Converting an Intercompany Loan into Equity in Brazil

Reviewed by Luiz Eduardo da Silva, director of LegalBR. Updated on 22 October 2026. About 9 minutes to read.

A debt to equity conversion in Brazil turns an intercompany loan from the foreign parent into share capital of the Brazilian subsidiary, without any money crossing the border. The debt to equity conversion Brazil requires today is simpler than before: no simultaneous (“symbolic”) FX contracts, just a corporate act plus a Central Bank report in the right system within 30 days. This guide connects the steps that most teams handle separately: the loan record in SCE-Crédito, the capital increase at the Board of Trade, the SCE-IED position and the tax points.

When a debt to equity conversion makes sense

Foreign groups often fund a Brazilian start-up phase with intercompany loans, because loans are flexible and can be repaid. Years later, the same loans may weigh on the subsidiary’s balance sheet. Converting them into capital is a common clean-up in these situations:

• Negative or thin equity: losses have consumed capital, and banks, landlords, tenders or regulators look at net equity.
• Thin capitalization limits: interest on related-party debt is deductible only within the ratios of Law 12,249/2010, so excess debt produces non-deductible interest.
• No realistic repayment: the subsidiary cannot repay without new funding, and rolling the debt only adds interest and withholding tax.
• Before a sale or reorganization: buyers and merger counterparties prefer a clean capital structure.

Funding costs matter too. Since Decree 12,499/2025, as reinstated by the Supreme Court in July 2025, foreign loans with terms up to 364 days bear 3.5% IOF on the FX inflow. As a result, groups that rolled short-term loans now have an extra reason to move to equity.

How the Central Bank treats a debt to equity conversion

Brazil’s foreign capital rules come from Law 14,286/2021 (the new FX and foreign capital law) and Resolution BCB 278/2022, as amended by Resolutions BCB 348/2023 and 410/2024. Resolution 410/2024 added a formal definition of conversion: an operation by which rights and credits that could generate transfers abroad, or assets owned by non-residents, become foreign direct investment or external credit.

Under the old regime, a conversion required two simultaneous FX contracts, one “paying” the loan and another “bringing in” the capital, without any movement of funds. According to the Central Bank’s SCE-IED manual, conversions no longer require simultaneous FX operations since 1 November 2023. Therefore, the conversion is now documented by the corporate act and reported directly in the Central Bank’s systems.

Which system to report in

The key operational question is where the original loan sits. Resolution BCB 278/2022 requires registration in SCE-Crédito of direct loans of US$ 1 million or more (other thresholds apply to trade-related credits). Below that, the loan may never have been registered.

The manual is explicit that conversions between SCE-Crédito and SCE-IED are reported only in SCE-Crédito. Even so, the investor’s higher capital must appear in the subsidiary’s next periodic SCE-IED declaration (quarterly, annual or quinquennial, depending on total assets). Our SCE-IED guide explains that cycle.

The corporate act: Ltda and S.A.

Limited company (Ltda)

Under article 1,081 of the Civil Code, a Ltda can increase its capital once existing quotas are fully paid in. Existing quotaholders have a preference to subscribe, in proportion to their quotas, within 30 days of the resolution. In a group with a minority partner, that partner must waive the preference or be offered its share.

The increase is approved by quotaholder resolution and documented in an amendment to the articles of association (alteração contratual), which describes the credit being contributed, its amount in reais and the new quota distribution. Since Law 14,451/2022, amendments generally require votes representing more than half of the capital, unless the articles set a higher quorum.

Corporation (S.A.)

In an S.A., the shareholders’ meeting (or the board, within authorized capital) approves the increase and the issue price, which must follow the criteria of article 170 of Law 6,404/1976. Article 171, paragraph 2, ensures shareholders’ preemptive rights also in a capitalization of credits; amounts paid by shareholders who exercise it go to the creditor. Share registers and, where applicable, the bookkeeping agent must then record the new shares.

Who is the lender?

