Legal Insights From Brazil to Start Your Week

What you will be reading in this issue:

1. Cryptoassets?| Brazilian Central Bank Releases Public Consultation to Regulate 'Virtual Asset Service Providers (VASPs)' in Brazil

2. Capital Markets?| 4 Key Points on Brazilian SEC Regulations to Simplify the Process for Public Offerings For Share Purchases

3. Tax?| Companies Doing International Trade with Brazil: How Brazilian Tax Reform Impacts Customs Regimes?

Cryptoassets | Brazilian Central Bank Releases Public Consultation to Regulate 'Virtual Asset Service Providers (VASPs)' in Brazil

The Brazilian Central Bank (BCB) has launched public consultations to regulate Virtual Asset Service Providers (VASPs) in Brazil.

These regulatory proposals from the BCB (under Public Consultation 109 and 110) are required by Federal Law 14.478/2022, which regulates virtual assets, as a condition for the VASP market to be established in the country.

To understand the relevance of this market, in 2013 there were approximately 50 cryptocurrencies worldwide. In 2024, there are more than 25 thousand of them with a market value above US$ 2.8 trillion, which require VASPs to exchange, transfer and manage virtual assets.

Below are 8 key points about the terms of the BCB public consultation that Brazilian and foreign investors in the virtual assets sector should pay attention to:

1. What are Virtual Assets Under the Laws of Brazil:?Federal Law 14.478 defines a virtual asset as “the digital representation of value that can be negotiated or transferred by electronic means and used to make payments or for investment purposes, not including (i) national currency and foreign currencies; (ii) electronic currency, (iii) instruments that provide their holder with access to specified products or services or benefits, such as loyalty program points and rewards; and (iv) representations of assets whose issuance, accounting, negotiation or settlement is provided for by law or regulation, such as securities and financial assets.

2. BCB Suggests the Creation of 3 Types of VASPs to Operate in Brazil: The BCB's proposal aims to create 3 virtual asset service providers (VASPs), which will be: (i) virtual asset intermediaries, (ii) virtual asset custodians and (iii) virtual asset brokers.

With regard to virtual asset brokers, the BCB proposes allowing the combination of activities performed by intermediaries and custodians.

3. Minimum Capital for VASPs Required by the BCB: VASPs must have equity of at least (i) BRL1,000,000.00 for intermediaries, (ii) BRL2,000,000.00 for custodians and (iii) BRL3,000,000.00 for virtual asset brokers.

4. Additional Capital for VASPs That Will Operate Margin Accounts and Virtual Asset Staking: VASPs that include virtual asset margin account operations and virtual asset staking in their corporate purposes must add BRL2,000,000.00 in minimum equity.

5. Payment Accounts Required for Virtual Asset Intermediaries and Brokers: In addition to the minimum equity, virtual asset intermediaries and brokers, as a way of mitigating risks, must offer payment accounts to their clients.

6. VASPs That Carry Out Exchange Transactions: Virtual asset intermediaries and brokers that practice or intermediate operations in the exchange market, as long as they are related to the virtual asset market, must comply with the regulations for operating exchange.

7. Banks, DTVMs and CTVMs Operation Operating as VASPs: The BCB proposes that commercial banks, multiple banks, investment banks, CTVMs and DTVMs may act in the intermediation and custody of virtual assets, as long as they operate with payment accounts.

8. BCB Authorization Process for VASPs to Operate: The authorization process for VASPs to operate was also submitted to public consultation (110/2024), which also includes already regulated foreign exchange brokerage firms, CTVMs and DTVMs.

The public consultations will accept suggestions and comments until February 7, 2025.

With cryptocurrencies reaching over US$ 2.8 trillion in capitalization, it is essential that the BCB regulates the provision of virtual asset services in Brazil as soon as possible, which should become a relevant market, as happened with fintechs.

Capital Markets | 4 Key Points on Brazilian SEC Regulations to Simplify the Process for Public Offerings For Share Purchases

Aiming for facilitate the carrying out of public offerings for the acquisition of shares (OPAs, in Portuguese), the Brazilian Securities and Exchange Commission (CVM) published new Resolutions 215 and 216.

We highlight 4 relevant points of change, which demonstrate the benefits of the new standards in Brazil:

1. Valuation report exemption: the share price for the OPA may be determined using a fair value reference. Waiver of the valuation report will be permitted in two cases (i) in cases of a OPA to cancel a unified registration with a OPA for the acquisition of control having as its object a relevant quantity of shares; and (ii) OPA that has the prior agreement of holders of more than 1/3 of the outstanding shares regarding the price.

2. New hypotheses for mandatory OPA: obligations to carry out OPA will now apply whenever the acquisition of shares in circulation by the controlling shareholder or person linked to him reduces the total number of shares in circulation of the same class and type to a level less than 15%.

3. Guarantees: division of functions currently performed by the intermediary, separating its obligation to guarantee the settlement of the offer from other obligations. Thus, OPAs now have an exclusively guaranteeing institution, responsible for providing guarantees if the intermediary institution does not fulfill this role. Furthermore, the guarantee may be replaced by taking out guarantee insurance and/or depositing it in an escrow account.

4. Exemption from Auction: exemption will be permitted only in two cases. The first will be when the auction costs exceed 10% (ten percent) of the total value of the OPA. The second hypothesis will be when low shareholding dispersion is characterized - OPA aimed at less than 100 shareholders.

It is clear that with the new rules the CVM seeks to bring more efficiency and agility to the OPA process. The objective of reducing costs was also met and the most important thing is that with these changes, protection and transparency for the investing public remain present.

Tax |?Companies Doing International Trade with Brazil: How Brazilian Tax Reform Impacts Customs Regimes?

The Brazilian Tax Reform introduces new rules and concepts that expand and revise special customs regimes in Brazil.

See below the key highlights:

1. Transit Regime: Suspends the payment of Goods and Services Tax (IBS) and Contribution on Goods and Services (CBS) for the movement of goods under customs control between specific locations, according to current legislation.

2. Deposit Regime: Allows the suspension of taxes for goods stored under customs control in duty-free shops and special warehouses, deferring payment until the final destination of the products.

3. Temporary Stay Regime: Suspends taxes for foreign goods entering the country for a specified period, with payment proportional to the length of stay.

4. Improvement Regime: Foreign goods intended for processing, transformation, or assembly enter the country with suspended taxes, subject to specific conditions.

5. Repetro: Suspends the payment of IBS and CBS for goods intended for oil and gas exploration, converting to a zero rate after five years, promoting the energy sector.

6. Export Processing Zones (ZPEs): Suspends taxes for machines, equipment, and inputs intended for production for export, converting the suspension into a zero rate after export or after two years. It also reduces transport service rates to zero for ZPEs.

7. Reporto: Suspends taxes for imports of capital goods by beneficiaries, converting to a zero rate after five years, encouraging investments.

8. Reidi: Extends tax suspension for the acquisition of services and materials for infrastructure, boosting projects in this sector.

The legislation establishes suspension modalities for drawback operations; however, an additional provision prevents the application of drawback exemptions, which allow the replenishment of stocks used in the production of exported goods, and drawback refunds, which return taxes paid on imported inputs concerning CBS and IBS.

Furthermore, proportional taxation is applied to goods temporarily leaving the country for processing or repair, affecting the added value outside Brazil.?

Federal Law 14.440/2022 innovated by introducing the Drawback for Services, allowing the suspension of taxes such as PIS/Pasep and Cofins for services related to the export of manufactured goods. However, the lack of detailed regulations for other types of drawback and additional special customs regimes still generates unpredictability for taxpayers.