On September 22, 2022 the Federal Government enacted Provisional Measure 1,137 ("PM 1,137"), which brought relevant changes to Private Equity Investment Funds (“FIP”) rules and reduced to zero the withholding income tax ("WHT") levied on income paid to foreign investors derived from certain financial investments in Brazil. These changes create a very favorable environment for attracting foreign equity and debt investments.

The main changes are listed below:


• The “40% rule” was eliminated. Hence, foreign investors in a FIP should enjoy the tax exemption applicable to FIPs even if they hold more than 40% in the fund.

• The exemption on FIP distributions (or on the gain from the sale of FIP quotas) should not be applicable for an investor located in a low tax jurisdiction or in case this investor is beneficiary of a privileged tax regime (as defined by the applicable tax legislation).

• The requirement imposed by the tax law according to which FIPs should invest at least 67% of its portfolio in stocks, convertible debentures, and warrants no longer exists. FIPs portfolio, consequently, should follow regulation issued by Brazil Security Commission (CVM), which provides more breath for different investments (such as non-convertible debentures).

• SWF (Sovereign Wealth Fund) located in a tax haven can invest in FIPs and still enjoys the applicable tax exemption on their income.

• The PM 1,137 also addresses the distortion existing between the tax treatment of foreign investment in FIPs and Infrastructure Investment Funds (FIP-IE) and R&D Investment Funds (FIP-PD&I), recognizing the application the WHT zero tax rate also for income paid to foreign investors (Investors 4,373).

II. WHT exemption on certain Securities

• Foreign investors should be tax exempt on income from certain securities, as follows:

i. Income derived from such types of securities (Debentures, Credit Right Investment - CRI, stocks, etc.) and paid to foreign investors will be subject to 0% WHT provided such securities are subject to public offering and the issuer is not a financial institution.

ii. Quotas of CRI Funds (FIDC) whose investment policy is aimed at the acquisition of credits originated or assigned by non-financial legal entities, and if they are admitted for trading in an organized market or registered in a registration system authorized by the regulator.

iii. Financial letters issued by Brazilian financial institutions and other institutions authorized by the Brazilian Central Bank.

• The benefit above applies for investors residing or domiciled abroad, who carry out financial operations following the rules established by the National Monetary Council (CMN) – 4,373 Investors.

• The above should be assessed carefully since it might open the opportunity for more debt financing structures.

• The SWF should also be entitled to enjoy the tax benefit above even if located in a tax haven.

Please note that the Provisional Measure is set to be in force as from January 2023. Additionally, it is still subject to assessment and approval by Congress, before converted into law. Changes, therefore, may be implemented before such
a conversion.

For more information, contact a KPMG tax professional in Brazil:

Ericson Amaral

Roberto Haddad

Roberto Salles

Carlos Toro

Murilo Mello

Julio Cepeda

Marco Quadros

Henrique Palma

Luis Wolf

Camila Bacellar

Juliana Sallouti

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