BRAZIL Law and Practice Contributed by: Guilherme Bueno Malouf, Luciana Costa Engelberg, Bruna Marrara and Thales Saito, Machado Meyer Advogados
• a fixed-income ETF is qualified as such for tax purposes if it invests at least 75% of its net worth in financial assets that are covered or referenced by the underlying fixed-income index; and • a variable income ETF is qualified as such for tax purposes if its portfolio comprises stocks also covered by the underlying index. As per Law N. 14,754/2023, the following tax treatment applies to variable income ETFs that comply with the portfolio allocation, classifica - tion and reclassification requirements set out in the regulations of the CVM and have quotas that are effectively traded on a stock exchange or organised over-the-counter market in Brazil: gains arising from the investment in the ETF shall be subject to WHT at a general 15% rate. If the ETF is deemed an investment entity in accordance with the rules of the National Mon - etary Council, then its investors shall not be sub - ject to the come-quotas taxation, and the 15% WHT shall only be due upon the date of effective distribution of income, amortisation or redemp - tion of quotas. Conversely, if the ETF does not qualify as an investment entity, the following rules will apply: quota holders will be subject to mandatory come-quotas taxation, and a 15% withholding tax will be imposed in May and November of each year on the income and gains accrued up to those dates. This tax will also apply upon the investor’s actual redemption or amortisation of the quotas, whichever occurs first. Variable income ETFs that do not comply with the portfolio allocation, classification and reclas - sification requirements provided for by the CVM are subject to the general rule of “come-quotas”
provided by Law N. 14,754/2023, which 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. As expressly provided by Law N. 14,754/2023, fixed-income ETFs are not subject to the overall “come-quotas” regime such legislation provides. The gains and income arising from the invest - ment in a fixed-income ETF are taxed at the fol - lowing rates upon the effective redemption or amortisation of the quotas: • 25% rate – investment term of up to 180 days; • 20% rate – investment term from 181 days up to 720 days; and • 15% rate – investment term of over 720 days. Gains on the disposal or redemption of quotas of a fixed-income ETF are calculated using the same rates as applied to distributions.
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