BRAZIL Law and Practice Contributed by: Guilherme Bueno Malouf, Luciana Costa Engelberg, Bruna Marrara and Thales Saito, Machado Meyer Advogados
which only allows the granting of loans and the assumption of debts because of transactions carried out in the derivative market. FIIs are not currently allowed to borrow or grant loans. They may borrow their equities and secu - rities, provided that such loans are processed exclusively through services authorised by the Brazilian Central Bank or CVM or are to provide guarantees for their own operations. Also, for each type of alternative fund, CVM reg - ulates the accounting standards for the recogni - tion, classification and measurement of assets and liabilities, as well as those for valuation, pric - ing and revenue recognition, the appropriation of expenses and the disclosure of information in the financial statements for each investment fund, which are expressly provided by the fol - lowing: • CVM Instruction No 579 of 30 August 2016 for FIPs; • CVM Instruction No 489 of 14 January 2011 for FIDCs; and • CVM Instruction No 516 of 29 December 2011 for FIIs. According to Brazilian law, insider dealing and market abuse are illegal activities subject to administrative, civil, and criminal sanctions. CVM penalties for such activities include warn - ings, fines, suspension, or even prohibition from trading in the capital markets. 2.5 Fund Finance Please see 2.4 Operational Requirements . 2.6 Tax Regime An investment fund in Brazil does not have a for - mal corporate existence and is classified solely as a flow-through entity. As such, it is not con -
sidered a legal entity for tax purposes and is not regarded as a taxpayer from a legal standpoint. Investment funds benefit from a special income tax treatment that typically allows for a defer - ral of taxes on any gains accrued by the fund’s portfolio. In this context, an investment fund can invest in different assets, be remunerated by such invest - ment, and/or sell its investments, and none of those gains will be taxable at the fund level. Such gains will only be taxed (if ever) at the level of the investors whenever some specific events are verified (eg, amortisation of quotas, the redemp - tion of quotas or liquidation of the fund). FIPs Pursuant to Law No 11,312/2006, gains and earnings obtained by the investors of a FIP whose portfolio is compliant with CVM regula - tions are generally subject to withholding income tax (WHT) at a 15% rate. Nonetheless, Law 11,312 establishes a specific tax treatment applicable to foreign investors who invest in an FIP by means of the mechanisms provided for by Resolution 13, jointly issued on 3 December 2024 by the National Monetary Council and the Central Bank of Brazil, provided certain requirements are met. Under this specific tax treatment – and provided all legal require - ments are met – gains and earnings recognised by foreign investors that are not resident nor domiciled in low-tax jurisdictions as a result of the amortisation, redemption or sale of the FIP’s quotas are subject to WHT at a 0% rate. Foreign investors of an FIP that are residents or domiciled in low-tax jurisdictions (as per the con - cept provided by Brazilian tax law) are not enti - tled to the special tax treatment set out above, thus being subject to WHT at a 15% upon gains
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