In Brazil, project finance is especially important in the context of public-private partnerships (including traditional “concession schemes”). Sponsors are usually industry developers – in particular, civil contractors – and, to date, most PPP contracts count on debt raised via development banks, such as Banco Nacional de Desenvolvimento Econômico e Social (BNDES) and Caixa Econômica Federal (CEF).
As Brazil is a civil law country, there are specific laws regulating PPPs. Concession schemes (also known in most countries as “user-pays” PPPs) are regulated by Federal Legislative Act No 8.987/95 (the “Common Concessions Act”), which affords specific legal provisions both for public procurement and for contractual issues.
In Brazil, the British PFI model is regulated as two specific types of concessions under Federal Legislative Act No 11.079/04 (the “PPP Act”). Under the PPP Act, “government-pays” PPPs are called “administrative concessions” when all the funding comes from the government, either because the service is free of charge for users or because the service is provided directly to the contracting authority. Whenever government funding coexists with user payments, the PPP contract is called “sponsored concession” (since part of the funding comes from the government). Also, under the PPP Act it is possible for financing to be granted for capital expenditures, and more elaborate securities can be provided for the special purpose vehicle (SPV) by the government.
Certain industries also have specific regulatory provisions that must be met, in addition to either the Common Concessions Act or the PPP Act. Some examples include for:
Thus, in general terms it is common for industries to have their own specific law that must be combined with the general provisions of either the PPP Act or the Common Concessions Act.
Project companies are usually incorporated as SPVs and are usually owned by the parent companies that are responsible for sponsoring and/or developing PPP projects (in a broad sense, encompassing government-pays and user-pays PPPs, with the latter usually referred to as “concession schemes”). In Brazil, project companies are generally incorporated either as limited liability companies or as private stock corporations. The latter tend to be more common, especially in mega-projects, because of the higher level of legal governance required by the Joint Stock Company Act of 1976. It is also possible to perform an initial public offering of a project company incorporated as a private stock corporation, though this is not yet common in Brazil.
In Brazil, project finance is mostly structured in capital-intensive public infrastructure projects. Private projects may also rely on project finance, as in the real estate industry (in particular, shopping malls and logistic plants/facilities), though public infrastructure is certainly where project finance is seen the most. Project finance has reached the billion-dollar mark for user-pays PPP (concession scheme) contracts.
There have been recent cases of success involving non-recourse project finance, such as the MT-100 highway user-pays PPP (concession scheme) in the State of Mato Grosso – financial close was reached in early 2022. Finance was granted by BNDES, the Brazilian development bank.
Recently, in December 2022, BNDES approved for another loan to be granted on a non-recourse basis, in the basic sanitation industry. According to recently published news, BNDES will grant approximately BRL19 billion (roughly USD3.6 billion) in order to gear up Águas do Rio, the SPV responsible for the largest contract in this industry in Brazil, in a user-pays PPP (concession scheme).
In addition, the road concessions that reached commercial close in the State of São Paulo in 2009, 2014 and 2019 were all financed via project finance – the latter being the Piracicaba-Panorama road concession encompassing 1,200km of roads in the São Paulo State countryside, with an estimated capital expenditure of BRL14 billion (roughly USD2.5 billion). This was also the first case in Brazil where a consortium was formed by only financial investors – in this case, Singapore’s Sovereign Fund and the Pátria Fundo de Investimentos, a well-recognised national investment fund.
Public lighting projects are also being financed via project finance, as there is a special tax paid by electricity consumers that must be spent on the operation and maintenance of public lighting systems. The revenues from such tax collection can be used to secure government payments in the correspondent PPP contracts.
Roads, electricity, water and wastewater, airports, public transportation and mobility are among the more traditional industries. National parks are also now an official trend in the Federal PPP programme, and iconic parks such as Iguaçu Falls and Lençóis Maranhenses, São Joaquim National Park, Chapada dos Guimarães National Park and Jericoacoara National Park have been included in the pipeline, and are all being structured/tendered as PPPs, in addition to historical buildings/sites following “Revive Portugal”.
As Brazil is a civil law country, all securities are established by a specific legislative act. According to the Civil Procedure Code, cash and bank deposits are the general rule in terms of security. In such cases, the creditor must obtain a judicial warrant in order to notify the bank.
Generally, any type of asset can be named as security, but general practice is to judicially enforce and sell the asset so that proceeds can be used to pay the creditor. An exception applies to the “fiduciary cession” where banks do not need judicial proceedings to be brought in order to auction the assets taken as security.
