With the publication of Provisional Measure No. 1,184/2023 (“MP 1,184/2023”), there were changes in the taxation of investment funds. Among them, the following stand out:

• Exclusive funds will be taxed by the Withholding Income Tax ("IRF"), following the "come-cotas" regime, anticipating the taxation on income earned within the fund every six months. Any withdrawals or amortizations will be taxed based on the progressive table, determined by the duration between the investment and withdrawal.
• FIA/FIP/ETF not characterized as investment entities will also be taxed based on the “come quotas” regime;.
• FII/FIAGRO will only be exempt if (i) they have at least 500 quotaholders (instead of the 50 currently required), and (ii) if the shares are actually traded on the stock exchange.
• Accumulated earnings will be taxed at: 15% and the taxpayer will be allowed to pay in 24 installments with SELIC; or (ii) 10% if the taxpayer anticipates the payment to 12/2023 (instead of 05/2024)m authorized 4 installments without SELIC.

In this context, we highlight the following points of attention:

• MP 1,184/2023 can still be amended and needs to be approved by the National Congress by December 2023 or it will lose its validity (recalling that it is the third attempt by the Government to establish this type of taxation – MP 806/17 and Bill of Law 10638/18)). Therefore, we do not recommend the anticipation of the IRF (10%) until the effective conversion of the MP and final text into Law.
• We understand that the taxation of accumulated earning (previous to the publication of the MP) is unconstitutional and may be challenged in court (there are favorable precedents for taxpayers);
• Any Funds with an illiquid portfolio (for example, FIDCs NP with stressed assets) may not have the financial availability to pay the IRF, and request capital contribution by the quotareholders;
• The use of FII and FIAGRO as instruments for estate planning must be reviewed.

On the specific topic of FIAGROs, please check out the article on the impacts for this specific type of fund, with the participation of Henrique Erbolato, partner in the tax area:

https://agfeed.com.br/financas/para-gestores-dos-fiagros-mp-dos-super-ricos-pode-ser-so-uma-marolinha/

By Henrique Erbolato