BRAZIL Law and Practice Contributed by: Guilherme Bueno Malouf, Luciana Costa Engelberg, Bruna Marrara and Thales Saito, Machado Meyer Advogados
at a 20% rate in May and November of each year or at the date of the effective redemp - tion or amortisation of the quotas – whichever occurs first. In respect of non-resident investors, the WHT treatment upon income and gains arising from the investment in FIDCs shall vary as follows: • non-resident investor that is not located in a low tax jurisdiction: WHT at a flat 15% rate, without “come-quotas” taxation; • non-resident investors located in low-tax jurisdictions: WHT at a flat 15% rate, with “come-quotas” taxation. Legal entities that invest in FIDC should consider WHT as an anticipation to corporate income tax (IRPJ), whilst the WHT levied upon the income and the gains derived by individuals and non- resident investors of the FIDC, WHT is definitive. In addition to WHT for the investor, for open- ended funds, there is also a tax on financial transactions (IOF/ Títulos ) if the redemption of the fund’s quotas occurs before the 30th day of investment on a regressive rate basis. FIIs As per Law No 8,668/93, the FII must distribute its results to the quota holders twice a year. Taxation of FII’s accrued gains only occurs at the investor’s level, and the respective treatment will depend on the investor’s location. There is one exception to this rule: Law No 8,668/93 estab - lishes that FIIs investing in any real estate enter - prise that has a quota holder holding (individually or jointly with an affiliate) more than 25% of the quotas of the FII as a developer, constructor or partner will be taxed as a legal entity.
The gains upon distributions by the FII and the gains derived from the sale of the FII’s quotas are generally subject to WHT at a 20% rate. Gains upon distributions made to and gains derived from the sale of the quotas by beneficiaries not located in low-tax jurisdictions that invest in Bra - zil via the mechanics of Resolution N. 13/2024 are subject to WHT at a 15% rate. However, if the FII’s quotas are publicly trad - ed and the quotas are sold within the stock exchange, gains earned by foreign investors not located in low-tax jurisdictions would be subject to WHT at a rate of 0%. Applying the 0% WHT to a sale performed within an over-the-counter market is controversial. In respect of Brazilian individuals, investor’s gains are exempt when the quota holder holds less than 10% of the fund’s quotas or is entitled to receive less than 10% of the fund’s total income, provided that the FII has at least 100 quota hold - ers and its quotas are traded exclusively on the stock exchange or organised over-the-counter market. Furthermore, Law 14,754 has amended the provisions of Law N. 11,033/2004 to estab - lish that this tax exemption does not apply to a group of individuals that qualify as related par - ties if they jointly own 30% or more of the FII’s quotas or if they are entitled to receive earnings that represent more than 30% of the total gains of the FII.
3. Retail Funds 3.1 Fund Formation 3.1.1 Fund Structures
Brazilian retail funds are also organised as con - dominiums (pool of assets) and can be organ - ised as closed-ended or open-ended funds, as mentioned in 2.1.1 Fund Structures .
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