On 28 August 2023, Brazil published Provisional Measure No. 1,184 (MP) outlining the taxation of investment funds in Brazil and introducing a periodic taxation approach for both closed-end and exclusive funds.
Key proposals under the MP are summarized below:
- Income derived from investment funds will be subject to at the rate of 20% for short-term funds where the tax rate ranges from 15% to 22.5%. Long-term funds are subject to a 15% WHT, with taxation on liquidity events ranging from 15% to 22.5%. WHT for these investments’ funds will be charged in May and November of each year.
- Income generated from investments in FIPs, FIAs, and ETFs, which are categorized as investment entities and adhere to the additional legal conditions outlined in the MP, will be liable to a 15% withholding income tax when income is distributed, amortized, redeemed, or quotas are disposed of.
- Income from investments in FIPs, FIAs, and ETFs that don’t fulfill the MP’s criteria for classification as investment entities will also be liable a 15% withholding income tax. This tax will be levied either on the final business day of May and November or, if earlier, upon income distribution, amortization, redemption, or quota disposal.
The new regulations will take effect on January 1, 2024. Nevertheless, the provisional measure must be transformed into Brazilian Federal law by the Brazilian Congress within a specified timeframe for it to become permanent, or it will lose its effect.
