Download Topic Foreign investors investing in Brazilian mortgage

September 28th, 2012 | Year 03 no. 32
Foreign investors investing in Brazilian mortgage-backed securities (“Certificados
de Recebíveis Imobiliários – CRI”) are now exempted from income tax
On December 30, 2010, the Brazilian Federal branch issued
the Provisional Measure no. 517 (“Medida Provisória no.
517”), which, among other matters, created an income tax
exemption (0%) for investments by foreign investors, who are
not domiciled in countries where the income is not taxed or
where the maximum income tax rate is less than 20%, in
securities issued by entities in Brazil to raise funds for long
time investments. In order to be entitled to such exemption,
certain requirements must be met: (i) the issuer must be a
private entity, and not a financial institution; (ii) the maturity
of the securities issued must be over four years; (iii) no
redemption of the securities before the initial two years term
is allowed; (iv) each payment of interest under the securities
must have a minimum 180 days period from the next
payment; (v) no commitment from the buyer of the security to
resell it is allowed to exist; and (vi) the issuer must evidence
in the public offering documents its commitment (or the
originator’s or assignor’s, in case of issuance of Brazilian
mortgage securities) to use the proceeds raised with the
issuance of the securities in one or more specific investment
projects. The law did not provide a definition of “investment
projects”, but only referred to the areas of research,
development and innovation as examples. Considering that
this is a new law, there has not been issued or ruled any
formal understanding from the Brazilian Federal Revenue
Office or any court of law on the matter either. A reasonable
interpretation of the Provisional Measure no. 517 (now
converted into law as mentioned bellow), however, is that it
aims to include any investment in projects in any industry as
long as the issuer (or the originator or assignor in the case of
Brazilian mortgage-backed securities) could evidence the use
of the proceeds raised to finance the development,
construction, implementation, innovation etc of the relevant
project (“capital expenditure – capex”).
Moreover, the exemption applies only to securities issued
after January 1st, 2011 and the securities are only allowed to
be remunerated by pre-fixed interest rates (price indexes or
reference rate – Taxa Referencial). The securities must be
publicly issued either in a registered offering pursuant to Rule
no. 400 of the Comissão de Valores Mobiliários (US SEC
Equivalent) or in an offering with restricted selling efforts
pursuant to Rule no. 476 of the Comissão de Valores
Mobiliários.
On June 27, 2011, the Provisional Measure no. 517 was
converted into Law nº 12.431 (“Law 12,431”) giving a
permanent character to the income tax exemption (0%) for
investments by foreign investors. Law 12,431 did not mention
expressly its application to Brazilian mortgage-backed
securities (Certificados de Recebíveis Imobiliários – “CRI”)
though.
On September 17, 2012, a new law (“Law 12.715”) was enacted
to, among other matters, include the CRI among the securities
subject to the tax exemption for foreign investors.
Furthermore, Law 12,715, among other matters, amended
Law 12,431 to change some of the requirements applicable to
the tax exemption: (a) the restriction for the redemption of
the securities before the initial two years term applies not only
to the issuer but also to its affiliated entities, and in the case of
CRI it also applies to the originator or assignor of the real
state receivables assigned to the respective securitization
company for the issuance of CRI, provided that the Brazilian
Monetary Authority (Conselho Monetário Nacional) has
authority to issue regulation creating exceptions to such
restrictioni; and (b) the securities issued in such public
offering must be registered in a clearing house duly
authorized by the Central Bank of Brazil or by the Comissão
de Valores Mobiliários.
Another relevant change made by Law 12,715 allowed the use
of the proceeds raised with the public offering of the securities
(including through the issuance of CRI) not only for future
payments of debts, expenses and costs related to the specific
investment projects, but also for the refund of debts, expenses
and costs already incurred in the projects, provided that such
debts, expenses and costs must have been incurred within
twenty-four (24) months before the end of the distribution
Topic
Foreign investors investing in Brazilian mortgage-backed securities (“Certificados de Recebíveis Imobiliários – CRI”) are
now exempted from income tax
Subject: A new law came into effect in September 2012 to exempt foreign investments in CRI from income tax, provided that this is a long
term investment in real estate projects and some additional requirements must be met under the law.
period of the public offering of the securities. If the proceeds
are not allocated properly, the originator or assignor (in cases
of CRI) or the issuer (in case of issuance of another security)
shall be subject to a fine by the Brazilian Federal Revenue
Office in an amount equivalent to twenty per cent (20%) of
the amounts raised and not properly allocated. The earnings
produced by the securities shall remain entitled to the tax
exemption even in case a fine has been imposed to the issuer,
the originator or assignor of the real estate receivables, as the
case may be.
It is also important to notice that Decree no. 6.306, of
December 14, 2007, reduced from 6% to 0% the rate
applicable to f/x (foreign exchange) transactions in the
remittance of funds by foreign investors to invest in the
securities mentioned in Law 12,431.
For further information, please contact
professionals bellow:
one of our
Marcelo Cosac
+55 (11) 2504-4635
[email protected]
Ivan Tauil
+55 (21) 2127 4213
[email protected]
Roberta Caneca
+55 (11) 2504 4214
[email protected]
Eduardo Castanheira
+55 (11) 2504 4631
[email protected]
i
So far, no regulation has been issued in this respect.
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