Law 14,801, published on January 9, 2024:
- creates infrastructure bonds;
- amends the legal framework of incentivized bonds; and
- amends Law 11,478/07, which deals with the taxation of FIP-IE (Private Equity Investment Fund in Infrastructure), FIP PD&I (Private Equity Investment Fund in Innovation, Research and Development) and FI-Infra (Investment Fund in Infrastructure).
What is the difference between Infrastructure Bonds and Incentivized Bonds?
In the new type of bonds (“Infrastructure Bonds“), the tax benefit is granted to the bond issuer, unlike what happens in the so-called incentivized bonds, created by Law 12,431/11 (“Incentivized Bonds“), in which the tax benefit is granted to the investor, acquirer of the paper.
What are the characteristics of Incentivized Bonds?
- Who can issue them: Special Purpose Entity (SPE), concessionaires, licensees, authorizers, or lessees, incorporated as corporations, including their direct or indirect parent companies.
- Form of Distribution: public.
- Use of Resources: implementation of investment projects in the area of infrastructure or intensive economic production in research, development and innovation, provided that they are considered a priority in the form of the regulation to be issued by the Federal Executive Branch (“Regulation“).
- Approval of Projects: ministerial approval of projects will be waived for projects in sectors that, under the terms of the Regulation, are considered a priority and comply with certain requirements to be established also in the Regulation. Unlike what happened until then in Incentivized Bonds, to be considered a priority, the projects will not need to be approved individually, it is enough that they meet the criteria and priority sectors that may be defined in the Regulation.
- Deadline for Issuance: they must be issued by December 31, 2030.
- Exchange Variation Clause: it will be allowed, with the authorization of the Federal Executive Branch.
- ESG Bonds: Infrastructure Bonds and Incentivized Bonds that are used exclusively in investment projects that provide relevant environmental or social benefits, according to a specific external evaluation, will follow a simplified processing procedure and will have the stages of the project monitored based on the data self-declared by the project owner and the reports sent periodically.
- Taxation: The income of the holder of the Infrastructure Bonds is subject to withholding income tax, according to the rates applicable to fixed income financial investments. The benefit is the possibility of exclusion by the issuer of the Infrastructure Bonds, in the calculation of the taxable income and the CSLL tax basis, of the amount equivalent to 30% of the sum of the interest of the Infrastructure Bonds, without prejudice to the full deduction of these interest as an expense in the calculation of the net income.
What are the changes in the rules of Incentivized Bonds (Law 12,431)?
In relation to the Incentivized Bonds, the following changes were implemented:
- Ministerial Approval: ministerial approval of projects is now waived for sectors that, under the terms of the Regulation, are considered a priority and for projects that meet certain requirements to be established also in the Regulation; and
- Deadline for Reimbursement: the deadline for reimbursement of expenses incurred with the project, which was 24 months from the closing date of the public offering, becomes 60 months. This provision becomes effective only in the 37th month following the publication of Law 14,801.
What about the FIP-IE and FIP RD&I rules? Have there been changes?
Yes. Law 14,801 amended Law 11,478, which established FIP-IE and FIP-PD&I, as follows:
- Eligible SPEs: SPEs already eligible due to the execution of a concession, permission, lease or authorization agreement of a company with a public entity are now eligible for investment by FIP-IE and FIP-PD&I;
- Eligible Projects: now also include the other areas considered a priority by the Federal Executive Branch, pursuant to Law 12,431; and
- Classification Period: the period to start the fund’s activities changes from 180 to 360 days, as from the registration of operation granted by the Brazilian Securities and Exchange Commission (CVM), and the period for meeting the minimum classification requirements provided for in Law 11,478 is changed from 180 days to 24 months.
What is the change in the FI-Infra rules?
Regarding FI-Infra, the percentage of 85% that the Fund must maintain in assets referred to in Art. 2 of Law 12,431 (and which may be 67% in the first 2 years from the date of the first payment of shares) ceases to be levied on shareholders’ equity and becomes levied on the reference value of the Fund.
Reference value is defined as “the lowest amount between the Fund’s shareholders’ equity and the average of the Fund’s shareholders’ equity within 180 days prior to the calculation date“. The change allows for greater flexibility during the formation period of the FI-Infra portfolio.
In practice – what are the effects of the new regulation?
Considering that, in Infrastructure Bonds, the tax benefit is attributed to the issuer and not to the investor, the yield interest rate of these papers tends to be higher, benefiting investors whose portfolio is exempt from taxation, such as pension funds and investment funds and which, therefore, had no tax advantage for investment in the Incentivized Bonds. This type of investor, as a rule, was excluded from the issuance of Incentivized Bonds.