Brazil introduces new tax rules and exemptions affecting the financial market
The changes include new tax rules and exemptions related to the financial market, effective as of January 1, 2015.
The administrator of an investment fund will now be responsible for the calculation and collection of income tax levied on capital gains realized by investors who use their own securities to capitalize the investment fund. The capitalization of securities is deemed to be a sale according to Declaratory Act 7/2007 so that taxpayers who capitalize investment funds with their own securities are deemed to derive capital gain on the difference between the market value and the acquisition cost of the security.
For this purpose, investors must demonstrate the acquisition cost of the securities. Failure to do so results in a deemed acquisition cost equal to zero.
In addition, income and capital gains realized by investors in fixed income index investment funds are subject to withholding tax at special rates, provided that: the shares of the fixed income index investment fund are traded in stock exchange or over-the-counter markets; the portfolio of the fixed income index investment fund tries to reflect the variations and profitability of fixed income indexes; and the regulation of the fixed income index investment fund determines that at least 75 percent of the portfolio must be invested in securities that reflect the relevant indexes.
In these cases, the applicable special withholding tax rates range from 25 percent when the average term of maturity of the fund portfolio does not exceed 180 days, to 15 percent when the average term of maturity of the fund portfolio exceeds 720 days.
Interest on stock or security lending is also subject to income tax according to regressive rates from 22.5 percent for transactions with a lifetime of up to 180 days, down to 15 percent for transactions with a lifetime of more than 720 days.
As the lender is entitled to receive all earnings related to the stock or security lent during the lending period, the transfer of the amount of dividends and interest received by the borrower during this period – as reimbursement – is not subject to taxation.
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