Month: November 2018

Companies that provide certain types of IT goods or services to the Brazilian market are granted tax benefits under Federal Law 8,248/91 when they prove they invest a minimum of 5% of their annual revenue in R&D activities.

The Brazilian government regularly publishes a list of the eligible goods and services, which includes electronic components, semiconductors, digital devices and software. Domestic production is mandatory.

In some cases, the tax benefits provided by Law 8,248/91 (also known as “Lei de Informática” – the IT Act) can mean a reduction of as much as 95% of the Excise Tax (Imposto sobre Produtos Industrializados – IPI).

More recently, the Brazilian Congress passed Federal Law 13,674/2018, which introduced certain changes to the IT Act, in order to allow that a portion of 2.7% of the overall 5.0% R&D investment required be made via Investment Funds – Fundos de Investimento em Participações (FIPs) that invest in technology companies.

A FIP is a closed-end fund that is intended for the acquisition of shares, securities and any other bonds or notes that are convertible into shares of either publicly-traded or closely-held companies.

On November 13, the Brazilian government issued Ordinance 5,894, which establishes certain conditions for R&D investments through FIPs so that companies can benefit from the tax breaks provided by the IT Act. The conditions required include, among others:

• The FIP must be registered with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM)
• The FIP’s investments must last for a maximum period of 6 years.
• The FIP must qualify as an “investment entity” for the purposes of CVM Ordinance 579/16.
• The FIP must invest solely in technology companies, and this must be specified in the FIP’s bylaws.
• For the purposes of the IT Act, “technology companies” means companies incorporated in Brazil that can develop innovative goods, processes, business models or services to which communications and information technologies contribute the highest portion of the added value. Yearly revenues must be capped at BRL 16 million and the technology-based companies cannot pay out more than 25% of profits during the capitalization period.
• The FIP’s shares cannot be traded on the secondary market;
• The FIP’s management must ensure that its investment activities are restricted to the purposes described in the portfolio

This measure is extremely helpful for the entire innovation ecosystem, especially because it could encourage investments in startups.

 

 

 

 

On October 29, 2018, the Brazilian Government issued Decree 9,544/2018, which allows foreign investors to hold up to 100% of shareholder control of either Direct Credit Entities (“Sociedades de Crédito Direto – SDEs”) or Peer-to-Peer Lending Entities (“Sociedades de Empréstimo entre Pessoas – SEP”) registered with the Brazilian Central Bank.

Prior to the issuance of the new decree, foreign entities had to obtain a specific authorization from the Office of the President in order to enter the Brazilian Financial System, with permission being at the discretion of the Federal Government based on the national interest in allowing foreign investments in this industry.

The Federal Revenue Office has issued Private Letter Ruling 185/2018, which analyzes the tax compliance obligations that taxpayers must comply with in order to offset the withholding income tax levied on service fees, profits, capital gains and other income earned abroad against the corporate income tax levied in Brazil.

According to the tax authorities, the Brazilian taxpayer must prove the withholding income tax credit’s existence with the original payment form or a report issued by the foreign country’s IRS, as long as these documents are certified by the Consulate of the Brazilian Embassy in the source country.

However, these documents do not require certification by the Brazilian Consulate if: (i) the withholding income tax is on dividends paid by a company invested in abroad and the tax is paid through a specific form foreseen in the foreign country’s legislation; or (ii) the withholding income tax is paid in a signatory country of the Hague Convention Abolishing the Requirement of Legalization for Foreign Public Documents, in which case the payment document will require an apostille.

Finally, according to the tax authorities, the waiver of certification by the Brazilian Consulate is not provided for in the Agreement on Jurisdictional Cooperation and Assistance in Civil, Commercial, Labor and Administrative Matters, signed between Mercosur’s signatory countries including Brazil, Chile and Bolivia.

 

The Federal Revenue Service of Brazil (RFB) issued a proposal for a new normative instruction that regulates the market for cryptocurrencies, such as bitcoins. The
proposed normative instruction provides for another ancillary obligation (i) for Brazilian resident legal entities qualified as cryptocurrency exchanges and (ii) for Brazilian resident individuals and legal entities that carry out transactions with cryptocurrencies, whether or not those are conducted on cryptocurrency exchange platforms.

According to the new proposed normative instruction, those who conduct transactions with cryptocurrencies must report the name, the nationality, the tax residence, and the current address of the parties to each transaction. Additionally, they must report their Brazilian Individual Taxpayer ID Number (CPF), or their Corporate Taxpayer ID Number (CNPJ), or their Taxpayer Identification Number (NIF) abroad, when applicable, plus any residual information RFB requests in its file.

A more sensible information request in the proposed normative instruction is directed to domestic cryptocurrency exchanges, relating to the balance of currency and cryptocurrencies, as well as to their market value, if available.

The fines established by Article 9(II) include a 3% charge on the total amount of unreported transaction, or those reported with any deficiency or error.

The RFB is accepting comments on the proposed normative instruction from October 31, 2018, until November 19, 2018.