In a major milestone for Brazilian agribusiness, the Senate approved a new category of investment fund in Brazil called “Investment Funds in Agroindustrial Productive Chains”, nicknamed “Fiagro”.
Pending presidential sanction (expected for the following days), Fiagro funds will enable foreign investors, lenders, insurers, fintechs and family economic groups to structure investments, loans, collateral, and tax planning in the Brazilian agribusiness.
Fiagros will be a fund regulated by the Brazilian Securities and Exchange Commission (CVM), which, as soon sanctioned, must be subject to specific regulation by the authority.
See below 5 key points about such agri fund:
1. What is a Fiagro: it is a fund to be regulated by CVM, similar to real estate funds (FIIs), for investments in general in Brazilian agribusiness.
2. Which assets may Fiagro invest: Fiagros’s funds may be used for (i) acquisition of Brazilian rural land, (ii) equity acquisition in agribusiness companies, (iii) investments in debt and capital market securities issued by individuals and companies in the sector, (iv) investments in agribusiness receivables, securitization securities (CRAs) and FIDCs shares, (v) investments in real estate receivables related to rural land and their securitization securities (CRIs), and (vi) investments in funds which allocate more than 50% on the above assets.
3. Who can benefit from Fiagros: Fiagros may be used by Brazilians and foreigners, including (i) land investors, as an investment vehicle for the acquisition of rural land in Brazil for exploration, partnership and asset appreciation, (ii) lenders and insurers, as collateral to loan facilities through the fiduciary assignment of shares of a Fiagro, whose assets are rural lands, warehouses, machinery, participation in agribusiness companies, among other assets, (iii) Venture Capital, Private Equity and other equity investors, as a vehicle for equity acquisition agri companies, (iv) capital market investors, as a vehicle for acquiring securities and receivables issued by agribusiness companies, such as debentures, CRIs, CRAs, etc., (v) fintechs, as a vehicle for financing the sector, and (vi) agri family groups, for estate and tax planning of their properties and investments.
4. Tax aspects: likewise real estate funds, income distributed by Fiagros to individuals will be exempt from income tax, provided that (i) the fund has more than 50 shareholders, and (ii) the respective shareholder does not hold more than 10% of the fund’s equity or income. In general, Fiagros’ shareholders will have their income and capital gains subject to income tax when distributed, at the rate of 20%. The same rate will be applied in case of sale or redemption of shares.
5. Capital contribution to Fiagros: the shares of the Fiagro may be paid-in in cash, assets and rights, including real estate. The payment of the income tax resulting from the capital gain on the shares paid-in with rural property may be deferred until the sale of these shares.
The points listed demonstrate the potential that Fiagro funds will have on Brazilian agribusiness. They will allow foreign investors, lenders, insurers, fintechs and family groups to invest and finance the sector with legal certainty and tax efficiency.