Provisional Measure 651/2014 (PM 651/2014), originally published in the Official Gazette of 10 July 2014 and republished with correction on 11 July 2014, introduced several changes to the tax system, including new tax rules and exemptions related to the financial market.
The main new tax rules related to the financial market, which are effective as of 1 January 2015, are as follows:
- The administrator of the investment fund is responsible for the calculation and collection of income tax levied on capital gains realized by investors who use their own securities to capitalize the investment fund – the capitalization of securities is deemed to be a sale according to Declaratory Act 7/2007, so that taxpayers who capitalize investment funds with their own securities are deemed to derive capital gain (subject to income tax at the rate of 15%) on the difference between the market value and the acquisition cost of the security
- For this purpose, investors must demonstrate the acquisition cost of the securities. Failure to do so results in a deemed acquisition cost equal to zero
- Income and capital gains realized by investors in fixed income index investment funds (fundos de indice de renda fixa) are subject to withholding tax at special rates, provided that:
- The shares of the fixed income index investment fund are traded in stock exchange or over-the-counter markets
- The portfolio of the fixed income index investment fund tries to reflect the variations and profitability of fixed income indexes
- The regulation of the fixed income index investment fund determines that at least 75% of the portfolio must be invested in securities that reflect the relevant indexes
- In these cases, the applicable special withholding tax rates are as follows:
- 25%, provided that the average term of maturity of the fund portfolio does not exceed 180 days
- 22%, provided that the average term of maturity of the fund portfolio ranges from 181 days to 720 days
- 15%, provided that the average term of maturity of the fund portfolio exceeds 720 days
- Interest on stock or security lending is subject to income tax according to the following regressive rates:
- 22.5%, for transactions with a lifetime of up to 180 days
- 20%, for transactions with a lifetime ranging from 181 to 360 days
- 17.5%, for transactions with a lifetime ranging from 361 to 720 days
- 15% for transactions with a lifetime of more than 720 days
- As the lender is entitled to receive all earnings related to the stock or security lent during the lending period, the transfer of the amount of dividends and interest received by the borrower during the lending period to the lender, as reimbursement, is not subject to taxation
- For stock and securities lenders, the lending transaction is not subject to taxation on gains, provided that the lender receives back the same stock or security (i.e., same type, class and issuer) at the end of the transaction. However, any payment to the lender at the end of the transaction is treated as a sale with a capital gain computed as the difference between the amount received and the average acquisition cost of the stock or security
The main exemptions introduced for the financial market, which are effective as of 10 July 2014, are as follows:
- Capital gains derived by individuals on the sale of shares of small and medium-sized companies (SMCs) in the stock exchange market are exempt from income tax until 31 December 2023, provided that certain conditions are met (previously, they were subject to tax at the rate of 15%). This exemption is only applicable for shares acquired as of 10 July 2014 and under certain conditions
- The same exemption is granted on the sale of shares of investment funds that invest in shares of SMCs eligible for this tax benefit, under certain conditions, provided that the investment fund:
- Invest s at least 67% of its portfolio in shares of SMCs eligible for this tax benefit
- Has a minimum redemption period of 180 days
- Is designated as Investment Fund in Shares – Access Market (FIA-Mercado de Acesso)
- Has at least 10 investors who, individually or in combination with related persons, own a maximum of 10% of the fund's share
- Until 31 December 2023, capital losses related to shares of SMCs that qualify for this exemption cannot be offset against future capital gains
- The existing tax benefit (i.e., final withholding tax at a 0% rate for resident individuals and at a 15% rate for resident legal entities) granted to interest on debentures issued by legal entities specifically incorporated for the implementation of infrastructure projects or for carrying on research, development and innovation projects, originally scheduled to end in 2015, is extended until 2020
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