By Guilherme Martins and João Pedro Riccioppo Cerqueira Gimenes
At the end of November, the Federal Senate approved Bill (“PL”) No. 4,173/23, which promoted and established relevant changes in the rules for taxing income earned by individuals in financial investments and controlled entities abroad, as well as in relation to investments held via trusts abroad, and in the taxation of investment funds in the country.
The new rules will apply to any financial transactions carried out abroad, including: virtual assets and portfolios, investment fund shares, fixed and variable income securities, current accounts and credit transactions.
The provisions and negotiations cover, in summary, the following: (i) compensation for losses by an individual, (ii) end of the deferral provided for profits of subsidiaries abroad, (iii) updating of assets and rights held abroad by individuals, (iv) trust, (v) “quota-eating” (periodic taxation), (vi) inventory taxation, (vii) corporate events of the funds (merger, spin-off, incorporation or transformation), (viii) funds of funds, (ix) FII and FIAGRO, and (x) concept of investment entity and specific regime for FIP, FIDC, FIA and ETF.
In general, the grounds for such changes, according to the Ministry of Finance itself, consist of both bringing the rules for closed-end funds closer to those for other financial investments and Brazilian tax rules closer to the standard adopted by the OECD.
Below we highlight some of the main changes related to the taxation of investments abroad:
- Financial investments abroad held by individuals: There will be taxation of 15% (fixed rate) of Income Tax (IRPF) for income and gains earned by individuals resident in Brazil from financial investments abroad and from entities controlled abroad.
- Controlled Entities located abroad: The Bill provides, as of 01/01/2024, for the automatic taxation of profits obtained (i.e., regardless of any distribution) at the rate of 15% by controlled entities located in a jurisdiction with favorable taxation (JTF) or that benefit from a privileged tax regime.
- Regulation of trusts: The new rules provide transparent tax treatment for this type of instrument. Income and gains will be considered earned from 01/01/2024, subject to income tax, according to the rules applicable to the holder.
Now, after approval by the Senate, the PL will be forwarded for sanction by the President of the Republic.
Given the many relevant changes on this topic, our team is available to provide any clarifications.