Brazil: Taxation Of Investment Funds: Analysis Of New Regime

Last Updated: 3 January 2018
Article by Isabela Schenberg Frascino and Pedro Chimelli

Changes have been introduced to the taxation of investments on several types of Brazilian funds, including those established as a closed condominium ("Closed Funds"). They will be subject to biannual advance collection of Withholding Income Tax ("WHT"), exception made for certain listed funds. The matter is dealt with in the Provisional Measure ("PM") No. 806, from October 30, 2017. Much still has to be clarified by subsequent changes and/or regulations to the rule.

Changes to taxation on Closed Funds in general

Currently the biannual advance WHT levied according to the "come-cotas" method1 applies only to funds established as an open condominium ("Open Funds"), with a few exceptions2. As from May 31, 2018, it will also be applicable to Closed Funds, those that do not allow redemption of quotas during the fund's duration term. The WHT due on May 31, 2018 will be levied over all gains accrued until that date, previously subject to deferred taxation.

The biannually collected WHT should be complemented upon the effective redemption of quotas, in case the income is then subject to WHT rates higher than those applied for the "come-cotas" collection.

In a recently issued Executive Notice ("EN RFB"), the Brazilian Federal Revenue Service (Receita Federal do Brasil – "RFB") suggested that the "come-cotas" collection for Closed Funds in general would be subject to the same regressive tax rates applicable on the redemption of quotas (ranging from 22.5% to 15%, depending on the investments' maturity terms). This is not our understanding, since PM No. 806/17 remits to legal provisions that set "come-cotas" tax rates at 15% for long-term funds and 20% for short-term funds.

Extension of the "come-cotas" taxation to Closed Funds had been announced by the Federal Government as another option for immediate cash generation and balancing of the federal budget. It however lacks legal ground and thus may be challenged in courts as Closed Funds do not allow intermediary redemption of quotas. Investors thus have no availability over the accrued gains before the fund's liquidation or before an actual amortization of quotas as set forth in the fund's regulations.

According to the PM, the following Closed Funds are free from the "come-cotas" taxation:

  • funds established solely for non-Brazilian resident investors;
  • real estate investment funds ("FII") established according to Law No. 8,668, of June 25, 1993;
  • receivables investment funds ("FDIC") and investment funds on quotas of receivables investment funds ("FIC-FIDC");
  • stock investment funds ("FIA") and investment funds on quotas of stock investment funds ("FIC-FIA");
  • equity investment funds ("FIP"); and
  • other Closed Funds which, on October 30, 2017, expressly provide in their regulations for their non-extendable termination until December 31, 2018 (these funds shall remain taxable solely upon amortization of quotas or upon the fund's termination).

Changes to taxation on Qualified FIPs

As from January 1st, 2018, gains from the disposition of any investments by FIPs qualified as entities with independent market investors in accordance with the regulations of the Brazilian Securities Commission3 (Comissão de Valores Mobiliários – "CVM") ("Qualified FIPs"), although not subject to taxation at the portfolio level neither to "come-cotas", will be deemed distributed to investors. Such gains will be subject to WHT at a 15% rate as from the moment in which the total accrued gains, distributed or not, exceed the total capital invested in the fund. This is intended to prevent reinvestments of the gains with tax deferral. Although the PM is unclear, it appears that such WHT will be treated as definitive WHT payment rather than advance collection of WHT due upon redemption.

The qualification of a FIP as an investment entity may depend on discretion of the fund's administrator, which may cause uncertainty as to the applicable taxation.

EN RFB curiously suggests that Qualified FIPs shall continue to be taxed only upon amortization, disposition and redemption of quotas, at the rate of 15%, %, and that the PM's provisions shall not apply to gains accrued prior to January 1st 2018..

The PM also revokes the requirement that portfolios of FIPs and of Emerging Companies Investment Funds maintain a minimum holding of 67% in stock, convertible debentures, and subscription bonuses. Henceforth, only the rules in force issued by financial supervision / regulatory authorities concerning portfolio composition shall be applicable.

Changes to taxation on Unqualified FIPs

The PM provided a different treatment to FIPs that are not qualified as investment entities ("Unqualified FIPs").

Income earned by the Unqualified FIP's portfolio will be taxed according to the same rules applicable to Brazilian corporate entities.

Any income earned by the FIP and not distributed to investors by January 2, 2018 will be deemed paid or credited to investors on that date and shall be subject to WHT at a 15% rate. This WHT is charged pursuant to a mechanics which is similar to the "come-cotas". The PM, however, does not clarify whether such WHT shall be deemed an advance collection of WHT due upon redemption or if it will be treated as definitive WHT payment.

It is unclear how investors of Unqualified FIPs will be taxed after January 2, 2018. Possible alternatives are (i) according to the same deemed distribution with 15% taxation applicable to Qualified FIPs, (ii) according to the "come-cotas" applicable to other Closed Funds, or (iii) no taxation applies to them, considering that the rules applicable to Brazilian corporate entities have already caused taxation at the portfolio level.

The third option seems more likely given the regulatory context. Recently issued EN RFB adopted the third interpretation.

Taxation on non-Brazilian resident investors

The tax exemption applicable to income earned in FIPs by non-Brazilian residents as set forth by Article 3 of Law No. 11,312/06 remains unchanged.

In the case of Unqualified FIPs available for resident and non-resident investors, however, taxation of its portfolio as described above could reduce income available for distribution to investors.

WHT levied on income stemming from funds established solely by non-Brazilian resident investors remains due exclusively upon redemption of quotas, as confirmed by EN RFB.

General provisions on taxation of funds' reorganization

The PM brought general provisions applicable to all types of investment funds concerning taxation in cases of spin-off, merger and transformation of funds. As from January 1st, 2018, such events will trigger taxation over the positive difference between the quotas' net equity value for each investor on the date of the reorganization transaction, and i) the value of the quotas on the date of the last WHT collection, or ii) if no WHT collection has yet taken place, their original acquisition cost.

If the PM passes Congressional approval, it is recommended that any intended fund restructurings or reorganizations be made until December 31, 2017. Up to such date reorganizations can be made without the above tax impact under Normative Ruling RFB No. 1,585, of August 31, 2015.

Exceptions to the PM's provisions

The new rules are not applicable to income and net gains earned on fund investments held by financial institutions, insurance companies, pension and capitalization companies, securities and exchange brokerage companies, securities dealerships, and leasing companies.

Grounds for litigation

Besides the grounds for challenging the extension of the "come-cotas" taxation to Closed Funds as mentioned above, there is also basis to challenge the new forms of taxation imposed on undistributed gains accrued prior to January 1st, 2018 (when PM No. 806/17 is to become effective), previously subject to deferred taxation.

Congressional approval

Confirming the PM's evident collection-oriented purpose, its effects have already been considered in the 2018 projected federal budget. However, to be effective as from January 1st, 2018, it must be passed into law by the Brazilian Congress until December 31, 2017, as required by the Brazilian Constitution.

With less than one month left to the end of Congressional-year of 2017 (legislative sessions end on December 22), the PM's approval this year is unlikely. In case it is approved, its wording will need to be made clearer in several aspects.


1 The term is a reference to the mechanics by means of which the WHT is paid: quotas representing the amount of WHT due are liquidated in order to pay the WHT, therefore quota-holders have a reduction in the quantity of fund quotas owned. This WHT is levied as an advance collection of WHT due upon redemption.

2 For example, Stock Investment Funds and Pension Funds, among others.

3 CVM Ruling No. 579, of August 30, 2016.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Levy & Salomao Advogados
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Levy & Salomao Advogados
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions