FIAGRO – the new Agribusiness Investment Fund is now actively being used by fund managers to finance the Brazilian agribusiness and acquire rural land, with BR$ 2 billion been raised since August.
Created by Federal Law 14.130 and regulated by the Brazilian CVM Resolution 93, there are already 17 FIAGROs-Real Estate launched to invest mostly in CRAs (ag receivables securities), but also in rural land, and 3 FIAGRO-Receivables to finance CPRs (rural product note).
Due to the success of such new fund’s category, we list below 5 key points about FIAGRO tha may be of investors and fund managers interest:
1. What is FIAGRO: it is an investment fund regulated by CVM dedicated to grant credit, acquire rural land, M&A, asset and wealth planning, among others, in agribusiness.
2. What are the 3 categories of FIAGROs and their target assets: CVM has experimentally authorized 3 categories of FIAGROs:
(i) “FIAGRO-Receivables” take the form of “FIDC” and may invest in agribusiness receivables and securities backed by agribusiness receivables, including CRAs and CPRs;
(ii) “FIAGRO-Real Estate” takes the form of “FII” and may invest in rural lands and real estate receivables related to rural land, including CRAs and CRIs;
(iii) “FIAGRO-Participations” take the form of “FIP” and may invest in equity interests in companies that explore activities in the agri-industrial chain, including convertible securities.
3. Who can benefit from FIAGROs: FIAGROs can be used by Brazilians and foreigners, including (i) lenders and fintechs, as a vehicle for credit and advance of receivables, (ii) real estate investors, as an investment vehicle for acquisition of rural lands in Brazil aiming at exploration, rural partnerships, land value appreciation, etc. (observing the legal restrictions for foreigners), (iii) Venture Capital, Private Equity and investors in general, as a vehicle for equity investment in agribusiness companies, and (iv) agribusiness family groups/companies, for asset, wealth and fiscal planning.
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, (ii) the respective shareholder does not holds more than 10% of the fund’s equity or earnings, and (iii) the shares are listed in exchange or over the counter.
As for investments, investments made by FIAGROs in CRAs, CRIs, CPRs, CDA/WAs, CDCAs 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 legal entity may be deferred to the date defined for the moment of sale of these shares or redemption.
The volume of 20 FIAGRO operating evidences the importance of this category of funds for the market. FIAGROs will allow Brazilian and foreign investors, lenders, fintechs, insurance companies and family groups to invest and finance the sector with legal certainty and tax efficiency.