Brazil’s new normative: Ultimate beneficial owner reporting

27 June 2018

Brazil has joined the growing list of countries that have recently passed legislation requiring investors to identify their ultimate beneficial owners (UBOs) and report that information to local authorities. While each country’s UBO requirements are unique, they are broadly consistent with recommendations  from the Financial Action Task Force (FATF), a policy-making body represented by 37 countries (including Brazil) that works to increase transparency and otherwise protect the global financial system.

Brazil’s new regulation is known as Instrucao Normitiva RFB No. 1.634/2016 (the normative). According to the law, a domestic or foreign company incorporated in Brazil before July 1, 2017 must report its ultimate beneficial owner to Brazil’s Receita Federal (RFB) by December 31, 2018 or immediately when processing any registration changes with the RFB or the Board of Trade. A company registered on or after July 1, 2017 must report its UBO within 90 days of incorporation.

Organizations that must disclose their UBOs

Brazil’s normative has a long list of the types of organizations that must register with Brazil’s corporate tax registry for a CNPJ (i.e., a tax registration number) and identify their ultimate beneficial owner. Clubs and investment funds established according to the rules of the Brazilian Securities and Exchange Commission, for example, must register and identify their UBOs, while publicly-traded companies need not identify their UBOs.

While some entities — such as publically traded companies and certain nonprofits — are exempt from the new UBO requirement, most Brazilian entities must comply. A US company with a limited liability company (i.e., Limitada) in Brazil, for example, is subject to the UBO requirement. If for any reason a company subject to the requirement is unable to identify its UBO, that company must notify the RFB and inform them of this.

Brazil’s definition of a UBO

Brazil’s normative states that an ultimate beneficial owner is a “natural person who ultimately, directly or indirectly possesses, controls or significantly influences the entity” or someone “on whose behalf a transaction is conducted.”

The normative defines “significant influence” as directly or indirectly holding more than 25 percent of the entity’s capital or directly or indirectly holding control in board deliberations and holding the power to elect the majority of entity administrators.

Required UBO information

Companies that must disclose their ultimate beneficial owner must provide that individual’s name, place and date of birth, place of residence and certified passport copy. In addition, the company must submit notarized and apostilled copies of company bylaws, the power of attorney for the company’s local legal representative, documentation verifying that the person who signed the power of attorney has the power to do so, and photos of the person who signed the power of attorney and of the local legal representative.

The normative makes clear that any “documents written in a foreign language must be translated into the vernacular by a sworn translator and can be dispensed at the discretion of the RFB.”

Consequences of noncompliance

Companies that fail to comply with Brazil’s UBO requirements will have their CNPJ registration suspended. They will also be “prevented from transacting with banking establishments, including regarding the movement of current accounts, the realization of financial investments and the obtaining of loans.”

What you need to do now

While companies that fail to comply are not subject to financial penalties in the traditional sense, they will effectively be prevented from conducting business in the country and from withdrawing funds from local bank accounts. In other words, if you’re operating in Brazil and want to keep operating there, you need to comply with the country’s new ultimate beneficial ownership requirements.

After determining that you must comply with the normative, you’ll need to determine your Brazilian entity’s UBO and gather the required documentation. Depending on the complexity of your organization, this may take considerable time, and the sooner you start the better. Remember that if your Brazilian entity was incorporated before July 1, 2017, you have until the end of this calendar year to comply; companies registered after that date must report their UBOs within 90 days of incorporation.

You should also ensure that you continue to comply with the law after initially disclosing your Brazilian entity’s UBO. In the event the UBO changes, your organization must promptly inform Brazilian authorities. Entities must update any registration data change in the CNPJ by the last business day of the month after the change takes place.