Brazil: Infrastructure Investments In Brazil - Recent Highlights

1. Brazilian economic growth, together with the upcoming sporting events - the 2014 FIFA World Cup and the 2016 Olympic Games -, strongly encouraged the Federal Government to enact a number of measures to boost the infrastructure's development.

2. In order to enhance fund raising mechanisms for long-term financing, special securities providing beneficial tax regimes were created as a result of Federal Law No. 12,431/2011, as recently amended by Federal Law No. 12,715 – signed on September 17, 2012 -, and regulated by Presidential Decree No. 7,603/2011.

3. The securities created by Federal Law No. 12,431/2011 comprise: (i) investment project securities ("GIS"), including certificates of real estate receivables ("CRI"), structured for investment projects ("CRI-Project"); (ii) priority projects bonds (including infrastructure bonds), issued until December 31, 2015 ("IBs"); and (iii) priority projects bonds funds ("IBF") (collectively, the "Long-Term Securities").

4. Securities issued by non-financial institutions for public offering, as regulated by the Brazilian Securities and Exchange Commission ("CVM"), are qualified as GIS, provided the following items are complied with: (i) predetermined interest rates only, linked to a price index or referential rate, not being permitted any adjustment of interest at post-fixed rate; (ii) weighted average maturity term higher than 4 years; (iii) Interest payment within intervals of, at least, 180 days; (iv) no repurchase option by the issuer or its related parties in the first 2 years after the offering, nor call option or prepayment by the issuer, except as provided for in a regulation to be enacted by the National Monetary Council ("CMN"); (v) no provision requiring the investor to resell the securities; (vi) evidence of registration of the GIS or CRI-Project with systems duly authorized by the Central Bank of Brazil or the CVM, as applicable; and (vii) simplified procedure evidencing commitment to allocate the proceeds in future payments related to the investment projects or reimbursement of expenses, costs or debts related to investment projects, incurred up to 24 months prior to the closing of the securities offering.1

5. IBs constitute a type of GIS, and are required to comply with other issuer- and use of proceeds-related requirements, namely: (i) issuance by a special purpose company ("SPC"), or its holding company, dedicated to implement a priority investment project, and utility companies ("Issuer").

Funds raised by offerings of IBs need to be used for future financing of priority investment projects in infrastructure or research, development and innovation, or reimbursement of expenses, costs or debts related thereto, incurred up to 24 months prior to the closing of the securities offering. Eligibility to a priority status depends on issuer presenting a request for approval of the investment project by the competent Ministry.

6. Shares issued by an IBF are also subject to a special regulation and taxation regime established by Federal Law No. 12,431/2011, as amended. An IBF needs to be incorporated by asset managers authorized to operate as such by the CVM, and to comply with specific portfolio requirements, until 180 days as from its incorporation, to wit: (i) at least 67% of its net equity must be invested directly in IBs, for the first two years following the closing date of the public offering of shares representing the fund's initial net equity; and (ii) at least 85% must be invested in IBs after the first two years.

7. Federal Law No. 12,431/2011 created a special tax regime for investments in Long-Term Securities.

GIS and CRI-Project – Exclusive for Non-Resident Investors

The taxation described below to non-resident investors applies to those registered as per CMN Resolution 2,689, not located at a jurisdiction that does not tax income, or taxes it at a maximum rate lower than 20% (Low Tax Jurisdictions – "JTL") ("Non-Resident Investors").

(i) Income tax ("Income Tax"):

(a) 0% rate on interests produced by: (1) GIS or CRI-Project; and (2) shares of local investment funds, when such funds are exclusively designed to non-resident investors and invest, at least, 85% of their portfolio in GIS and/or CRI-Project, and this minimum threshold is of 67% in the first two years following the closing date of the public offering of shares.

(b) 0% rate on capital gains related to the trading of GIS and/or CRI-Project on local exchanges.

(ii) Tax on foreign exchange transactions ("IOF-FX"): 0% rate.

IBs and IBFs – Applicable to Domestic and Non-Resident Investors.

(i) Income Tax:

(a) 0% rate on interests produced by IBs and IBFs applies to resident individuals and Non-Resident Investors;

(b) 15% rate on interests produced by IBs and IBFs applies to Brazilian companies;

(c) rate of: (1) 0% on capital gains made by Non-Resident Investors and individuals related to the trading of IBs; and (2) 15% on capital gains made by companies related to the trading of IBs.

(d) rate of: (1) 0% on capital gains made by Non-Resident Investors related to the trading of shares issued by IBFs on local organized securities markets; and (2) variable on capital gains made by resident investors related to the trading of shares issued by IBFs.

(ii) IOF-FX: 0% rate.

8. Considering that attractiveness for Long-Term Securities are tax-related, their issuers, and not investors, are subject to penalty in case the funds are not allocated to the related project, as provided for Federal Law 12,715/2012. Such penalty equals to 20% of the total amount of funds not invested in the related project, and is due to the Brazilian Federal Revenue Service.


1 One of the main amendments brought by Federal Law No. 12,715/2012 is to expressly authorize use of funds raised by means of an offering of GIS, CRI-Project and IBs for reimbursement of expenses, costs or debts related to investment projects, incurred up to 24 months prior to the closing that of the securities offering.

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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