The Brazilian Receivables Fund, known as “Fundo de Investimento em Direitos Creditórios – FIDC”, can be an attractive vehicle for economic groups that have a volume of receivables payable to suppliers and from clients in Brazil, aiming at capturing “marginal gains”.
Nicknamed as “Supplier” and “Client” FIDC, this type of fund allows the economic group’s holding company or controlling shareholder to set up the fund to advance receivables to suppliers and from clients, with tax advantages for the fund, controlling shareholders, and the operating company.
We highlight below 5 key points about Supplier and Client FIDC and why economic groups operating in Brazil should have one:
1. What Is the Supplier and Client FIDC? It is a Brazilian receivables fund, known as Fundo de Investimento em Direitos Creditórios – FIDC, regulated by the Brazilian Securities and Exchange Commission (CVM) Regulation 175, and Annex II to such regulation.
2. How a FIDC Is Managed? Investment funds, such as FIDCs, are vehicles managed by a fund administrator and manager registered with the CVM that follow the rules established in the Fund’s Charter document (Regulamento) with regard to the use and management of invested funds by investors, parties’ obligations, compliance, reporting to investors, auditing and other aspects.
3. What Type of Receivables FIDCs May Acquire? The type of receivables and legal instruments that constitute them to be acquired by Supplier and Client FIDCs must be provided for in the Fund’s Charter document (Regulamento), which may include credit rights arising from duplicates, notes, commercial contracts, invoices, among others.
4. What Tax Benefits Does FIDC Have? Supplier and Client FIDCs are a vehicle with favorable taxation. Transaction for the purchase of receivables within the fund are exempt from Brazilian taxes IR, IOF, CSLL, PIS and Cofins, with taxation only on the distribution of profits and redemptions by the shareholder.
5. May FIDCs Acquire Receivables from Related Parties? Regulation 175 prohibits the acquisition by FIDCs of receivables originated or assigned by the fund administrator, fund manager, specialized consultancy or parties related to them.
However, according to the understanding released by CVM through Circular Letter No. 6/2024/CVM/SSE, dated October 30, § 1 of Article 42 waives the prohibition when (i) the fund manager, the registration entity and the custodian of receivables are not related parties; and (ii) the registration entity and the custodian are not related parties to the originator or assignor.
The exception to the prohibition of article 42 does not apply when the shares of FIDCs are offered to retail investors.
With the cost of incorporating, administering and managing Supplier and Client FIDCs increasingly competitive, it is a private credit investment vehicle to be considered by economic groups in Brazilian given its benefits for investors, suppliers and the drawee/paying company.
