In a major milestone for Brazilian agribusiness, FIAGRO – the new Ag-related Investment Fund are now allowed to benefit from the same tax advantages as the Real Estate Funds (FIIs) after the overthrow of the presidential vetoes on June 1st.
Created by Federal Law 14,130 and officially named “Investment Fund in Agri-industrial Productive Chains”, FIAGRO has the potential to become one of the main investment vehicles for Brazilian and foreign investors, lenders, fintechs, insurers, and groups/family companies for allocation funding, collateral and tax planning in businesses in the sector.
FIAGRO is an investment fund also regulated by the Brazilian Securities and Exchange Commission (CVM), which is expected to issue specific regulation for the new type of fund in the coming months.
See below 5 key points about FIAGRO:
1. What Is a FIAGRO: it is a new type of investment fund created to carry for investments in the Brazilian agribusiness.
2. Which Assets FIAGROs May Invest: FIAGROs are a hybrid of Real Estate Funds (FIIs), Receivables Funds (FIDCs), Equity Funds (FIPs) and Stock Funds (FIAs).
FIAGROs may be formed for investments in (i) the acquisition of rural real estate in general, (ii) the acquisition of equity in agribusiness companies, (iii) acquisition of financial assets, credit securities or securities issued by individuals and companies in the agribusiness sector, (iv) acquisition of agribusiness receivables, securitization bonds (CRAs and CRIs) and FIDC shares, and (v) investment funds’ shares that invest more than 50% in the above assets.
3. Who May Benefit From FIAGROs: FIAGROs can be used by Brazilians and foreigners, including, (i) lenders and fintechs, as vehicle for credit and prepayment of receivables, (ii) lenders and insurers, as a collateral vehicle through the fiduciary assignment of FIAGRO shares whose assets consist of rural land, warehouses, machinery, participation in agribusiness, among other assets, (iii) rural land investors, as investment vehicle for the acquisition of rural land in Brazil aiming exploration, rural partnerships, land value gains, etc. (observing the legal restrictions applicable to foreigners), (iv) Venture Capital, Private Equity and investors in general, as vehicle for acquiring equity participation in ag companies, (v) capital market investors, as vehicle for acquisition of ag companies’ securities, such as debentures, CRIs, CRAs, etc., and (vi) ag economic groups and families for asset and fiscal planning of their portfolio investments.
4. Favorable Taxation of FIAGROs: in the same way as Real Estate Funds, income distributed by FIAGROs to individual shareholders will be exempt from income tax, provided that (i) the fund has more than 50 shareholders and (ii) the respective shareholder does not holds more than 10% of the fund’s equity or earnings.
Investments made by FIAGROs in assets and securities such as CDA/WAs, CDCAs, LCAs, CRAs and CPRs are not subject to withholding income tax.
5. Favorable Taxation in FIAGROs Capital Contribution: FIAGROs’ shares may be paid in in cash, assets and rights, including real estate (rural land, among others). The payment of income tax arising from the capital gain on the shares paid in with rural property by an individual or entity may be deferred to the date defined for the moment of sale of these shares, or upon their redemption in the event of liquidation of funds.
In summary, the points above demonstrate the potential that FIAGRO funds will have on Brazilian agribusiness. They will allow Brazilian and foreign investors, lenders, fintechs, insurers and family groups to invest and finance the sector with legal certainty and tax efficiency.
