By means of Decree No. 7894, of January 30, 2013 (Decree
7894/2013), published in the Official Gazette of the Union of
January 31, 20131, the Brazilian government decided to
reduce from 6% to zero the Tax on Exchange Transactions
(Imposto sobre Operações de Crédito,
Câmbio e Seguro, ou relativas a Títulos ou Valores
Mobiliários - IOF)2 in the exchange
transactions made as from January 31, 2013, for the acquisition of
units (quotas) of local Real Estate Investment Funds
(Fundos de Investimento Imobiliário – FII)
regulated by the Brazilian Securities and Exchange Commission
(Comissão de Valores Mobiliários –
This tax benefit only applies to foreign investments involving
the acquisition of units of FII traded on the stock exchange. If a
foreign investor acquires these units out the stock exchange, the
transaction continues to be subject to payment of the IOF at the
rate of 6%.
The measure now adopted represents an incentive which may
attract foreign investors to this specific market.
The Brazilian government did not change, however, the
withholding income tax (Imposto de Renda na Fonte –
IRF) that is levied on the income from the FII paid to foreign
investors, at the rate of 15%.
By force of 12431, of June 24, 2011 (Law 12431/2011), the
applicable rate of the 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 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. Law 12431/2011 has been subsequently amended by Law No.
12715, of September 17, 2012 (Law 12715/2012), which extended such
tax benefits to the Certificates of Real Estate Receivables
(Certificados de Recebíveis Imobiliários
Therefore, the IRF tax exemption (zero rate) only applies to
foreign investors if the earnings result from income originated
from the acquisition of real estate financing securities, such as
the Brazilian CRI. This benefit is not applicable, however, if the
foreign investor is domiciled in a favored tax country or
According to the evaluation made by the FII managers, this
measure should make the yield of this product more appealing than
its equivalent in the United States, known as Real Estate
Investment Trust (REIT). Today, discounting the impact of the IRF
(15%) on the income generated by this type of investment, the net
gain would correspond to 5.61% a year, which exceeds the 4.38% of
REITs in the United States.
1 This change was introduced by Decree 7853/2012 which
contains the new paragraph 3 of article 15-A of the Tax on Exchange
Transactions (IOF) Regulation approved by Decree No. 6306, of
December 14, 2007.
2 The IOF is a regulatory tax and the rates can be
decreased or increased by the Executive Branch from zero to 25%
(ceiling) whenever the authorities decide to foster or reduce the
inflow of foreign currency funds into the country, in accordance
with the monetary and exchange policy goals adopted by the
3 The FII is an investment vehicle structured as a
closely-held fund aimed at developing real estate-related projects
(empreendimentos imobiliários) such as
construction, acquisition of property, investments in projects
enabling the growth of the housing and services in both urban and
rural areas, for subsequent sale, letting or leasing. The
incorporation, administration, operation, public offering for
distribution of units and information disclosure of FII is
regulated by CVM Instruction No. 472, of October 31, 2008, as
4 The 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.
5 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).
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The Brazilian Ministry of Finance reported that Brazil and the United States have executed an Intergovernmental Agreement ("IGA") that should facilitate the exchange of information between tax authorities of both countries.
The Brazilian Federal Government decided to reduce from 20% to 17% the percentage of the maximum income tax rate required from the low-tax countries classified as "favored taxation country or dependency" (país ou dependência com tributação favorecida) or "privileged fiscal regime" (regime fiscal privilegiado).
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