By: Andre Jerusalem

Law No. 14,130/21 (“Law 14,130”) was sanctioned by the President of the Republic on March 29 of this year, approving the creation of Investment Funds in Agroindustrial Production Chains (Fiagro), establishing it as an amendment to Law No. 8,668, of June 25, 1993 (“Law 8,668”), which originally dealt with Real Estate Investment Funds.

By means of Law 14,130, Art. 20-A was instituted to Law 14,130, providing that FIAGRO is in the form of a special nature condominium intended for application, individually or jointly, in:

I – rural properties;

II – participation in companies that carry out activities that are part of the agro-industrial production chain;

III – financial assets, credit securities or securities issued by individuals and legal entities that are part of the agro-industrial production chain, in accordance with regulations;

IV – agribusiness credit rights and securitization securities issued with collateral in agribusiness credit rights, including agribusiness receivables certificates and shares in credit rights investment funds and non-standardized credit rights investment funds that invest more than 50% (fifty percent) of their equity in said credit rights;

V – real estate credit rights relating to rural properties and securitization securities issued with collateral in these credit rights, including agribusiness receivables certificates and shares in credit rights investment funds and non-standardized credit rights investment funds that invest more than 50% (fifty percent) of their equity in said credit rights; and

VI – shares in investment funds that invest more than 50% (fifty percent) of their equity in the assets referred to in items I, II, III, IV and V above.

For the agribusiness sector, the approval of Law 14,130 is an extremely important law, as it aims to raise funds for the sector and efficiently develop those who do not have their company listed on the stock exchange and are unable to raise funds in any other way other than through an investment fund.

However, we can say that two vetoes by the president made this law a failure:

• veto on the exemption from income tax on dividends for individuals, something that already happens in Real Estate Funds and which is also regulated in Law 8,668; and
• veto on the deferral of income tax on capital gains determined upon the incorporation of fund assets, which ends up bringing a management limitation to the fund itself, since it will probably not be attractive for the fund to purchase assets and seek investments, since in this case, the holder of the fund's shares will not be able to postpone the payment of taxes.

In short, the presidential vetoes brought disadvantages that ended the attractiveness of investors to Fiagro, making it just a bargaining chip for part of the agricultural sector, which had been pushing for some time for the creation of an investment fund specific to the sector.

It is worth noting that, as reported by the press, the forecast of investments in the order of approximately R$1 billion in the sector until the end of the first half of 2021, which was even discussed by the project's rapporteur, fell as a result of these vetoes that removed these advantages, currently present in Real Estate Funds.