Security can also be taken over shares. In Brazil, all shares are in certificated form; however, according to the Civil Code, it is only possible to enforce this form of security if all others have been depleted or are insufficient. Additionally, although assets in general (such as real estate, plants, buildings and crops) can be taken as security, regulated assets (such as public utilities, and public and governmental infrastructure) cannot, under any circumstances, be expropriated or sold to pay for defaulted obligations. In such cases, though, the Concessions Legislative Act provides for the PPPs’ receivables being security, as well as for ensuring that the lender can step in to avoid bankruptcy by refinancing debt and restructuring the project’s cash flow.
Receivables can be taken as security specifically in PPP contracts (in a broad sense, encompassing both government-pays and user-pays PPPs, concession schemes and other PPP-like contracts that fulfil the IPSAS 32 PPP concept). For the chargor to collect, the debtor must incur breach of contract or default. Specifically, the public authority must be previously notified if the PPP contract has already so stipulated. However, in some cases, depending on the PPP contract’s provisions, the public authority must approve collection for contract breach or default by the debtor.
It is also possible to use trusts. Such parties are designated as “fiduciary agents”. This concept is regulated by Instruction Norm No 583/2016, enacted by the Comissão de Valores Mobiliários (CVM), which functions as the Brazilian counterpart to the US Securities and Exchange Comission (SEC). Additionally, although security trusts exist, it is possible (especially for small contracts) to enforce the mechanisms of parallel debt and joint and several creditor status.
Under Brazilian law, it is permissible to create a “floating charge” or other universal or similar security interests that encompass all the current and future assets of a company.
In Brazil, the costs associated with registering collateral security interests can vary depending on several factors, including:
Common costs and fees associated with registering collateral security interests in Brazil may include:
Under Brazilian law, for the granting of security interest, it is necessary to specify the collateral. Certain categories, such as real estate, require specific registration in the Real Estate Registry (Cartório de Registro de Imóveis).
Regulated assets (such as public utilities, and public and governmental infrastructure) cannot, under any circumstances, be expropriated or sold to pay for defaulted obligations.
Guarantees must necessarily be individualised. However, as stated in 2.4 Granting a Valid Security Interest, certain categories (such as real estate) require specific registration. Regarding real guarantees, it is important to emphasise that the removal of the registration is required once it has been fulfilled.
Other guarantees, as previously discussed, do not have specific formalities.
In Brazil, lenders typically satisfy themselves with respect to the absence of other liens on their collateral through a combination of due diligence, legal procedures and searches. The presence of liens on collateral can significantly impact on a lender’s risk, so thorough checks are essential.
It is necessary to register real guarantees with an indication that the guaranteed obligation has been satisfied.
The other forms of guarantee, as a rule, do not require specific formalities – in such cases, it is sufficient that the guaranteed obligation has been satisfied or that the validity period of the guarantee has expired.
In Brazil, a secured lender can enforce its collateral under various circumstances, typically when the borrower defaults on the loan or fails to meet the obligations specified in the loan agreement. The specific methods, procedures and restrictions for enforcing loans, guarantees and security interests can vary depending on the type of collateral and the terms set out in the security agreement(s).
The choice of a foreign law as the governing law of a contract and the submission to a foreign jurisdiction is generally upheld and recognised by the Brazilian legal system. Brazilian law respects the principle of party autonomy in contractual matters, meaning that parties to a contract have a significant degree of freedom in choosing the governing law and jurisdiction for resolving disputes.
In Brazil, a judgment given by a foreign court or an arbitral award can be enforceable, but may require judicial recognition and enforcement procedures. These procedures typically do not involve a retrial of the merits of the case. The enforceability of foreign judgments and arbitral awards is governed by Brazilian law, which has specific rules and processes in place for determining their recognition and enforceability.
Article 1,134 of the Civil Code sets forth a series of requirements for a foreign company to operate effectively in Brazil. It outlines specific formalities to be observed, such as the need for authorisation and the documents that must accompany the application. This includes the submission of documents that prove the foreign company’s legal existence in its home country, as well as its capacity to operate in Brazil. Compliance with these requirements is essential to ensure that the foreign company can operate in accordance with Brazilian law.
There are no significant restrictions on foreign lenders granting loans in Brazil. Foreign capital inflow and currency exchange are generally allowed, subject to compliance with the Central Bank’s procedures for declaration and registration. However, direct foreign investment in financial agents such as commercial banks does require authorisation from the Central Bank.
Additionally, currency operations are subject to the financial operations tax (IOF) at varying rates. It is important to note that onshore accounts must be in Brazilian reais, but companies can establish and maintain offshore accounts with the requirement of full disclosure to the Receita Federal do Brasil (similar to the US Internal Revenue Service) and the Central Bank.
