On October 31, 2023, Law No. 14,711/2023 was published to change the taxation system for Private Equity Investment Funds (“FIP”) and Emerging Business Investment Funds (“FIP-EM”).

The Law nº. 14,711/2023 derives from Bill 4,188/2021 and, among its provisions, it introduces a significant change to the taxation of FIPs held by non-residents. Previously, the withholding tax (“IRRF”) with a zero rate was only applicable to investors who held directly or indirectly less than 40% of the fund’s shares. With the changes introduced by Law No. 14,711/2023, non-resident investors are capable to hold any percentage of FIP shares and be subject to a zero-rate IRRF tax.

It important to highlight that the IRRF discussed in this case pertains to gains from income, capital gains, or amortization related to the fund’s shares.

Additionally, Law 14,711/23 has also revoked other requirements that previously prevented non-resident investors from enjoying the zero-rate IRRF:

• Holding debt securities in their portfolios in excess of 5% of their net assets; and
• Residing in tax havens, i.e., countries that do not tax income or tax it at a maximum rate below 20%
• Portfolio composed of at least 67% of shares of public limited companies, convertible debentures into shares, and subscription bonuses.

However, it is still a requirement for the funds to adhere to the rules and conditions established by the National Monetary Council.

Regarding the zero-rate applied to capital gains earned by foreign resident or domiciled investors when selling or redeeming shares of Investment Funds, the benefit will also be applied to Infrastructure Private Equity Investment Funds (FIP-IE) and Investment Funds in Intensive Economic Research, Development, and Innovation (FIP-PD&I) for foreign resident or domiciled investors.

Our Wealth Planning team is available to assist you with these new guidelines.