BRAZIL Law and Practice Contributed by: Guilherme Bueno Malouf, Luciana Costa Engelberg, Bruna Marrara and Thales Saito, Machado Meyer Advogados
3.6 Tax Regime As investment funds do not have legal person - ality and are not subject to taxation on income and gains derived from their portfolio, no taxes are due at the fund level. Taxation shall occur in relation to (and at the level of) the investors only and not to the fund itself. The definition of the tax treatment applicable to the quota holder is contingent upon the verifi - cation of the nature of the investment fund (eg, ETF, FIP, FIF), as well as of the characteristics of the investor itself (ie, Brazilian individual or legal entity; if the foreigner is either resident or domiciled in a low tax jurisdiction or not, etc). Generally speaking, the tax treatment applicable to the earnings arising from the redemption or amortisation of quotas of Brazilian investment funds are subject to WHT at regressive rates, depending on whether the fund is qualified as a long-term investment (if the fund portfolio has a term of more than 365 days) or a short-term investment (if the fund portfolio has a term of less than 365 days), as follows: • Long-term investment: (a) 22.5% rate – investment term of up to 180 days; (b) 20% rate – from 181 days up to 360 days; (c) 17.5% rate – from 361 days up to 720 days; and (d) 15% rate – investment term over 720 days. • Short-term investment: (a) 22.5% rate – investments term of use up to 180 days; and (b) 20% rate – investment term over 180 days.
In respect of such general tax treatment, Law No 14,754/2023 introduced the “come-quotas” taxation to be in force on 1 January 2024 to both closed-ended and open-ended funds. The general rule of “come-quotas” provided by said legislation applies as follows: • Long-term investment: mandatory imposi - tion of “come-quotas” and subjection of the accrued earnings of the investor to the WHT at a 15% 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. • Short-term investment: mandatory imposi - tion of “come-quotas” and subjection of the accrued earnings of the investor to the WHT 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. Legal entities that invest in funds 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 fund, 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. Specific considerations may apply in connection with specific types of funds, such as ETFs, as outlined below. ETFs Brazilian law distinguishes variable income ETFs from fixed income ETFs, as follows:
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