In Brazil, the granting of security or guarantees to foreign lenders is generally not restricted or impeded. Brazilian law allows for the provision of security interests or guarantees both to domestic and to foreign lenders, and there are no specific legal restrictions that discriminate against foreign lenders. However, it is essential to ensure compliance with relevant exchange control regulations and to review specific financing agreements for any lender-specific requirements or conditions.
Brazil has a well-defined and regulated foreign investment regime designed to attract foreign capital while protecting national interests and promoting economic development. It is characterised by its openness to the participation of foreign investors in many sectors of the economy, with rights and legal protections equivalent to those of domestic investors. While there are some restrictions in specific sectors, most areas welcome foreign investment without discrimination, encouraging foreign capital and economic development.
Foreign investors must comply with registration requirements, regulatory reporting requirements, and foreign exchange, tax and labour regulations, and may be subject to national security reviews in critical sectors. Legal counsel is often recommended to successfully navigate the foreign investment regime in Brazil.
No information is available on this topic.
It is generally permissible for a project company in Brazil to maintain offshore foreign currency accounts.
Certain financing or project agreements may need to be registered or filed with government authorities, or to comply with local formalities, to be valid and enforceable. This often applies to security agreements, real estate transactions and regulatory approvals. For instance, mortgage agreements on real estate assets must be registered with the Real Estate Registry to establish valid security interests.
Additionally, the National Registry of Vehicle Property (RENAVAM) may require registration for security interests in movable assets such as vehicles. Compliance with local formalities and registrations is crucial for ensuring the enforceability and validity of financing and project agreements in Brazil.
In project finance scenarios in Brazil, ownership of land or natural resources, as well as the operation of such assets, requires licences or permits. These requirements can vary depending on the specific location and type of project, especially in sectors such as energy, mining and agriculture.
While Brazilian law generally allows foreign entities to hold licences for land or natural resource ownership, specific regulations and restrictions may apply in some cases, particularly concerning rural land ownership. Due diligence and compliance with local licensing requirements are crucial for ensuring the legal operation of such assets in Brazil.
In Brazil, the agent and trust concepts are recognised and widely used in project finance arrangements. Trust structures, often referred to as “fiduciary assignments” or “fiduciary trusts”, are commonly employed for holding assets or rights on behalf of lenders and project participants. These structures provide a level of security and separation of assets, facilitating the management of collateral and the enforcement of security interests. In addition to trust structures, security and collateral arrangements, such as mortgages, pledges and other forms of guarantees, are also common in project finance for securing lenders’ interests.
In Brazil, security interests are ranked based on the order in which they were created or registered. Methods of subordination, where one security interest takes precedence over another, are recognised and can be contractually agreed upon. These subordination provisions can survive the insolvency of a borrower incorporated in Brazil, subject to certain legal constraints. However, during insolvency proceedings, the ranking and enforceability of these subordination agreements may be subject to the court’s approval and alignment with the specific insolvency laws and creditor hierarchy defined by the insolvency process.
Many projects are established as Brazilian entities. The typical legal form of a project company in Brazil is a limited liability company (sociedade limitada) or, in the case of more significant and complex projects, a corporation (sociedade anônima). Often, projects are set up in the form of a “special purpose company” (sociedade de propósito especial – SPE).
The choice of legal form depends on factors such as the nature of the project, capital requirements and the preferences of project participants. Project companies are often established as separate entities to ring-fence their liabilities and risks from their shareholders and parent companies, aligning with the objectives of project finance. Legal advisers play a crucial role in determining the most suitable legal structure for each project.
In Brazil, the availability and practice of company reorganisation procedures are governed by the Brazilian Bankruptcy Law (Law No 11,101/2005). This law provides a legal framework for companies facing financial distress to initiate reorganisation proceedings, which can include debt restructuring, asset sales and other measures aimed at preserving the business and protecting creditors’ interests.
Companies typically file for judicial reorganisation when they encounter financial difficulties. If approved by the court and creditors, a plan is developed to repay debts and stabilise the company’s operations. This process aims to prevent liquidation and allow the company to continue operating, while addressing its financial challenges.
When an insolvency process begins in Brazil, the lender’s rights to enforce its loan or any security or guarantee are typically affected. The automatic stay or “stay of execution” comes into effect, preventing creditors from initiating or continuing legal actions against the insolvent debtor. During this period, the lender’s ability to take legal action to recover the debt or enforce security interests is temporarily suspended.
