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Brazil publishes Provisional Measure addressing withholding tax exemption for certain Brazilian corporate securities and private equity funds — Orbitax Tax News & Alerts

  • The Brazilian Government published a Provisional Measure (PM) that addresses the withholding tax exemption for certain Brazilian corporate securities and private equity funds.

  • As the PM is effective as of 1 January 2023, nonresident investors should take prompt action to assess, design and implement potential restructuring or migration to other structures/jurisdictions.

On 22 September 2022, the Brazilian Government published Provisional Measure 1,137/22 that addresses the withholding tax exemption for certain Brazilian corporate securities and Brazilian private equity funds (FIPs).

This Alert outlines the provisions of the PM.

Private Equity Funds

  • Foreign investors that are residents of grey-listed jurisdictions (such as Delaware LLCs) will be treated the same as foreign investors from black-listed jurisdictions (such as Cayman LPs). Going forward investment strawman structures that hold FIPs through Delaware LLCs will not be entitled to a tax exemption on gains and distributions from a FIP.
  • 40%-ownership threshold requirement to grant a tax-exemption to nonresident investors was repealed.
  • Sovereign funds – the provision is applicable to residents of both blacklisted and whitelisted jurisdictions, requiring further analysis on the impacts involving those type of investors.

Corporate bonds and Credit Investment Funds

  • Nonresident investors will be tax exempt on interest income from certain qualified securities. Qualified securities include:
    • Corporate bonds issued by Brazilian entities, except financial institutions and other institutions authorized by the Brazilian Central Bank. The corporate bonds have to be registered in Brazil.
    • Quotas from regulated Brazilian credit investment funds set up by Brazilian entities, except financial institutions and other institutions authorized by the Brazilian Central Bank. The investment fund quotas have to be registered / traded in Brazil.
    • Financial letters issued by Brazilian-authorized financial institutions and other institutions authorized by the Brazilian Central Bank.

The PM is effective as of 1 January 2023 so nonresident investors have several months to assess, design and implement potential restructuring or migration to other structures/jurisdictions.

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For additional information with respect to this Alert, please contact the following:

EY Assessoria Empresarial Ltda, São Paulo

  • Ana Luiza Lourenco | analuiza.lourenco@br.ey.com
  • Fabio Martins | fabio.f.martins@br.ey.com
  • Denis Gamba | denis.gamba@br.ey.com
  • Diego Vargas | diego.vargas@br.ey.com
  • Nelita Donatti | nelita.donatti@br.ey.com
  • Jose Massari | jose.massari@br.ey.com
  • Gustavo Carmona | gustavo.carmona@br.ey.com

Ernst & Young LLP (United States), Latin American Business Center, New York

  • Lucas Moreno | lucas.moreno1@ey.com
  • Pablo Wejcman | pablo.wejcman@ey.com
  • Aline Millá | aline.milla@ey.com
  • Douglas Campos | douglas.campos1@ey.com
  • Maria Clara Monteiro | maria.clara.monteiro1@ey.com
  • Enrique Perez Grovas | enrique.perezgrovas@ey.com

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

  • Raul Moreno, Tokyo | raul.moreno@jp.ey.com
  • Luis Coronado, Singapore | luis.coronado@sg.ey.com