Corporate bonds

EXCLUSIVE Brazil considering tax exemption for foreign investors in corporate bonds, says Ministry of Economy

A chart showing the real exchange rate of the U.S. dollar and that of several foreign currencies is pictured in Rio de Janeiro, Brazil, December 16, 2015. REUTERS/Ricardo Moraes

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BRASILIA, Feb 16 (Reuters) – The Brazilian government is considering an income tax exemption for foreigners who invest in domestic corporate bonds, hoping to reduce the cost of financing local businesses at a time when interest rates are rising, the Economy Ministry announced on Wednesday.

In a statement to Reuters, he said authorities were drafting regulations to “broaden Brazilian companies’ access to foreign capital” by aligning the tax treatment given to corporate bonds with that already applied to equity investments by non-Brazilians. -residents.

Foreigners currently pay a 15% capital gains tax on local private sector bonds, but are exempt from this tax when investing in the Brazilian stock market and government debt. Brazilians pay a tax rate of 15-22.5% on corporate bond yields, depending on how long they are held.

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Two Economy Ministry officials said an executive decree was being drafted with the change as part of a minor capital markets reform, which was confirmed by two other ministry sources.

By opening the door to more foreign investment in Brazil’s capital markets, the country hopes to attract dollars and strengthen the local currency, which would help dampen double-digit inflation, one of the sources said.

The Brazilian real has strengthened by more than 7% against the US dollar this year, boosted by net financial inflows of just over $10 billion.

In 2006, Brazil exempted foreigners from income tax on their investments in public bonds, helping the government to lengthen its debt maturities while stimulating financial inflows.

An executive decree providing a similar exemption for corporate bonds should be ready soon, a source said, following studies by Brazil’s treasury and tax department. The move would require congressional approval to become permanent.

An initial review showed the proposed exemption had little impact on revenue, the source added, given the relatively small foreign holdings of corporate debt in the country.

A second source said the tax change would apply to local debt issued by non-financial corporations, a market currently worth around 1 trillion reais ($194 billion) according to bank data. central, with foreign investors now holding only 2.7% of the total.

($1 = 5.158 reais)

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Reporting by Marcela Ayres; Editing by Brad Haynes and Howard Goller

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