Instead, creditors become participants in the insolvency process, subject to the decisions and negotiations under the court’s supervision, and their claims are addressed in accordance with the priorities and terms set forth in the reorganisation or liquidation plan. This legal framework is designed to provide a fair and orderly process for addressing insolvency, while protecting the interests both of debtors and of creditors.
The payment of debts follows the following order of preference:
In Brazil, lenders face several risk areas if the borrower, security provider or guarantor were to become insolvent. These risks include:
Cross-border considerations and the effectiveness of contractual provisions, as well as legal costs and regulatory changes, further complicate the lender’s position in insolvency scenarios. To mitigate these risks, thorough due diligence, well-structured financing agreements and ongoing monitoring are essential, along with engagement of legal and financial experts versed in Brazilian insolvency and bankruptcy law.
In Brazil, certain entities, including financial institutions and co-operatives, are excluded from regular bankruptcy proceedings.
Instead, they are subject to specialised insolvency procedures, governed by specific legislation, such as the Brazilian Bankruptcy Law and the Brazilian Central Bank’s regulations. These procedures are designed to address the unique characteristics and systemic importance of financial institutions and co-operatives, with the objective of preserving financial stability and protecting depositors and creditors.
In Brazil, there may be restrictions, controls, fees and taxes associated with insurance policies over project assets, particularly if the project involves specific sectors or significant values. The insurance industry is subject to regulation, and the specific requirements and fees can vary depending on the type of insurance and the nature of the project. Taxes such as the insurance premium tax (IOF) may apply to insurance policies.
In Brazil, insurance policies over project assets can be structured to make payments to foreign creditors, though this depends on the specific terms and conditions outlined in the policy. Typically, insurance policies can be customised to meet the needs of the policyholder, and beneficiaries can be designated accordingly.
When foreign creditors have an insurable interest in the project assets and are named as beneficiaries in the policy, they can receive payments in the event of a covered loss or claim. The specific details and eligibility of foreign creditors to receive payments should be determined by reviewing the terms and provisions of the individual insurance policy.
The payments of interest made to foreign lenders are subject to withholding tax in Brazil. The withholding tax rate for interest payments to foreign lenders has been generally set at 15%, but could vary depending on the specific terms of tax treaties between Brazil and the lender’s country of residence. Payments of principal, on the other hand, are typically not subject to withholding tax.
Lenders making loans to entities incorporated in Brazil should take into account various tax considerations, including:
Additionally, transfer pricing and thin capitalisation rules, tax treaties and currency exchange regulations should be considered, as they may affect the tax treatment and overall cost of lending.
Brazil has usury laws and regulations that limit the amount of interest that can be charged on loans. The specific limits on interest rates can vary depending on:
The Central Bank of Brazil typically establishes guidelines for maximum interest rates that financial institutions can charge on various types of loans. Additionally, certain financial transactions may be subject to even stricter usury rate limitations. Certain jurisprudential decisions limit the charging of interest.
There is no specific legislative provision regarding project finance. It is important to note that, as applicable to any financial agreement, loans structured via project finance must comply with general banking regulations enacted by the Brazilian Central Bank, and funds and bonds must comply with regulations enacted by the Comissão de Valores Mobiliários (CVM).
Project agreements are all governed by Brazilian law. Most projects in Brazil are user-pays PPPs that do not require any funding from the public authority and are traditionally known as “concession schemes”. Correspondent project agreements are governed by Federal Legislative Acts No 8.987/1995 and No 9.074/1995. Government-pays PPPs and user-pays PPPs that require partial government funding are governed by Federal Legislative Act No 11.079/2004 and by the aforementioned – this covers the general rules.
Specific industries must observe the law of the corresponding sector:
It is important to remember that the general legislative acts regarding “concessions” and PPPs also apply to all industries regarding fundamental project agreement provisions.
Financing agreements in Brazil are typically governed by a combination of Brazilian law, including:
In the context of project finance, domestic law in Brazil typically governs matters such as:
Additionally, contract law and dispute resolution procedures fall under domestic law, often subject to Brazilian courts or arbitration processes within the jurisdiction, and influenced by the legal framework and regulatory requirements of Brazil’s domestic legal system.
Trends in Project Finance in Brazil
The expansion of mass consumption demands a permanent effort to maintain, modernise and increase the infrastructure of a nation. In the case of Brazil, infrastructure bottlenecks have been highlighted by a decade of economic growth that has increased the demand for services in a country with a growing middle class.
