Foreigners have expanded list of IR-exempt investment

Published on 09/22/2022, Provisional Measure No. 1137/2022 amends Law No. 11,312, of June 27, 2006, and provides for the reduction of tax rates on the income of beneficiaries residing or domiciled abroad. From this measure, the income tax rate related to certain investments is zeroed, if such investment is already taxed in the investor’s country of origin.

The main objective of this measure is to combat the need for credit in the country. By bringing tax benefits, the inflow of foreign capital into Brazil is encouraged, creating an alternative line of financing for national companies. In addition, the great attractiveness and entry of new investors tends to reduce the cost of capitation of long-term investments, which can be a factor of change for several companies issuing debt securities, for example.

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One of the concerns brought about by the measure is the incentive to suppress the purchase of public securities by the private sector. Government bonds are historically widely used and have the hegemony of the market, being an important governmental financial tool. On the other hand, what is observed in a global trend in this sense is a general increase in investors in the bond market, without any harm to government bonds.

The measure came into force on the date of its publication and takes effect at the beginning of 2023. It should be noted that the provision is still pending in the legislature to be enacted into law, but the market’s expectation is that the new issues that will produce dividends for the next year will already benefit from the proposal.

Written by Lucca Innecco, Paralegal at Drummond Advisors

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