A less taxing Brazil

Latin America’s largest economy has reduced taxes for foreign investments in private equity funds, making the region that much more attractive to international LPs.

Brazil’s private equity “carnival” has turned up the music. Already on global institutional investors’ radar because of the country’s healthy banking industry and macroeconomic stability, it has now made its domestic fund industry even more attractive by reducing taxes to 2 percent from 6 percent on foreign investors who commit to Brazilian fund managers.

The new rate counteracts the tax hike imposed on managers in the autumn, when Brazil’s government raised the so-called IOF rate on certain fixed-income and derivatives investments to 6 percent from 2 percent as part of an effort to slow heavy foreign investment and the recent strong appreciation of Brazil’s local currency.

The reduced rate for FIEE emerging company funds and FIP holding funds will surely be celebrated by domestic fund managers who increasingly compete for international capital against global private equity firms that also invest in Brazil. It may also increase the likelihood of foreign private equity firms partnering local firms, or setting up Brazil-domiciled funds.

PS – The implication of Brazilian tax developments for both domestic and foreign GPs will be discussed in greater detail during a panel later this month at our annual CFOs and COOs Forum in New York. PEM will also be awarding its inaugural Private Equity Manager Leadership Award at the event, honouring one standout CFO or COO who has made a crucial contribution to the development of the role within the alternative investment fund industry.