Emerging Markets Rates and Currencies Handbook

73 Citi | Emerging Markets Currencies Handbook 2021 Brazil Item Inter-Co Debt Offshore Bank Loans Offshore Local Borrowing Derivatives Equity W/H Tax 25% WHT for tax haven domiciled lender 12.5% WHT for Japan domiciled lender 15% WHT other jurisdictions Under certain other tax treaties rate is reduced Pre-export financing exempt 25% WHT for tax haven domiciled lender 12.5% WHT for Japan domiciled lender 15% WHT other jurisdictions Pre-export financing exempt No WHT Onshore: • Swaps: 15%–22.5% w/h tax, depending on the term of the investment • NDFs/Futures & Options: 0.005% over premiums/adjustments in anticipation of final 15% Offshore: No WHT, but only HCY/rates/ commodities hedging derivatives permitted — BRL hedges not allowed (Res.3312) 25% WHT on capital gains for tax haven domiciled investor 15% other jurisdictions on capital gains Dividends exempt Deductibility of interests Non-tax haven lender: Yes, up to 2x capital Tax haven lender: Yes, up to 30% of capital Must observe new transfer price rules for maximum deductibility locally Non-tax haven lender: Yes, unless guaranteed by related company, then limited to 2x capital or 30% of capital if guarantor domiciled in tax haven Tax haven lender: Yes, up to 30% of capital Fully deductible N/A Dividends are not deductible for the local income tax purposes, except for INE (interest on net equity).The amount of INE capped at 50% of current net- profits and subject to Brazil general WHT rates Deductibility of FX losses Fully deductible Onshore: Losses deductible only for hedging transactions Offshore: Losses are not deductible, unless trade done on an exchange N/A Other taxes, duties If tenor < 180 days, 6% flat IOF tax applied on the FX transaction If tenor > 180 days, no IOF IOF = Min (1.5% p.a., 1.5% “flat”) + 0.38% “flat” up- front. Export financing exempt For foreign investors trading derivatives under Resolution 4373: 10% WHT on derivatives PIS/Cofins on Financial gains: 0% if derivative traded for hedging purpose; 4.65% otherwise. Due process and limitations on amount and timing of dividends and capital repatriations 0.38% FX-IOF tax on inflows (injection) and outflows (capital reduction) Comments N/A N/A N/A N/A N/A Note: Citigroup Inc. and any of its affiliates do not provide accounting, tax, or legal advice. Please seek advice from a relevant licensed advisor. Source: Relevant legislation, publicly available sources. Subsidiary Funding — Tax Consideration Tax Summary — Brazil