After the discussions and subsequent approval of Provisional Measure #627 (MP 627/2013), now Law #12.973/2014, Funds began to be viewed as an additional tax planning solution for Brazilian Tax Residents. MP 627/2013 tried to put an end to the tax deferral tool commonly used by natural persons in Brazil by proposing the taxation of their International Investment Portfolio Companies and creating CFC rules for individuals with tax residency in Brazil.
However, when MP 627/2013 was approved and converted into law, no mention was made about natural persons, nor to the creation of CFC rules in relation to the individuals. Many specialists believe that another attempt to introduce CFC rules for individuals will happen soon and that Funds will be a leading solution for individuals, as long as it is made sure no individual can exert any direct control in the fund.
There is also the understanding that the natural person investing in a Fund benefits when a distribution is made by the Fund (to the investor) and is regarded as capital gains and taxed at a rate of 15%.
The current discussion now is how the Brazilian tax authorities would consider the Fund when scrutinizing the tax planning of the individual using this Fund (offshore or onshore) for tax deferral or to receive dividends at a 15% tax rate based on the eventual new CFC legislation.
There are many different opinions regarding this topic and Amicorp is in a good position to discuss any of them with you.
How Amicorp can assist your clients
- Amicorp can provide Funds with substance from onshore centers (based on the Brazilian blacklist), such as Luxembourg for instance, which is considered one of the best jurisdictions for Fund Administration.
- We can also incorporate Funds in Chile, based on the new local legislation. It is important to mention that a Fund in Chile is a condominium based on law, which is very similar to Brazilian Funds.
- We can also provide different Fund services in very well-known jurisdictions such as the Cayman Islands, Bahamas, BVI, etc.
- The sales team in our office in São Paulo is prepared to discuss and find the most suitable solution for your clients.
An Example: The Bahamas SMART Fund and ICON Fund
The Bahamian solutions, the SMART Fund and the ICON Fund are ideal for clients who are looking to consolidate their wealth into a single entity. Income tax and capital gains tax will only be paid if an individual receives a dividend from the fund, or makes a capital gain on a redemption of their interest, although it may be possible to diminish this with appropriate planning.
The SMART Fund – (Special Mandate Alternative Regulatory Test Fund) is a fund specifically designed to offer private investors a much more flexible and lower cost licensed fund product.
The ICON (Investment Condominium) meets the specific needs of the Brazilian and Latin American markets. Under Brazil’s civil code, the condominium was the formalization of the concept of joint ownership and administration of property (in all forms) between co-owners within an unincorporated entity. The condominium is not a legal entity separate and apart from co-owners and the administrator is empowered to act on behalf of and represent it in all matters. While the ICON was only launched in late 2014, its hybrid nature (a partnership and a unit trust) is already being seen as a compliant alternative for structures in other jurisdictions. ICON provides an alternative legal structure for investment funds that is familiar to those in countries under civil law. Put simply, the ICON is simply a new structuring vehicle that can be licensed as a SMART Fund, Professional Fund or Standard Fund in The Bahamas. It is not a company, not a partnership, and not a trust. It is a pooling mechanism and operating instrument for investment funds. The ICON can be established in a much more streamlined way than a corporate vehicle.