Brazil: The Brazilian CRI Has Now The Same Tax Treatment Granted To Debentures

Last Updated: 24 September 2012
Article by Walter Stuber

The Brazilian Certificates of Real Estate Receivables (Certificados de Recebíveis Imobiliários – CRI) are securities backed by real estate receivables, which are very similar to mortgage pass-through securities issued in the United States. Only Brazilian real estate securitization companies are permitted to issue CRI, which were created in order to allow these companies to raise funds from investors on terms compatible with underlying real estate transactions. They are negotiable, fixed income securities originated through receivables securitization contracts, which identify the real estate receivables backing them.

Debentures are debt instruments issued by a corporation (sociedade por ações) that will confer upon its holders (debenture holders) credit rights against the issuer, under the conditions specified in the respective indenture (deed of issue) and certificates, if any.

Law No. 12431, of June 24, 2011 (Law 12431/2011) provides several tax benefits to the debentures intended to attract infrastructure investments to the country and to foster the development of the secondary market of bonds securities in Brazil. Law 12431/2011 has been recently amended by Law No. 12715, of September 17, 2012 (Law 12715/2012), which extended such tax benefits to the CRI. The rules applied for both types of securities (debentures and CDI) are basically the same.

By force of Law 12431/2011, the applicable rate of the Brazilian withholding income tax (Imposto de Renda na Fonte (IRF)) due on income generated by bonds and securities of public distribution, issued by legal entities that are not classified as financial institutions and that are regulated by the Brazilian Securities Exchange Commission (Comissão de Valores Mobiliários – CVM) or the Brazilian Monetary Council (Conselho Monetário Nacional – CMN), has been reduced to zero. To obtain this tax benefit, these bonds and securities will have to be acquired between January 1, 2011 and December 31, 2015 and the income must be paid to a beneficiary resident or domiciled abroad. This benefit is not applicable, however, if the foreign investor is domiciled in a favored tax country or dependency.1

Law 12715/2012 consolidates the rules that are applied to the debentures and the CRI. In order to benefit from the IRF zero rate the CRI must pay a fixed interest rate based on an index-linked price or reference rate (Taxa Referencial – TR) and the total or partial post fixed interest rate is expressly prohibited. The CRI must also comply with the following cumulative requirements: (a) an average maturity term of more than four years as regulated by CMN; (b) a prohibition to the repurchase of the CRI by the issuer or any related party and the assignor or originator in the first two years after their issuance and early settlement by means of redemption or prepayment, except if otherwise regulated by CMN; (c) a lack of commitment on resale assumed by the buyer; (d) a term of periodical income payment, if any, at intervals of at least 180 days; (e) evidence that the CRI has been registered in a system of registry duly authorized by the Central Bank of Brazil (Banco Central do Brasil – Bacen) or CVM in their respective areas of jurisdiction; and (f) a simplified procedure to be determined by CMN that evidences the purpose of allocating the proceeds in the future payment or in the reimbursement of costs, expenses or debts related to investment projects, including those focused on research, development, and innovation. These costs, expenses or debts must be incurred within 24 months counted as from the date of closing of the public distribution.2

In the case of debentures issued by any Brazilian Special Purpose Company (Sociedade de Propósito Específico – SPE) incorporated in the form of a corporation, as well as to any SPE which has the concession, license or authorization to render public services, and raises funds to invest in either infrastructure projects or intensive economic production projects focused on research, development, and innovation in places considered to be priority areas by the Brazilian Federal Government, taxation is exclusively at source. These debentures may also be issued by a company that controls an SPE, provided that the issuing company is also a corporation. The income derived from these debentures will be subject to the IRF at the following rates: (a) zero, when the income is paid to a Brazilian individual; and (b) 15% when the income is paid to a Brazilian legal entity. The foreign investor, provided that such investor is not domiciled in a favored tax country or dependency, will also benefit from the IRF zero rate on the income derived from those debentures issued by SPEs or companies controlling SPEs.

In the event that the funds raised are not invested in the project, the issuer of bonds and securities or the originator of the CRI will be subject to a fine of 20% calculated on the total amount of the transaction. However, despite the payment of the fine, the reduced income rate will still apply to the transaction. The company controlling the SPE will also be liable for the payment of the fine, if the payment is not paid by the issuer or the originator.

Investments made in Brazilian investment funds with portfolios composed of at least 85% of debentures issued by SPEs or companies controlling SPEs are subject to the IRF at the following rates:3(a) zero, when the income is paid to a Brazilian individual or a foreign investor, provided that such investor is not domiciled in a favored tax country or dependency; and (b) 15% when the income is paid to a Brazilian legal entity. This percentage may be reduced to 67% of the total net worth value of the investment fund applied in debentures issued by SPEs or companies controlling SPEs during the first two years as of the date of closing of the public distribution of the initial units issued by the investment fund.

With Law 12715/2012, the Brazilian Governments extends to the foreign investors the same tax treatment which is already given to the individuals who are resident in Brazil and invest in CRI. The new law also encourages the issuance of CRI backed to infrastructure projects and works involving the construction of warehouses or distribution centers to be leased to Brazilian companies.


1 The expression "favored taxation country or dependency" (país ou dependência com tributação favorecida) is used in the Brazilian tax legislation instead of tax haven or fiscal paradise (paraíso fiscal). It means any country or dependency of a country that does not impose tax on income or, when it does impose, it is a low-tax country, in which the applicable income tax rate is equivalent to any percentage varying between zero and 20 per cent (maximum). The definition is contained in Article 14 of Law 9.430, of December 27, 1996, which introduced the transfer pricing regulations in Brazil.

2The same form of remuneration and all the cumulative requirements listed for the CRI are valid for the debentures.

3This benefit will apply whenever the debentures comply with all the cumulative requirements and limitations mentioned above, which expressly deal with foreign investments, and are issued up to December 31, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
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