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1. General rules applicable to investment funds - the so-called "Come-quotas"

Income from investments in investment funds will be subject to Withholding Income Tax (WHT):

1. At the rate of 15%, on the last working day of the months of May and November ("come-quotas").
2. To the complementary percentage that is necessary to totalize the regressive rates of 22.5% to 15%, on the date of income distribution, amortization, redemption or disposal of quotas. 

The incidence of the WHT will cover all investment funds established in the form of open or closed condominiums, except for the hypotheses expressly provided for in the MP and in special legislation.

In the case of investments in short-term investment funds (i.e., a portfolio with an average maturity of 365 days or less), the come-quotas should be subject to 20% tax rate. There may be additional taxation up to 22.5%, on the date of income distribution, amortization, redemption or disposal of quotas.

Losses calculated at the time of amortization, redemption or disposal of quotas may be offset exclusively with gains calculated in the distribution of income, amortization, redemption or disposal of quotas of the same investment fund, or in another investment fund managed by the same legal entity, provided that the fund is subject to the same taxation regime.

In the case of the sale of the fund's quotas, the quota holder must previously provide the fund administrator with the financial resources necessary for the collection of the WHT, and the fund administrator may waive the contribution of new resources, being prohibited the transfer of the quotas if the administrator does not have the necessary resources to make the payment of the tax within the legal period.

2. Investment funds classified as investment entities, not subject to the come-quotas

The income earned from the investments in the following investment funds, classified as investment entities and in compliance with the other legal requirements set forth in the MP, will be subject to the WHT at the rate of 15% on the date of income distribution, amortization, redemption or disposal of quotas:

• Equity Investment Funds – FIP.
• Stock Investment Funds – FIA.
• Market Index Investment Funds - ETFs, with the exception of Fixed Income ETFs.
• Investment funds that invest at least ninety-five percent of their net worth in FIPs, FIAs and ETFs.

The income earned on investments in these funds should not be subject to the come-quotas in the months of May and November.

FIPs, FIAs and ETFs (except fixed income EFTs) that have a professional management structure, at the level of the fund or its quota holders (when organized as funds or investment vehicles, in Brazil or abroad), represented by agents or service providers with powers to make investment and divestment decisions in a discretionary manner, will be classified as investment entities, with the purpose of obtaining a return through appreciation of the invested capital, income or both, in the form to be regulated by the National Monetary Council - CMN.

3. Funds subject to periodic taxation with a sub-account for the valuation of equity interests

The income from investments in FIPs, FIAs and ETFs that do not meet the requirements of the MP to be considered investment entities, will be subject to WHT at the rate of 15% on the last business day of the months of May and November or, if it occurs first, on the date of distribution of income, amortization, redemption or disposal of quotas.

In these cases, the provisions of the MP regarding the cost of acquisition of quotas and the basis of calculation of the WHT apply, with the following caveats:

• For the purposes of calculating the tax basis of the WHT, the gain or loss resulting from the equity method of accounting related to investments in controlled or affiliated legal entities will not be computed (Article 243 of Brazilian Corporation Law).
• Such gain or loss shall be evidenced in a sub-account in the fund's financial statements.
• Investment funds that hold shares of other investment funds must register, in the net equity, a sub-account equivalent to the sub-account registered in the equity of the invested fund. 
• At the time of realization of the respective asset by the fund, including through disposal, write-off, liquidation, amortization or redemption, or at the time when there is a distribution of income to the quota holders, in any form, including in the amortization or redemption of quotas, the sub-account will be reversed and its balance will be included in the tax basis of the WHT.

The absence of control in the sub-account for any asset of the fund will imply the taxation of the income of the application in the fund quota in full. On the other hand, if a loss without control in the sub-account is determined, this loss cannot be deducted from the gross income submitted to the incidence of WHT.

