Continuing with the Brazilian government’s package of actions, Provisional Measure 1,184 was published on August 28, altering the taxation of exclusive investment funds in the country. As reported in the official press, the government’s estimate is to collect approximately R$ 24 billion by 2026.

This type of fund has a single shareholder, features a customized composition, and is managed by professionals. Its investments can be made in fixed income, stocks, or multi-market options, for example. So far, income tax (IRRF) would only be applied at the time of amortization or liquidation of the investment. It is precisely this timing of taxation which has been modified.

In accordance with the provisions of Provisional Measure 1,184, the earnings of exclusive investment funds will now be subject to withholding income tax (IRRF) at rates ranging from 15% to 20%. Such tax will be levied biannually, specifically in the months of May and November, aligning with the tax regime applicable to traditional, commonly referred to as ‘open,’ investment funds.

The rule will take effect on January 1, 2024. However, earnings accrued up to December 31, 2023, will be subject to taxation at a 15% rate, following the calculation methodology specified in the legal text. Should the taxpayer choose to make the income tax payment within the year 2023, a reduced rate of 10% is provided for, along with the option to spread the owed amount over up to five installments.

The Provisional Measure shall now proceed to the National Congress, which has a 120-day period to complete its review and voting process. If approved, the bill will be converted into law.