Thought leadership from our experts

Brazil introduces ultimate beneficiary disclosure requirement

Marcelo Natale, Deloitte, Brazil Daniel Yamamoto, Deloitte, Brazil

A normative instruction (NI) published on 9 May 2016 makes changes to the national registry of legal entities (CNPJ) for Brazilian and foreign legal entities, particularly concerning the disclosure of ultimate beneficiaries. The NI, which applies as from the date of publication, consolidates comments arising from a recent public consultation on this topic and replaces a normative ruling issued in 2015.

The CNPJ is a federal taxpayer ID registration that must be obtained by Brazilian legal entities and foreign legal entities that have assets or rights in Brazil.

The new NI requires certain legal entities to disclose to the Brazilian tax authorities the complete chain of ownership up to the ultimate beneficiaries, as well as the legal representatives of owners. The changes are in line with the OECD and G-20 initiatives to combat money laundering and tax avoidance through the systematic exchange of information protocols recently signed by Brazil.

The definition of "ultimate beneficiary" comprises the following:

  • An individual who directly or indirectly ultimately controls, owns or exercises significant influence over an entity (defined as an individual who owns more than 25% (or 20% for certain qualified investors) of the entity's capital (directly or indirectly, on his/her own or together with related parties); exercises his/her power to elect the majority of the administrators; or has the power to make corporate decisions (the rules also define "related parties" for these purposes)); and
  • An individual on behalf of whom a transaction is executed by the entity concerned.

The new disclosure requirements are mandatory for the following:

a. Brazilian and foreign investment clubs and funds, and their quota holders;

b. Foreign legal entities that own one or more of the following in Brazil: real estate, vehicles, vessels, aircraft, bank accounts, investments in the capital and financial markets or equity investments outside of the capital markets;

c. Foreign financial institutions carrying out foreign exchange transactions with Brazilian banks;

d. "Silent" partnerships; and

e. Certain qualified foreign legal entities that invest exclusively in the Brazilian financial or capital markets and that are registered with the Brazilian Securities Exchange Commission (such entities will have to disclose information concerning their ultimate beneficiaries through their legal representatives and provide relevant documentation). The disclosure requirement will apply for these entities even if the condition regarding significant influence in a Brazilian legal entity is not fulfilled.

Legal entities that already hold a "legal entity identifier number" also will be required to disclose it in the CNPJ. The objective, according to the Brazilian tax authorities, is to increase the security of international financial transactions.

The NI clarifies that administrators of foreign entities that have a corporate taxpayer ID number in Brazil (CNPJ) are not considered beneficial owners, even if they meet the relevant requirements (such as owning or controlling the company).

Foreign legal entities and financial institutions described in items b) or c) above that do not comply with the new requirements will have their CNPJ registration suspended and will be precluded from carrying out transactions with financial institutions in Brazil. This restriction, however, will not apply to transactions carried out before the suspension, or to a return of an investment to a foreign shareholder.

The following entities are exempt from the requirement to disclose the ultimate beneficiary:

  • Listed corporations incorporated in Brazil or in countries in which the information on relevant shareholders is required to be made publicly available, provided they are not located in black or grey-list jurisdictions;
  • Nonprofit organizations that are not fiduciary agents and are not located in black or grey-list jurisdictions, provided they are regulated and monitored by competent government authorities;
  • Pension funds and entities, as well as similar institutions that are regulated and monitored by competent government authorities in Brazil or in their country of origin;
  • Government entities, central banks, multilateral organizations or organizations related to sovereign funds; and
  • National investment funds operating

under the Brazilian Securities Exchange Commission regulations, provided their quota holders are disclosed to the Brazilian tax authorities through the e-financeira (financial information return for financial institutions).

Although the disclosure of the ultimate beneficiary is not required for the entities listed above, such entities are required to provide information to Brazilian tax authorities on the individuals allowed to represent them and their controllers, administrators and directors, as well as any individuals or legal entities on behalf of whom companies were incorporated.

Entities requesting a new registration in the CNJP will have to comply with the new reporting requirements as from 1 January 2017. Entities that already are registered in the CNJP have until 31 December 2018 to comply with the new requirements, unless a change in the registry information occurs on or after 1 January 2017. All information reported must be submitted electronically.