control and foreign investment policies in Brazil are established by the National Monetary Council (Conselho Monetário Nacional), under the supervision of the Ministry of Finance. And, the supervision of the day-by-day control over foreign capital inflows and outflows is performed by the Brazilian Central Bank (Banco Central do Brasil – BACEN).

No prior government authorization neither minimum investment approval nor local participation condition is required for FDI – apart for few exceptions such as financial institutions, insurance companies, and similar entities under the regulatory authority of BACEN. No government approval or consent is required for remittance of profits abroad, as long as the company does not have a negative net equity. No minimum period is imposed by Brazilian law to repatriation of foreign capital. As per Brazilian legislation, BACEN may limit or prohibit remittances of profits and capital repatriation in case of serious balance of payment difficulties. This exception, however, has never been applied by the country not even during the 1980s Brazilian moratorium.

The most common form of FDI in Brazil is in cash capital. Certain restrictions and a rigorous control apply to FDI in assets such as goods, machinery and equipment. FDI has to be registered with BACEN online electronic system called RDE-IED (Registro Declaratório Eletrônico de Investimentos Externos Diretos – Electronic Registration System for Cross-Border Financial Transactions) within 30 days of the date that the cash capital enters Brazil or within 90 days of customs clearance for assets capital contributions. Foreign capital registration is done in the same currency that has entered the country or in the currency of the residence of the investor for foreign capital in the form of assets.

The legal framework for FDI in Brazil is by far quite stable until now, especially if compared with the other three BRIC countries (Russia, India and China). It is a proof of legal certainty and assurance for investors. Besides, the electronic registration system of FDI, mainly cash capital, is easy, fast and efficient. Thus, the bureaucratic problems that investors and locals usually face when doing business in Brazil do no actually apply regarding FDI registration procedures. This is also a very positive point for investors. FDI in Brazil may play a leading role to improve industry diversification, generating employment and strengthening the economic local system in order to assist the country to be ready for the two major world events: the 2014’s World Cup and the 2016’s Olympic Games.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.