Brazil: Tax exemption on CRIs and infrastructure debentures
Effective
immediately
the Brazilian Government has published law 12.715/2012, which amends law 12.423/2010, clarifying the characteristics of the following instruments for obtaining tax benefits for foreign investors:
- Certificados de Recebíveis Imobiliários (CRIs - mortgage-backed securities);
- Infrastructure debentures; and
- Investment funds composed of such instruments.
Background
One of the aims of the law and subsequent amendment is to create a specific funding structure for Brazilian companies as an instrument to encourage foreign funding of infrastructure projects in Brazil through the issuance of such instruments.
As a major incentive, foreign investors in CRIs, infrastructure debentures and investment funds who are not domiciled in a tax-haven country are exempt from withholding tax and from Imposto Sobre Operações Financeiras (IOF tax - Financial Operation Tax) on foreign exchange inflows.
Qualifying securities
The characteristics of CRIs and infrastructure debentures that qualify them for tax exemption are as follows:
- Weighted average amortisation time longer than four years;
- Publicly distributed by non-financial institutions;
- Issuing company prohibited from repurchasing the bonds in the first two years;
- The purchase agreement of the buyer not permitted to include a resale commitment;
- Periodic coupon payment with a difference of at least 180 days from the last payment;
- Assets registered in trading systems authorised by the Brazilian Central Bank and the Brazilian Securities Commission (CVM);
- Funds provided from the debentures dedicated to development projects.
The issuer is responsible for complying with the necessary characteristics of the CRIs and infrastructure debentures. In cases of non-compliance, the issuer will be subject to a fine of 20% of the total amount not invested in infrastructure projects.
Impact on customers
In order to benefit from the tax exemption, the Clearstream Banking1 customer must, when investing in a CRI or infrastructure debenture, submit a copy of the CRI/debenture deed to our New Issues desk, via email to the following address, to arrive at least five business days before settlement date:
In such email, the customer is requested to include, for reference, their customer account number with the related passenger accounts, as required in the Brazilian market.
If not received within the deadline, the transaction will be subject to 6% IOF tax.
Note: Investment funds are currently not eligible instruments on our Brazilian domestic link.
Further information
For further details of the Brazilian market, please refer to the Creation Link Guide (Brazil).
For further information, customers may contact Clearstream Banking Customer Service or their Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
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