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www.buranello.com.br1UM NOVO ESCRITÓRIO PARA UM NOVO MERCADO
Foreign Investments and Brazilian Tax Regime
André Ricardo Passos
May/2010www.buranello.com.br
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Agenda
Brazilian Macroeconomics
Legal Regime
Taxation Regime3
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Direct Foreign InvestmentNet Values
Brazilian Central Bank’s estimate – 50 mm
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Public and Private Companies
2,3%
Financial Institutions
9,35% Individuals25.41%
Institutionals34,6%
Foreign Investors28,26%
Foreign InvestmentInvestments in Portfolio
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Legal Regime Foreign Investment
Article 172 – Federal Constitution:
The law will establish, based on national interest, on the foreign capital investment, promote the re-investment and regulate the remittance of profits.
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Legal Regime Foreign Investment
Law 4,131/62 - Investments in closely-held companies.
Article 1 - Foreign capital for the purposes of this law is considered the property, machinery and equipment that enter Brazil with no initial disbursement of foreign currency, for the production of goods or services, as well as the resources or money, for application in economic activities since, in both cases they belong to individuals or legal entities resident, domiciled or headquartered abroad.
Article 2 - To the foreign capital will be dispensed to the same legal treatment given to national capital on equal terms, being forbidden any discrimination.
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Legal RegimeForeign Investment
Foreign Partner
- Art. 119, Law 6,404/76 – The partner domiciled abroad must have an attorney-in-fact in Brazil with powers to receive service of process.
-According to Brazilian Federal Revenue, foreign partners must be enrolled with the CPF or CNPJ, as applicable.
- Registration with Brazilian Central Bank is required in order to enable remittance of funds.
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Legal RegimeForeign Investment
Foreign Partner
- Brazilian companies must have at least 2 (two) partners;
- Officers of Brazilian companies must be resident in Brazil. The members of the Board of Directors, in the other hand, can be resident abroad since they indicated an attorney-in-fact in Brazil.
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Legal RegimeForeign Investment
Resolution CMN 2,689 - Investment in publicly-held companies or other in financial and capital market.
Investments carried out in the Brazilian financial and capital markets (including agribusiness bonds) by foreign investors, which monies enter the country as per the free rate currency exchange market
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Legal RegimeForeign Investment
Foreign Investor’s obligations
-Appoint a legal representative in Brazil;
-Select a custodian agent (entity authorized to provide such services by Bacen or CVM);
-Require an enrollment with CVM;
-Select a Brazilian bank authorized to operate in the capital market for foreign currency exchange.
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Agenda
• Brazilian tax regime;
• International tax affairs;
• Business income;
• Passive income;
• Capital gains; and
• Foreign investors effects.
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Brazilian Tax Regime
- Constitutional matter since 1988 (articles 145 to 162);
- Federation;
- Tax Code from 1966; and
- Civil Law Regime.
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International Tax Affairs
- Brazil is not an OECD member country;
- Only 29 Double Taxation Treaties;
- Source of income regime; and
- Non cooperative Jurisdictions (Tax haven)
Black list almost similar to OECD black list.
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Business Income
Agribusiness Companies
13.73% up to 81.25%TOTAL
GATT – (depending on the product’s origin)II – Import Duty
TIPI – (depending on product’s classification)IPI - Industrialized Products Tax
7% or 12% (interstate) or 18% (maximum rate)ICMS - Value-Added Tax
3% (cumulative) or 7.6% (non-cumulative)COFINS - Contribution for Financing of the Social Security
0.65% (cumulative) or 1.65% (non-cumulative)PIS/Pasep - Contribution to the Social Integration Plan
1.08% - 2.88% (gross income) or 9% (real profit)CSLL - Social Contribution on Net Profits
2% - 8% (gross income) or 25% (real profit)IRPJ - Corporate Income Tax
RATE TAX DESCRIPTION
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Business Income
Payroll Taxes
2.85% (gross income) or 20% (payroll)INSS - Social Security Employers Contribution
17.65% up to 36.8%OVERALL RATE
8% (payroll)FGTS - Unemployment Guarantee Fund
1%, 2% or 3% (depending on risk’s degree)
SAT - Working Accidents Insurance
0.6% (payroll)SEBRAE - Contribution to the Brazilian SmallBusiness Services Support
1.5% (payroll)SESC - Contribution to the Institute of Commerce Social Service
1% (payroll)SENAC - Contribution to the National Industrial Apprenticeship Service
0.2% (payroll)INCRA - Contribution to the National Institute of Colonization and Political Agrarian Restructure
2.5% (payroll)SE - Contribution to the Education Salary
RATETAX DESCRIPTION
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Passive Income
- Dividends
- Since 1996 dividends remittance abroad is exempt from withholding tax.
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Interests
- 15% withholding tax
- 25% withholding (tax havens)
- Provisional Measure 472/09
1. Thin capitalization rules
2. Non Cooperative Jurisdiction
3. Limits of deductibility for the lenders
Passive Income
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- 15% withholding taxes (general rule);
- Income derived from 2.689 portfolio;
- Stock exchange or public registered transaction: exempt;
- FIP: 15% or zero.
Capital Gains
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IOF
- Exchange operations of inflow of funds by foreign investor (financial and capital market): 2%.
- Exchange operations of flowback of sources from foreign investments in stock and exchange market, futures and commodities exchange, shares investment funds: 0%.
- Transactions with bonds or securities: maximum rate of 1.5% a day, but for agribusiness bonds is applicable exemption or 0% rate.
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- US and European investors (tax credit);
- Specific rules addressing specific situations under double taxations agreements.
Foreign Investors effects
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