Brazil: Taxation Of Investment Funds: The New Intended Regime

Last Updated: 26 September 2018
Article by Isabela Schenberg Frascino and Pedro Chimelli

The Brazilian government again intends to change the taxation of investments in certain Brazilian funds, especially FIPs and closed-end funds, effective January 1st, 2019.

Similar changes had already been attempted via Provisional Measure (“PM”) No. 806, of October 30, 2017, which was not timely converted into law by Congress and thus expired. Now President Michel Temer has submitted a new bill to Congress (Bill No. 10,638/2018) with similar contents.

Closed-end funds, which currently are taxed only upon amortization or liquidation, would be subject to biannual Withholding Income Tax (“WHT”) collection, with past-accumulated gains being taxed at once, which may be challenged on Constitutional grounds.

Closed-end funds in general

Currently, the biannual WHT levied according to the “come-cotas” method1 applies only to open-end funds, with a few exceptions2. As from May 31, 2019, it would also be applicable to closed-end funds, i.e. those whose shares are not redeemable. Accumulate gains accrued until May 31, 2019, which are currently taxed only upon liquidation or amortization, would be taxed at once on that date.

The biannually collected WHT would be complemented upon distribution or redemption in case the WHT rate then applicable is higher.

The bill makes it clearer that this “come-cotas” would follow the usual rates of 15% for long-term funds and 20% for short-term funds3.

Extension of “come-cotas” taxation to closed-end funds had been announced by the Government as a means to help balance the federal budget. It however may be challenged in courts on constitutional grounds: income tax can only be imposed on income that is accessible to the investor, which does not occur in the case of closed-end funds before the fund is liquidated or amortized.

According to the bill, the following closed-end funds would remain free from “come-cotas” taxation:

  • Funds established solely for non-Brazilian resident investors;
  • Real Estate Investment Funds (“FII”);
  • Receivables Investment Funds (“FIDC”) and funds-of-funds (“FoF”) specialized in FIDC shares (“FIC-FIDC”);
  • Stock Investment Funds (“FIA”) and FoF specialized in FIA shares (“FIC-FIA”);
  • Private Equity Funds (“FIP”) and FoF specialized in FIP shares (“FIC-FIP”);
  • Infrastructure FIPs (“FIP-IE”) and FIPs for Intensive Economic Production on Research, Development, and Innovation (“FIP-PD&I”); and
  • Other closed-end funds which, on the date of publication of the new law, expressly provide in their regulations for their non-extendable termination until December 31, 2019 (these funds shall remain taxable solely upon amortization or liquidation).

Qualified FIPs

As intended by the bill, certain changes would apply as from January 1st, 2019 to the taxation of income earned by FIPs qualified as entities with independent market investors in accordance with the regulations of the Brazilian Securities Commission4 (Comissão de Valores Mobiliários – “CVM”) (“Qualified FIPs”).

Income earned by Qualified FIPs from the disposition of invested companies and other qualified assets, minus expenses and costs, as well as income received from amortization of shares in other FIPs, would be deemed distributed to investors (if not previously distributed) on the last business day of the month following receipt of the income.

WHT at a 15% rate would be levied as from the moment in which the total accrued income, distributed or deemed distributed as described above, exceeds the total capital invested in the fund.

This is intended to prevent the FIP from reinvesting the gains with tax deferral, as currently permitted.

Although the bill is unclear, it appears that such WHT will be treated as definitive WHT payment rather than advance collection of WHT due upon redemption.

Qualification of a FIP as an investment entity may depend on a certain level of discretion and subjectivity of its administrator, which may cause uncertainty as to the applicable taxation.

The bill also revokes the requirement of Law No. 11,312, of June 27, 2006, that portfolios of FIPs and Investment Funds in Emerging Companies keep a minimum holding of 67% in stock, convertible debentures, and subscription bonuses. Henceforth, only rules issued by financial supervision/regulatory authorities concerning portfolio composition would apply.

Unqualified FIPs

The bill provides a different treatment to FIPs that are not qualified as investment entities (“Unqualified FIPs”).

As from January 1st, 2019, income earned by the Unqualified FIP’s portfolio would be taxed according to the rules applicable to Brazilian corporate entities.

