Brazil slashes PE tax for foreign investments

Brazil’s government has reduced taxes for foreign investments in private equity funds to 2 percent from 6 percent, according to a Reuters report.

The government cut the so-called IOF tax on foreign exchange transactions by overseas investors in an effort to increase long-term financing in the country. The 2 percent tax rate is for foreign investment in long-term Brazilian FIEE emerging company funds and FIP holding funds.

In October, the government raised the 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.

A number of well-established private equity shops made big moves into Latin America in 2010.

The Carlyle Group and Apax Partners made their debut Brazilian investments in 2010, and The Blackstone Group bought a 40 percent stake in Brazilian asset manager Patria Investimentos. JPMorgan also moved into the country, buying a stake in Gavea Investimentos.

In May, global mid-market firm Advent International closed its fifth Latin America-focused fund on $1.65 billion, taking the title for the region’s largest ever private equity fund. The distinction did not last long, however, as Buenos Aires-based Southern Cross broke the record again in September by closing its fourth buyout fund on $1.68 billion.