4. Rules of transition and collection of the WHT on the "inventory"

Rule

With respect to the "inventory" of retained earnings accumulated up to 31 December 2023 in investment funds that were not subject to the "come-quotas", these earnings will be appropriated pro rata tempore until 31 December 2023 and taxed at the rate of 15%.

The WHT on the "inventory" (i) shall be retained by the administrator of the investment fund and collected in cash until 31 May 2024 or (ii) may be collected in up to 24 monthly and successive installments, with payment of the first installment until 31 May 2024.

If the taxpayer opts for the installment method, the value of each monthly installment will be corrected with the SELIC interest rate and may not be less than 1/24 of the total tax due on the inventory.

Options for individuals - installment payment at a rate of 10%

As an alternative to the payment option above, the individual residing in the country may opt for the payment of the WHT on the income accumulated in the stock at the rate of 10%, in two stages:

1. First stage: payment of income tax calculated until 30 June 2023 (to be paid in up to 04 installments).
2. Second stage: payment of income tax calculated from 1 July 2023 to 31 December 2023 (in cash, within the same maturity period of the WHT due in the periodic taxation for the month of May 2024)

Investment funds that, on the date of publication of the MP, expressly provide in its regulation for their extinction and non-extendable liquidation until 30 November 2024 will not be subject to periodic taxation.

The provisions of this topic are already in force and taking effect since the publication of the MP on 28 August 2023.

5. Merger, spin-off, merger or transformation of an investment fund

For the cases of merger, spin-off or transformation of an investment fund, the MP establishes two different tax treatments:

1. Operations as of 1 January 2024: income corresponding to the positive difference between the equity value of the quota on the date of the event and the cost of acquiring the quota will be subject to WHT at the tax rate applicable to the fund's quota holders on that date.
2. There will be no levy of WHT for operations occurring until 31 December 2023 provided that:
   1. Te fund subject to the transaction is not subject to periodic taxation in the months of May and November in the year 2023.
   2. The rate to which its quota holders are subject in the fund resulting from the transaction is equal to or greater than the rate to which they were subject on the date immediately preceding the transaction.

6. Common provisions

• Financial institutions, including insurance, pension plan and capitalization companies, securities, securities and exchange brokers, securities and exchange companies, securities distribution companies or leasing companies, will be exempt from the withholding tax on the income from investments in investment funds.
• Investment funds held by non-residents in the country: subject to WHT at a rate of 15%, except in the case of FIA's whose rate will be 10% (except for non-residents in a jurisdiction of favored taxation regime).
• Usufruct: The taxable treatment will take into account the beneficiary of the income, even if this is not the owner of the quota.
• Funds with classes of quotas: Each class of quotas will be considered as an investment fund for the purposes of applying the taxation rules provided for in the MP.

7. Investment Funds that are not subject to the treatment provided for by MP 1.184/23:

1. The Real Estate Investment Funds - FII and the Investment Funds in Agroindustrial Production Chains – Fiagro.
2. Investments by non-residents in investment funds in government securities.
3. The investments of non-residents in FIPs and Investment Funds in Emerging Companies – FIEE.
4. The Investment Funds in Infrastructure Participations - FIP-IE and the Investment Funds in Participation in Intensive Economic Production in Research, Development and Innovation - FIP-PD&I.
5. The investment funds referred to in Law No. 12,431/11.
6. Investment funds exclusively with non-resident quota holders, pursuant to the provisions of article 97 of Law No. 12,973/14.
7. The Fixed Income ETFs.

8. Final provisions

FII and Fiagro: The MP now provides the exemption of WHT and in the individual income tax return on the income distributed by FIIs and Fiagros if their quotas, in addition to being admitted to trading exclusively on stock exchanges or in the organized over-the-counter market, are effectively traded on stock exchanges or on the organized over-the-counter market. In addition, for the enjoyment of the exemption, the MP now requires that FIIs and Fiagros have at least 500 quota holders (previously, the law required at least 50 quota holders).

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