Taxation of investment funds: the new intended regime

The Brazilian government again intends to change the taxation of investments in certain Brazilian funds, especially FIPs and closed-end funds, effective January 1st, 2019.

Similar changes had already been attempted via Provisional Measure (“PM”) No. 806, of October 30, 2017, which was not timely converted into law by Congress and thus expired. Now President Michel Temer has submitted a new bill to Congress (Bill No. 10,638/2018) with similar contents.

Closed-end funds, which currently are taxed only upon amortization or liquidation, would be subject to biannual Withholding Income Tax (“WHT”) collection, with past-accumulated gains being taxed at once, which may be challenged on Constitutional grounds.

Taxation on capital gains to be kept at 15% for deals through December

Taxation on capital gains will be maintained at 15% for transactions completed until December 31, even if the payment is made in subsequent years. This is the understanding of the Federal Revenue on the subject, according to a statement sent to Valor. Transactions occurring after 2017 will be subject to higher rates, based on a progressive table. There were doubts about the Federal Revenue’s stance in relation to the new rates. This is because the tax is only collected at the time of the money transfer. But, according to the Federal Revenue, what it counts is the moment the contract is signed or the asset sold.