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Barbara Lucariny

Perez & Barros, Rio de Janeiro

barbara.lucariny@perezebarros.adv.br  

 

Introduction

The Brazilian stock market has been severely affected by the recent international crisis triggered by the Covid-19 pandemic; this has been worsened by the political crisis the country has been through. However, Brazilian economic potential cannot be ignored, especially by foreign investors, who benefit from the exclusion of capital gains in the Brazilian stock market (BOVESPA) from an income tax calculation basis.

Covid-19 impact

The Brazilian stock market has experienced the biggest market losses in years, with BOVESPA[1] reaching a minimum index of 63,569.62 points on 23 March, equivalent to US$12,512.47. This was the lowest value since 26 January 2016, when the IBOVESPA minimum index was 37,497.47 points, equivalent to US$9,075.77.[2]

Economic possibilities remain, however. Brazil’s natural resources and beauty aggregate to a potential market of 190m people – seen as potential consumers – makes the country a good option for long-term investors around the world. Some financial advisers have therefore pointed to the Brazilian stock market as a good option for long-term investments. The combined circumstances of the Real[3] devaluation in comparison to US dollars, pounds and the euro, and Brazilian tax benefits for foreign investors make the Brazilian market even more attractive for investors overseas.

Since 1999 the Provisional Measure 1.990-26/99, which was successively revised and finally turned into Provisional Measure 2.189-49/01,[4] excluded capital gains in the BOVESPA from an income tax calculation basis.

The intention was to improve and promote the Brazilian stock market by attracting foreign investors. The benefit is applicable to all individual or collective foreign investors if they are not located in a country that does not tax income or taxes it at a rate below 20 per cent (ie, a ‘tax haven’).

To be entitled to the benefit, foreign investments should follow the Brazilian Monetary Council Rules regarding the kind of operations covered. These are governed today by Resolution No. 4.373, issued by the Monetary Council in 2014.

Some other jurisdictions offering tax benefits may be considered by the Brazilian Government as ineligible to receive this exemption. The Brazilian Tax Authorities usually issue regulations designating each jurisdiction considered by them to be ineligible.

Normative Instruction 1.037 issued by the Brazilian Revenue Service in 2010 lists the following countries as considered by the Brazilian Tax Authorities to be ‘tax havens’: Andorra; Anguilla; Antigua and Barbuda; Aruba; Ascension Islands; Commonwealth of the Bahamas; Bahrain; Barbados; Belize; Bermuda; British Virgin Islands; Brunei; Campione D 'Italia; the Channel Islands (Alderney, Guernsey, Jersey and Sark); Cayman Islands; Cook Islands; Curacao; Cyprus; Djibouti; Dominica; Gibraltar; Granada; Hong Kong; Kiribati; Labuan; Lebanon; Liberia; Liechtenstein; Macau; Maldives; Ireland; Isle of Man; Marshall Islands; Republic of Mauritius; Monaco; Montserrat Islands; Nauru; Niue; Norfolk Island; Panama; Pitcairn Island; French Polynesia; Qeshm Island; American Samoa; Island of St. Helena; Saint Lucia; Federation of Saint Kitts and Nevis; Saint Pierre and Miquelon; Saint Vincent and the Grenadines; Saint Martin; Seychelles; Solomon Islands; Swaziland; Sultanate of Oman; Tonga; Tristan da Cunha; Turks and Caicos Islands; Vanuatu; United Arab Emirates; US Virgin Islands; and Western Samoa.

Investors located in any jurisdictions other than those listed above will be entitled to the benefit.

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