The Provisional Measure 1.137/2022, published by the Federal Government on September 22, reduces to zero the income tax rate on investments made by foreigners in Brazil.
With the Provisional Measure, which will come into effect as of January 1, 2023, the same treatment already applied to variable income will be extended to instrument of indebtedness issues, so that they have tax isonomy in relation to capital operations. Thus, the tax exemption will cover income obtained by beneficiaries who reside abroad with fixed income securities issued by Brazilian companies, such as debentures, and those issued by financial institutions – banks, credit cooperatives etc. – like a Treasury Financial Bills (LF).
Furthermore, the tax rates for income earned by non-resident shareholders on investments in Infrastructure Equity Investment Funds (FIP-IE), Investment Funds in Participation in Economic Production Intensive in Research, Development and Innovation (FIP-PD&I) and sovereign wealth funds will be zeroed.
The initiative aims to increase the access of Brazilian companies to foreign equity and attract foreign resources to finance private instrument of indebtedness, aligning the tax treatment to the already applied in variable income and public instrument of indebtedness.
The MP also makes changes to the legislation that regulates Investment Funds in Participations (FIPs), in order to bring more clarity to important aspects for foreign investors. It clarifies, for example, that the income tax exemption granted to non-resident investors on investments made in PEFs applies regardless of the percentage of shares or income they hold in these funds.
It must be observed that the tax benefit will only be applied after the following requirements are met:
- Proof of registration of the instrument of indebtedness or security in a system authorized by the Central Bank or the Securities and Exchange Commission, respectively;
- The financial operations are in accordance with the conditions established by the National Monetary Council (CMN);
- With the exception of the sovereign fund, the foreign investor is not resident or domiciled in a country with favored taxation or beneficiary of a privileged tax regime, and
- The transaction is entered into between unrelated parties.
Our tax team is available to provide more information and guidance on these and other topics.
