Foreign Direct Investment, or FDI, can be an efficient alternative for fundraising by companies – especially at the moment, when this modality is on the rise.
Brazil was the 6th country that attracted the most Foreign Direct Investment in 2021, according to published by the United Nations Agency for Trade and Development (UNCTAD). This represents an improvement of three positions compared to the previous year.
One of the main reasons for this increase is the rise in commodity prices, which eventually encouraged multinationals with a local presence to increase their investments in Brazil, either for the expansion of existing operations, or for new investments in extractive industries and in the production of other commodities.
On the other hand, the global environment, with the war in Ukraine, may be more hostile to international investments, as new projects may generate greater risk aversion among investors.
Whether favorable or not, the fact is that this opportunity to raise funds and to meet new strategic partners, can be very valuable to scale local businesses. Thus, it is worth understanding a little more on this topic.
What is Foreign Direct Investment?
Foreign Direct Investment (FDI) is the modality of entry of resources into Brazil for the purpose of capital contribution in Brazilian companies, through the registration of an RDE-IED (Electronic Declaratory Register – Foreign Direct Investment) with the Central Bank of Brazil (Bacen).
The other modality available for the entry of funds into Brazilian territory is through financial operations, loan, or financing. Typically, the transaction that will result in FDI does not require a convertible loan in equity, for example.
FDI in practice: understand how it is performed
From a bureaucratic point of view, the Bacen and the IRS have increasingly simplified the necessary formalities. Consequently, they have reduced the deadlines for completion of the consignment as well.
Today, it is enough to just send the documentation indicated for each type of investor, depending on whether the investor is a natural or legal person and on the country of origin, to Bacen. In turn, The Bacen will make the Declaratory Register of Non-Resident (CDNR – former Cademp).
Upon completion of the CDNR, it will be possible to make the RDE-IED for input of resources, as well as obtain the respective CPF or CNPJ for the investor.
Understand the relationship between FDI and fundraising for companies
Most business acquisition, subsidiary creation, or even joint venture operations involve either an initial financing operation (also known as bridge loan), to be converted or added to FDI in the future.
The idea of these hybrid financing-investment operations is precisely to advance resources at first, with repayment obligation. It is, therefore, a way for the parties to start the relationship without the investor still taking on the risks of the business to be invested effectively.
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This is an informative article and does not amount to a legal or financial consultation.
