As the host of two of the world’s most closely watched sporting events – the World Cup in 2014 and the Olympic Games in 2016 – Brazil has made great efforts to incentivise the use of capital markets to raise funds and to attract foreign investments. In order to boost such efforts, the Brazilian government launched a new scheme which exempts foreign investors investing in specific bonds from paying certain Brazilian taxes.

Law No. 12.431/2011 as amended by the Law 12.715/2012 (the “New Legislation”) provides for income tax incentives to raise funds to be applied on investment projects, infrastructure, intensive economic production and on research, development and innovation.

The purpose of the New Legislation is, inter alia, to raise funds for infrastructure projects in Brazil in connection with the 2014 World Cup and 2016 Olympic Games and to foster the development of the secondary bond market in Brazil. The tax benefit can also be applied to funds raised for infrastructure projects in Brazil which are not connected to the world cup or the Olympic Games. The New Legislation introduced certain modifications relating to funding mechanisms in Brazilian capital and financial markets, particularly in relation to certain tax aspects of funding instruments.

The New Legislation reduces to zero the applicable rate of the Brazilian withholding tax due on income generated by bonds and securities for public distribution, issued by legal entities that are not classified as financial institutions and that are regulated by the Brazilian Securities Exchange Commission (Comissão de Valores Mobiliários (“CVM”)) or the Brazilian Monetary Council (Conselho Monetário Nacional (“CMN”)). This tax benefit covers bonds and securities acquired between 1 January 2011 and 31 December 2015. In addition, the income must be paid to a beneficiary resident or domiciled abroad. This benefit is not applicable, however, if the foreign investor is domiciled in a favoured tax country or dependency.

With the New Legislation, the Brazilian Government extends to foreign investors the same tax treatment which is already given to the individuals who are resident in Brazil.


In order to benefit from the zero rate withholding tax the bonds must pay a fixed interest rate based on an index-linked price or reference rate and a total or partial post fixed interest rate is expressly prohibited. The bonds must also comply with the following cumulative requirements and contain the following:

  1. an average maturity term of more than four years;
  2. a prohibition on the repurchasing of the bonds by the issuer or any related party and the assignor or originator in the first two years after their issuance and early settlement by means of redemption or prepayment, except if otherwise regulated by CMN;
  3. no commitment on resale assumed by the buyer;
  4. interest payment, if any, with a frequency of at least 180 days;
  5. evidence that the bonds have been registered in a clearing system duly authorised by the Central Bank of Brazil or CVM as the case may be; and
  6. a simplified procedure (determined by CMN) that evidences the purpose of allocating the proceeds to the future payment of or to the reimbursement of costs, expenses or debts related to investment projects, including those focused on research, development, and innovation

In addition to the bonds having tax benefits for foreign investors, if the bonds are issued by any Brazilian Special Purpose Vehicle (“SPV”) incorporated as a Brazilian corporation (sociedade anônima), including those licenced or authorised to render public services or its controlling companies (provided they are also incorporated as a Brazilian corporation (sociedade anônima)), to raise funds to invest in either infrastructure projects or intensive economic production projects focused on research, development, and innovation in places considered to be priority areas by the Brazilian Federal Government (“SPV Bonds”), the income derived therefrom will be subject to the Brazilian tax at the following rates:

  • zero, when the income is paid to an individual or a foreign investor, provided that such investor is not domiciled in a favoured tax country or dependency; and
  • 15% when the income is paid to a Brazilian legal entity.

The foreign investor, provided that such investor is not domiciled in a favoured tax country or dependency, will also benefit from the SPV Bonds zero rate tax.

The same rates described above will also be applicable for investments made in Brazilian investment funds with portfolios composed of at least 85% of SPV Bonds or companies controlling the SPV.


Brazil’s rapid growth in past decades has made the country the world’s sixth-largest economy and its capital markets have benefitted from such growth and achieved significant progress. The New Legislation is an important step in the development of capital markets in Brazil, albeit a temporary measure lasting only until end of 2015. The development of capital markets in Brazil is a key policy issue going forward and is central to increasing investment in infrastructure. Further progress will require continued policy efforts and it can only be hoped that there will be further similar initiatives and reforms introduced by the Brazilian authorities working in cooperation with market participants in the near future.

Flavia Lima-McCulloch and Roberto Vianna do R. Barros