Moreover, any income and gains earned by the FIP and not distributed to investors by January 2, 2019 would be deemed distributed to investors on that date and subjected to WHT at a 15% rate, to be collected by the administrator of the FIP until May 31, 2019. In determining the income and gains subject to such taxation, the FIP should abide by accounting rules enacted by CVM for Unqualified FIPs.

Investors must provide the FIP administrator in advance with funds needed for the WHT collection. Otherwise, while the WHT is not fully paid the FIP would be prohibited to distribute or transfer funds to the investors, and to make new investments and reinvestments, and interest and fine would apply on WHT paid after May 31, 2019.

Although the bill is unclear, it appears that such WHT would be treated as definitive WHT payment rather than an advance collection of WHT due upon redemption.

It remains unclear how investors of Unqualified FIPs would be taxed after January 2, 2019. Possible alternatives are (i) according to the same deemed distribution rule with 15% taxation applicable to Qualified FIPs, (ii) according to the “come-cotas” applicable to other closed-end funds, or (iii) no taxation applies to them, considering that the FIP would already have been taxed at the portfolio level.

The third option would be the most appropriate, because if the Unqualified FIP is treated as a corporate entity for tax purposes, it should also be able to distribute its profits to investors tax-free after taxation at the portfolio level. It also seems to be the most likely option, since the Federal Revenue Service (Receita Federal do Brasil – “RFB”), in an Executive Notice enacted at the time PM 806/17 was published, did not refer to taxation of income/gains after January 2, 2019.

Non-Brazilian investors

The bill does not affect the tax exemption of income earned in FIPs by non-Brazilian residents, as set forth by Article 3 of Law No. 11,312/06. WHT levied on income stemming from other funds, as long as they are established solely by non-Brazilian resident investors, remains due exclusively upon redemption, as had been confirmed by the RFB in the Executive Notice issued in 2017.

Such investors could be indirectly affected only in the case of Unqualified FIPs available for resident and non-resident investors, since the taxation at the level of the FIP’s portfolio could reduce income available for distribution to investors.

Closed-end funds’ reorganizations

The bill brought back the general provision of PM 806/17 on investors’ taxation in cases of spin-off, merger or transformation of investment funds, but limiting it to closed-end funds only.

As from January 1st, 2019, such events would trigger taxation over the positive difference between the shares’ NAV on the date of the reorganization transaction, including the income attributed to each investor, and (i) the NAV on the date of the last WHT collection, or (ii) if no WHT collection has yet taken place, the shares’ original acquisition cost, adjusted by any past amortizations.

If the bill passes Congressional approval this year, it is recommended that any intended restructurings or reorganizations of closed-end funds be completed until December 31st, 2018, since starting January 1st, 2019 it would no longer be possible to implement them without the above tax impact, as currently permitted by Normative Ruling RFB No. 1,585, of August 31, 2015.

Other excluded investors

The aggravated taxation rules set forth by the bill, as with PM 806/17, would not be applicable to income and net gains earned on investments held by financial institutions, insurance companies, pension and capitalization companies, securities and exchange brokerages, securities dealers, and leasing companies.


There are grounds to challenge not only the extension of the “come-cotas” taxation to closed-end funds, but also the new forms of taxation imposed before the fund’s amortization or liquidation on undistributed gains accrued prior to January 1st, 2019. Both the fund administrator (liable for withholding and collecting the WHT) and the investor (taxpayer and bearer of the WHT burden) would be legitimate to litigate5.

Congressional approval

In order to take effect in 2019 the bill must be approved by Congress until December 31st, 2018, as required by the Constitution. The Government expects it to be approved before the October elections, but chances are low, since the bill has only been distributed to the commissions of the House of Representatives on August 14th. It could still be approved after the elections, but this will depend on the outcome of the elections themselves.

Moreover, considering what happened in the case of PM 806/17, it is expected that the bill will be subject to numerous proposed amendments in Congress, extending discussions.


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

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

3 In an Executive Notice issued while PM 806/17 was in effect, the Brazilian Federal Revenue Service had suggested that the “come-cotas” collection for closed-end funds in general would be subject to the same regressive tax rates applicable upon redemptions (ranging from 22.5% to 15%, depending on the investments’ maturity term).

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

5 See precedents from the Superior Court of Justice (STJ) and the Regional Federal Court of the 3rd Region, and provisions of Normative Opinion No. 1, of September 24, 2002, from the General Tax Coordination (Cosit).

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