BRAZIL Law and Practice Contributed by: Ihury Bastos Pereira Darmont, Filipe Starzynski, Karyn Yoshisaki, Ariel Goldstein and Artur Marangoni Cabral Fagundes, Darmont Advogados
IRRF (Withholding Income Tax, or WIT), whose rates vary according to the term of the investment and the type of fund. • For short-term fixed income funds, a rate of 22.5% is applied to income when the investment term is up to 180 days. For investments with a term between 181 and 360 days, the rate is reduced to 20%. • In long-term fixed income funds, taxation also begins with a rate of 22.5% for investments of up to 180 days. For terms between 181 and 360 days, the rate of 20% applies; between 361 and 720 days, the rate drops to 17.5%; and for investments with a term of more than 720 days, the minimum rate of 15% applies. Treatment of Alternative Funds In the context of alternative funds, such as Credit Rights Investment Funds (FIDCs), Multimarket Funds (FIMs), Private Equity and Venture Capital Funds (FIPs), a fixed rate of 15% may be applied, provided that the fund meets certain legal conditions that char - acterise it as an “investment entity”. For the purposes of this verification, the following requirements, among others provided for in the regu - lations, must be assessed: • the absence of direct or indirect control by share - holders over the management of assets; • the existence of operational discretion on the part of the manager; and • compliance with requirements related to sharehold - ers and the composition of the portfolio. Thus, when structuring the fund, it is essential to verify whether it can qualify as an investment entity under the terms of Law No 14,754/2023, and thus opt for the most appropriate tax regime – including with regard to the advance withholding of IRRF ( come-quotas ) or the deferral of taxation until the moment of redemption or sale of the quotas. Funds created for specific purposes, such as Real Estate Investment Funds (FIIs) and Agribusiness Pro - duction Chain Investment Funds (FIAGROS), have their own taxation regimes.
In FIIs, individuals can enjoy income tax exemption on distributed income, provided that: • the fund’s shares are traded exclusively on a stock exchange or organised over-the-counter market; • the fund has at least 50 shareholders; and • the shareholder benefiting from the exemption does not individually hold 10% or more of the fund’s shares. Similar rules apply to FIAGROS, provided that the cri - teria set forth in the specific regulations are met. Tax Treatment of Non-Resident Investors In general, investments in Brazilian funds by non- resident investors receive favourable tax treatment, provided that these investors are not domiciled in jurisdictions classified as tax havens or subject to privileged tax regimes. For qualified foreign investors, income and gains earned through investment funds may be subject to reduced IRRF rates or even exemption, depending on the type of fund and the composition of its portfolio. On the other hand, investors domiciled in tax havens are subject to a withholding income tax rate of 25% on income earned, regardless of the type of fund or The tax treatment applicable to Brazilian pension funds varies according to the legal structure of the entity and the type of fund invested. In general, income and capital gains obtained by closed-end pension funds are exempt from income tax, and any withholding taxes are considered final, ie, not subject Under the terms of the Model Convention of the Organisation for Economic Co-operation and Devel - opment (OECD) – adopted by Brazil in its policy for negotiating double taxation treaties – transparent funds may qualify as “resident persons” for the pur - poses of applying international double-taxation trea - ties entered into by the country only when the fund’s to subsequent adjustments. 4.9 Double Tax Treaties the composition of the portfolio. Tax Treatment of Pension Funds
50 CHAMBERS.COM
Powered by FlippingBook