The possibility of contracting and paying for real estate in foreign currency and the quiet Law No. 14,286/2021

Even with the ups and downs of foreign capital inflows into Brazil, which vary according to the circumstances of the local economy, the amounts received in the country from abroad remain high.

According to the most recent reports issued by the Central Bank of Brazil (BCB) on Direct Investment in the Country (IDP), between January and September 2023 Brazil received US$ 41.6 billion, net of capital outflows. The result is the second worst of the last 14 years.

The numbers had already been declining since 2021. According to a public statement by XP INVESTIMENTOS, the decline in the IDP balance “stems from the economic slowdown and lower corporate profitability, both in Brazil and abroad.” The world was still recovering from the effects of the COVID-19 pandemic.

Against this backdrop, Federal Law No. 14,286 of December 29, 2021 (Law No. 14,286/2021) was enacted, which, after coming into force in December 2022, began to allow real estate transactions to be paid in foreign currency, such as the US dollar or the euro.

Until then, it should be recalled, real estate transactions were subject to the general rule of art. 318 of the Civil Code, which, in regulating the manner of payment of legal transactions, set out the so-called “gold clause”, in the following terms:

“Art. 318. Agreements for payment in gold or in foreign currency, as well as to offset the difference between its value and that of the national currency, are null and void, except in the cases provided for in special legislation.”

Under those terms, as a rule, a contract whose price clause referred to payment in gold or foreign currency was absolutely null and void, and the nullity could be raised by any interested party, whether or not a participant in the transaction, upon a mere showing of its interest in the declaration of nullity, or by the Public Prosecutor's Office, pursuant to articles 166 to 169 of the Civil Code. Likewise, being an absolute nullity, it could be raised at any time and would not be cured by the passage of time.

The special legislation authorizing the use of foreign currency in legal transactions was the old Decree-Law No. 857/1969, now repealed, whose provisions were far from clear as to the possibility of providing for payment for real estate in foreign currency.

Accordingly, over time, countless real estate purchase and sale transactions, carried out without observing the applicable legislation and attempting to give an elastic interpretation to the aforementioned Decree-Law No. 857/1969, were denied access to the Real Estate Registry, because there was no clear authorization creating an exception to art. 318 of the Civil Code.

See the administrative decision of the 1st Public Registries Court of the Capital of São Paulo, rendered in a suscitação de dúvida (registrar's request for judicial guidance) raised by the 10th Real Estate Registry Office of the Capital:

“1st VRP|SP: Dúvida – Registration of a private agreement for the purchase and sale of real estate – Price established in the contract in foreign currency – Payment exclusively possible in national currency under Decree-Law No. 857/99 – Prohibition arising from the meaning of art. 318 of the Civil Code – Impossibility of calculations subject to registration and taxation – Principle of legality – Request upheld. (Case No. 1108833-04.2014.8.26.0100, DJe of Dec. 16, 2014 – SP)”

At the time, the case did not even involve payment in foreign currency. The parties, in the case examined by the Public Registries Court of the Capital of São Paulo, had stressed that the contract was denominated in foreign currency “(...) solely to allow the installments to be adjusted based on the variation of the US dollar exchange rate, with payment to be made in national currency. Moreover, they point out that only payment in foreign currency was prohibited by the legislature.”

Even so, such transactions were not valid under the legislation then in force. They could take place, but, insofar as they concerned real estate, they were not granted registration in the Real Estate Records.

It so happens that, in 2021, Law No. 14,286, cited above, was enacted, prescribing more clearly the cases in which payment in foreign currency is exceptionally allowed, expressly including, among the legal hypotheses, obligations in general in which the creditor or debtor resides abroad:

“Art. 13. The stipulation of payment in foreign currency for obligations enforceable within the national territory is allowed in the following situations:

(...)

II – in obligations whose creditor or debtor is a non-resident, including those arising from credit or leasing transactions, except in lease agreements for real estate located within the national territory;

(...)

Sole paragraph. Any stipulation of payment in foreign currency made in violation of this article is null and void.”

As a result, the stipulation of payment in foreign currency is authorized when, for example, the debtor (the “purchaser”) is a person residing abroad who intends to invest capital in Brazil in the form of real estate assets; wishes to buy in order to move to Brazil; or simply wants a place to stay when passing through the country.

The reverse situation is also allowed, when the creditor of the monetary obligation (the “seller”) resides abroad, owns property located in Brazil, and the parties wish to peg the Brazilian debtor's payments to the exchange rate variation of the foreign currency of the seller's place of domicile.

For the transaction to be feasible, the payment in foreign currency must enter Brazil through a financial institution authorized to operate in the foreign exchange market, except for payments below US$ 10,000.00 (ten thousand US dollars) or the equivalent amount in another foreign currency, as provided in art. 14 of Law No. 14,286/2021.

For amounts below that threshold, any financial institution may receive the payment, regardless of authorization to operate in the foreign exchange market.

Law No. 14,286/2021 is regulated by Resolution No. 277 of December 31, 2022, of the Central Bank of Brazil, which governs internal aspects of banking institutions and classifies real estate purchase and sale transactions under the category “others”, with transaction code “46215” (ANNEX IV).

Some difficult questions will certainly arise as to the applicable exchange rate date with respect to acts requiring currency conversion, such as the payment of income tax and of the fees for the public deed and for the registration of the real estate transaction.

In our view, in order to enable the proper classification of the transaction within the fee brackets of the Notary Public office or the Real Estate Registry, the foreign currency must be converted into Brazilian reais, unless otherwise provided by law, as of the date of execution of the public deed or, respectively, as of the date of the prenotação (priority annotation) of the instrument at the Real Estate Registry.

That is because the fees due to the Notary Public office and the Real Estate Registry have the legal nature of taxes, specifically fees for services (STF, ADI 1,378-5/ES). Accordingly, their assessment and collection are tied, unless otherwise provided by law, to the date of the taxable event, that is, the specific service rendered that authorizes their collection, pursuant to art. 143 of the National Tax Code.

In this case, the notarial service will be the execution of the deed of purchase and sale, and the foreign currency must be converted as of the date of execution of the public deed, and, based on the resulting base amount, the transaction is then classified under the local state fee schedule.

Similarly, at the Real Estate Registry, one must adopt, for purposes of converting the foreign currency used in the transaction and classifying the transaction amount under the registry fee schedule, the date of the prenotação (and not the date of the actual registration entered on the property record — matrícula), since the prenotação serves the important function of marking the date on which the fees due for the act must be calculated.

The same conversion rule must be adopted for purposes of the Real Estate Transfer Tax (“ITBI”).

In conclusion, given this permission to pay for real estate transactions in foreign currency, the utmost care is required, since, in a single transaction providing for payment in foreign currency, there will be distinct points in time for currency conversion, under the criteria above, with respect to the payment of the main obligation of the transaction; the payment of the Notary Public's fees; the Real Estate Registrar's fees; and, finally, the ITBI.

The original version of this article was published in Revista Debate Imobiliário (print edition): ALMEIDA, Rafael Barros Emiliano de. A possibilidade de contratação e pagamento de imóveis com moeda estrangeira e a silenciosa Lei 14.286/2021. Revista Debate Imobiliário. São Paulo, ed. 17 (Dec. 2024), p. 22-24.

Rafael Barros Emiliano de Almeida. Attorney. Director of Real Estate Developments and Urban Land of the Baixada Santista Regional Unit of the Union of Companies for the Purchase, Sale, Leasing and Management of Residential and Commercial Properties (SECOVI).