The new category of investment fund in Brazil – “FIAGRO” (the new Agribusiness Investment Fund), is a new vehicle for the agribusiness development, expanding the investment possibilities in the sector. As of August 1th, FIAGRO’s constitution and operation are authorized, since some of its categories were regulated by the Brazilian Securities and Exchange Commission (CVM).
CVM has authorized, on an experimental basis, the following categories of FIAGRO: (i) “FIAGRO-Receivables” (investments in agribusiness receivables and securities backed by agribusiness receivables); (ii) “FIAGRO-Real Estate” (investments in rural lands and real estate receivables related to rural land); (iii) “FIAGRO-Participations” (investments in equity interests in companies that explore activities in the agro-industrial chain, including convertible securities).
In this scenario, it is key to monitor and analyze the Brazilian Tax Reform on income taxation, that was recently proposed. It may affect FIAGROs significantly. According to the original proposed reform, income distributed by FIAGROs to individual shareholders would no longer be exempt from income tax. Nevertheless, recently, a second proposal was presented, that maintains the tax exemption to FIAGROs and also to Real Estate Investment Funds (FII).
Currently, the tax aspects of FIAGROs are similar to FIIs’, especially the tax exemption of income distributed to individual shareholders, with the same requirements set out, and the taxation on a 20% rate on capital gains in the events of redemption and sale of quotas. There are specific features though, especially tax benefits related to the operation and financial applications by the FIAGRO in certain assets related to agribusiness.
FIAGRO has the potential to impact the Ag sector in Brazil, depending on the capital markets uptake. The legal and regulatory aspects are key: it is important to follow the next steps of CVM and The Legislative Branch.