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Government proposes tax exemption to draw foreigners to corporate bonds

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Vincent

The government has asked lawmakers to include in the collateral framework bill (No. 4188/2021) an income tax exemption for foreign investments in corporate fixed-income securities including bonds, tax-exempt debentures and real estate and agribusiness receivables certificates known as CRI and CRA, respectively.The measure is designed to draw foreign capital and lower the foreign exchange rate, in addition to reducing the cost of raising funds by companies by also bringing down the cost for investors.The change cited by Chamber of Deputies Speaker Arthur Lira (Progressive Party, PP, of Alagoas) in an interview with Valor is expected to be included by Deputy João Maia (Liberal Party, PL, of Rio Grande do Norte) in the bill that creates the collateral framework. The blueprint is expected to be voted on in the week of the 17th by the lower house plenary after an agreement between the parties.Currently, the income tax exemption for non-residents applies to government bonds and equity. Representatives of the Economy Ministry suggested extending tax breaks to corporate fixed-income securities.A report by the Brazilian Association of Private Equity and Venture Capital (ABVACP) used by the government points out that there would be great potential for drawing foreign funds if lawmakers pass the measure. In the case of income tax-exempt bonds, the nominal participation of foreign investors amounts to R$1.4 trillion. In the case of non-exempt corporate fixed-income securities, foreign investors account for only R$22 billion.Non-residents represent only 2.54% of the volume of corporate fixed-income securities purchased in Brazil. In variable income, they account for 53.16%. Compared to other countries, the participation of foreigners is also very small: investors from abroad total 18% of the buyers of this type of bond in Europe, 41% in Italy, 58% in Germany and France, 17% in Japan and more than 10% in the emerging...

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