If the lender is the direct parent, the conversion simply increases its stake. However, if the lender is a sister company or a finance vehicle, the conversion makes it a new quotaholder or shareholder. In that case, it needs its own Brazilian CNPJ, a resident attorney for service of process and an entry in the articles, and the subsidiary’s beneficial-owner (e-BEF) record may need updating within 30 days.

Tax points to settle before converting

Agree the tax analysis with your advisers before signing, because the conversion freezes amounts that are hard to undo later.

• Accrued interest: capitalizing interest is generally treated like paying it, so withholding income tax applies, as a rule at 15% or 25% for low-tax jurisdictions, subject to tax treaties.
• Waiving interest instead: forgiving unpaid interest, rather than capitalizing it, may be treated as income of the borrower; the point is controversial and needs a specific view.
• FX variation: a foreign-currency loan carries FX gains or losses until the conversion date; define in the conversion agreement the rate and the amount in reais.
• Transfer pricing: interest charged up to conversion must follow the arm’s length rules in force since Law 14,596/2023. Our guide on transfer pricing in Brazil covers them.
• Future repatriation: capital can later return through a capital reduction or dividends, which have different tax and Central Bank treatment from loan repayments. See our guide on repatriating capital from Brazil.

Because no FX contract is concluded, there is no FX transaction in the conversion itself. Nevertheless, confirm the IOF position for the specific facts, since the old simultaneous FX contracts were themselves subject to IOF rules.

Step-by-step timeline

The ranges below reflect general market practice for a foreign parent converting a loan into a Ltda’s capital. Documents signed abroad usually set the pace.

1. Confirm the balance (week 1)

   The local accountant certifies principal, interest and FX variation at the planned date, and the treasury team checks the SCE-Crédito record, if any.

2. Approve the conversion abroad (weeks 1 to 3)

   The lender’s board approves the conversion and grants or confirms powers to the attorney in Brazil.

3. Sign the conversion instrument (weeks 2 to 4)

   Lender and subsidiary agree the amount converted, the interest treatment and the effective date.

4. Approve the capital increase (weeks 3 to 5)

   The quotaholders sign the amendment; minority partners waive or exercise their preference.

5. File with the Board of Trade (weeks 4 to 7)

   Registration typically takes days to a few weeks, depending on the Junta and on any requirement.

6. Report to the Central Bank (within 30 days)

   Report in SCE-Crédito or in the SCE-IED “Conversion” tab, as applicable, counting from the conversion date.

7. Update downstream records

   CNPJ data, e-BEF where the ownership changed, accounting entries and the next periodic SCE-IED declaration.

Fix the conversion date carefully. Since the 30-day Central Bank deadline runs from it, a long wait for Junta registration should not eat into that window. Our guide on Junta Comercial requirements covers the usual causes of delay.

Document checklist

• Loan agreement and amendments, with the SCE-Crédito registration number where applicable.
• Accountant’s statement of the balance being converted, split into principal, interest and FX variation.
• Lender’s board resolution approving the conversion, apostilled and with sworn translation.
• Power of attorney to the Brazilian attorney, with powers to subscribe quotas and sign the amendment.
• Conversion or capitalization agreement between lender and subsidiary.
• Quotaholder resolution and amendment to the articles (or S.A. meeting minutes and bylaws changes).
• Preference waivers from other quotaholders or shareholders, if any.
• Evidence of withholding tax on capitalized interest, where due.
• Central Bank report receipt and the updated SCE-Crédito or SCE-IED extract.

For apostille and translation requirements, see our guide on apostille and sworn translation.

Common mistakes

• Reporting in both systems. A loan registered in SCE-Crédito is converted there only; a parallel SCE-IED conversion entry duplicates the investment.
• Missing the 30 days. The deadline runs from the conversion, not from Junta registration, and late reports are subject to Central Bank fines.
• Capitalizing unpaid interest without tax. Withholding tax on interest is often forgotten because no cash moves.
• Increasing capital before paying in existing quotas. A Ltda with unpaid quotas cannot increase capital until they are paid in.
• Converting from the wrong entity. A sister-company lender becomes a partner, with all the registrations that entails.
• Using an outdated FX playbook. Requesting symbolic FX contracts from the bank reflects the pre-2023 regime.

Questions investors ask