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Brazilian Government reduces withholding income tax rate on investments by non-resident investors


On September 22, the Brazilian Government published Provisional Measure No. 1,137 (MP 1,137/22), which reduced to zero the withholding income tax rate applicable to certain financial operations carried out by Non-Resident Investors in the Brazilian market.


According to MP 1,137/22, as of 1.1.2023, the reduction to zero of the withholding income tax rate levied on income earned by Non-Resident Investors arising from investments in:


1) Bonds or securities subject to public distribution, issued by legal entities governed by private law not classified as financial institutions;

2) Credit Rights investment funds (FIDCs), whose originator or assignor of the credit rights portfolio is not a financial institution, and other institutions authorized to operate by the Central Bank of Brazil;

3) financial bills;

4) and investment funds that invest in bonds or securities subject to public distribution, issued by legal entities governed by private law not classified as financial institutions, in assets that produce exempt income for foreign investors, in federal government bonds and in repurchase agreements backed by federal government bonds or investment fund shares that invest in federal government bonds.


This tax benefit will apply as long as the following requirements are met:


1) foreign investments are carried out in the country, in accordance with the rules established by the Brazilian Monetary Council (CMN);

2) investors are not resident or domiciled in a jurisdiction with favorable taxation or with a privileged tax regime, with the exception of sovereign wealth funds;

3) the asset is admitted to trading on an organized securities market or is registered in a registration system authorized by the Central Bank of Brazil or by the Securities and Exchange Commission, as the case may be; and

4) the transaction is not carried out between related parties.


MP 1,137/22 also amended, with effect from 1.1.2023, the regulations dealing with Equity Investment Funds (FIPs), expressly providing that:


1) Non-Resident Investors of Investment Funds for Participation in Infrastructure (FIP-IE) and Investment Funds for Participation in Intensive Economic Production in Research, Development and Innovation (FIP-PD&I) also benefit from the zero rate of the IRF on income and gains arising from their investments in said funds, provided that the other requirements set forth in Law 11,312/06 are met;

2) the tax benefit will not be granted to investors resident or domiciled in a jurisdiction with favorable taxation or privileged tax regime (with the exception of sovereign wealth funds) and;

3) the tax benefit granted to Non-Resident Investors on investments made in FIPs is applicable regardless of (a) the percentage of shares or FIP earnings attributable to the Non-Resident Investor and (b) the composition of the FIP portfolio, which must only meet the regulation provided for by the Securities and Exchange Commission (CVM); and


The publication of MP 1,137/22 extends the tax exemption currently applicable to variable income investments and public debt financing (Government bonds) to private debt operations, allowing for a reduction in the cost of funding for Brazilian companies and greater attraction of resources external sources to finance the Brazilian private sector.


It is worth noting that MP 1,137/22 still has to be examined by the National Congress, which has 60 days, extendable for another 60, to approve (in which case it is converted into law) or reject the measure.


Our team is available to provide any further clarifications that may be necessary.

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