Major milestone for Brazilian agribusiness, a new category of investment fund was created in Brazil called “Investment Funds in Agroindustrial Productive Chains”, nicknamed “FIAgro”.
Regulated by Federal Law N. 14.130, FIAgro funds may be used by foreign investors, lenders, insurers, fintechs and family economic groups investment vehicle, collateral, and tax planning structure for transactions and investments in the sector in Brazil.
FIAgros will be a fund regulated by the Brazilian Securities and Exchange Commission (CVM), which, as soon will enact specific regulation.
See below 5 key points about FIAgro funds:
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: FIAgro 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 (subject to existing land ownership restrictions to foreigners), (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: the President’s vetoes cancelled the tax exemptions to income distributed by FIAgros to individuals. 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 President also vetoed the tax exemption resulting from the capital gain on the shares paid-in with rural property may be deferred until the sale of these shares.
Given that the creation of the FIAgro fund was an initiative by the Brazilian Congress, a number of congress members have voiced that the Congress will vote to overrule the President’s vetoes to the FIAgro’s tax benefits in the short term.
In summary. 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.