BRAZIL Law and Practice Contributed by: Guilherme Bueno Malouf, Luciana Costa Engelberg, Bruna Marrara and Thales Saito, Machado Meyer Advogados
and earnings deriving from the investment in the fund. The legal requirements to avail of the specific tax treatment afforded to foreign investors have been significantly changed by Law 14,711/2023, enacted on 30 October 2023. The legal require - ments originally set forth by Law 11,312 and those set forth by Law 14,711/2023 for applying the specific tax regime are as follows. • Residence of investors: (a) Original legal requirement – Law 11,312: quota holders domiciled or resident in a low tax jurisdiction, as defined by Brazil - ian legislation, did not benefit from the special regime. (b) New requirement – Law 14,711: quota holders that are domiciled or residents in a low-tax jurisdiction still cannot benefit from the special regime (exception made to sovereign funds). • FIP portfolio: (a) Original legal requirement – Law 11,312: at least 67% of the FIP’s portfolio should be represented by shares of corporations (SA), convertible debentures or warrants, and the FIP could not have, at any time, debt bonds equal to or higher than 5% of its net assets (not including public bonds or convertible securities). (b) New requirement – Law 14,711: a FIP’s portfolio shall observe CVM regulations. • 40% Test: (a) Original legal requirement – Law 11,312: the foreign investor should not hold, directly or via related parties, more than 40% of the quotas of the FIP or be enti - tled to receive more than 40% of the FIP’s earnings. Such requirements were cumu - lative with the 90% Rule. If those require - ments were not met, gains and earnings
received by foreign investors of the FIP were subject to WHT at a 15% rate. (b) New requirement – Law 14,711: the 40% Test was revoked. The foreign investor of the FIP can now hold any percentage of the fund’s quotas or be entitled to receive any percentage of the FIP’s earnings to benefit from the regime, provided all the other requirements are met. • Investment Entity: (a) Original legal requirements – Law 11,312: There was no provision requiring the FIP to qualify as an investment entity for the foreign investors of the FIP to benefit from the special regime. (b) New requirements – Law 14,711: The special regime only applies to foreign investors of FIPs that qualify as an invest - ment entity, based on the rules defined by the National Monetary Council. Finally, Law 14,754/2023 modified the tax regime applicable to funds in general and intro - duced the come-quotas taxation for closed funds – in accordance with which earnings aris - ing from the fund’s portfolio are to be subjected to WHT in May and November of each calendar year (regardless of any effective distribution to the quota holders). There are, however, certain exceptions, amongst which: FIPs that qualify as investment entities and comply with the portfolio composition requirements established by CVM are not subject to such regime. FIP-IEs Law No 11,478/2007 provides that any income (including capital gains) received by Brazilian individuals from FIP-IEs benefits from 0% WHT, provided that the general legal requirements for 0% benefits are met (ie, the requirements appli - cable to FIP-IEs – see 2.1.1 Fund Structures ).
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