Real estate investment funds (FIIs) are a great and simple way to invest in the Brazilian real estate market, both for Brazilian and foreign investors, individuals and companies, with certain tax benefits.
The Real Estate Investment Funds (“FIIs”) are constituted for investments in real estate ventures, including real estate, shares of special purpose entities (SPE) linked to real estate, bonds and securities (eg Certificates of Real Estate Receivables – (CRIs) issued by developers and securitizers, among other securities in the sector. Therefore, the assets can vary and be very sophisticated.
From a tax standpoint, investors need to consider 2 different moments:
1. Income distributed by the FII: for individuals, this income is tax exempt, whether resident or domiciled in Brazil or abroad, even in jurisdictions regarded as tax heaven to Brazilian tax authorities, if the following criteria are met: (i) the investor does not own more than 10% of the FII’s quotas or more than 10% of the distributed income; (ii) there are more than 50 investors in the FII; (iii) FII is exclusively negotiated through the stock exchange or the over-the-counter market. On the other hand, it is subject to a withholding tax income of 20% for companies.
2. Capital gain when selling equity: sale consideration reduced by cost of acquisition of the quotas is always taxable as capital gain on a 20% rate. Additionally, investors are entitled to compensate losses on the sale of quotas, for an unlimited period, with other gains, as long as also related to FIIs.
FIIs are an investment option for those investors seeking financial returns over real estate assets, but do not want to manage the real property themselves. Plus, the taxation is lower and ancillary obligations are simpler.