When compared to other BRIC countries (Brazil, Russia, India and China), Brazil has a low investment rate in infrastructure, with an average of 2.25% of GDP for the last two decades. This is usually explained by a low level of domestic savings, fiscal problems in the public sector and few options for long-term financing.
The Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) has historically been the main source of financing for infrastructure projects in Brazil. Due to the Brazilian fiscal crisis and a more liberal agenda, the BNDES is moving to a market interest rate and reducing its presence. As a result, sponsors have been looking at other sources of financing for infrastructure projects, mainly through the debt capital markets, multilaterals and export credit agencies.
In the last couple of years, the following were seen:
Many “first-of-their-kind” financing structures have also been seen recently.
In parallel, other government-owned entities (agencies or regional development banks) have increased their participation in financing projects.
The market expectation is that the share of financing granted by development banks, commercial banks, capital markets, export credit agencies and receivables investment funds (fundo de investimento em direitos creditórios – FDICs) may increase in the next few years, as a major opportunity for new players in the Brazilian project finance market.
As projects are moving from single-source to multi-source financing, often with a major cross-border component, this requires not only deep knowledge of local and international project finance standards, but also the ability to navigate multiple cultures and bridge the gaps between the different parties involved in the transaction.
Role of the BNDES
Since the mid-1990s, private companies have been allowed to operate public services in Brazil by means of concession, permission or administrative authorisation. The BNDES has been the main source of capital for funding infrastructure projects in Brazil, mainly due to its subsidised interest rates.
As part of efforts to reduce the Brazilian fiscal deficit and redirect government subsidies, on 21 September 2017 the Brazilian Congress enacted Law No 13,483 to confirm the replacement of the traditional BNDES subsidised interest rate (taxa de juros de longo prazo – TJLP) with the taxa de longo prazo (TLP) for loans granted by the BNDES as of 1 January 2018. In 2018, the TLP was fixed at the same level as the TJLP and will gradually increase, from 2023 onwards, until it is calculated based on the official Brazilian inflation rate (índice de preços ao consumidor amplo – IPCA) plus the yield on government bonds (notas do tesouro nacional série B – NTN-B).
It is expected that the TLP will reach the interest rate on Brazilian government bonds in a few years.
While the TLP may increase the cost of BNDES loans, it is expected that, broadly speaking, it will allow commercial banks and the capital markets to become more competitive and develop other sources of long-term financing.
Nonetheless, the BNDES continues to play a major role in long-term financing in Brazil, especially with the new political agenda. BRL97.5 billion was disbursed during 2022, representing an impressive increase of 51% compared to 2021.
In view of the recent economic downturn, the Brazilian government’s efforts to attract investment in national infrastructure projects are largely associated with the attraction of foreign capital.
One of the aspects that currently prevents foreign financing of Brazilian infrastructure projects is the foreign exchange risk to which infrastructure investors are exposed, considering that projects’ cash flows are denominated in Brazilian reais and adjusted with inflation.
Although long-term hedging could address the risk of currency mismatch, this method is not available in Brazil – or, when it is, only at prohibitive cost. The government is currently studying alternatives to protect infrastructure projects from that mismatch through tax incentives and regulatory authorisations.
Given the historical lack of regulation on currency mismatch, it is still unusual for infrastructure projects in Brazil to be financed with foreign capital. Nonetheless, the Brazilian government is focusing its efforts on replicating the successful policies of other Latin American countries and developing an alternative funding source for infrastructure projects. One possible alternative is the indexation of part of the tariffs paid by users of public services to a foreign currency or a basket of foreign currencies. The risk of a major devaluation of the Brazilian real can be mitigated, in this case, through the structuring of the financing conditions by means (for instance) of the stipulation of a grace period triggered by the currency devaluation event – considering that currency devaluation events are, as a rule, followed by macro-economic adjustment policies.
Another possible measure is the adoption of a foreign currency indexation mechanism for part of the concessionaire’s revenues without transferring the risk to the users of the public service. In this case, the risk of a foreign exchange variation (either positive or negative) is borne by the granting authority. Moreover, the Brazilian government can offer a long-term swap to investors, directly or by means of the BNDES, in exchange for a percentage of the remuneration. In this scenario, even in the case of a higher devaluation of the Brazilian real in relation to the US dollar, the existence of exchange reserves and increases in tax collection could operate as a natural protection mechanism for the Brazilian government. There would not be such a severe impact on the treasury, since project finance debts related to infrastructure projects are partially amortised over long periods.
Non-recourse Project Financing
As a rule, Brazil has yet to achieve non-recourse project financing for local projects. Infrastructure finance is usually guaranteed by corporate guarantees from sponsors until financial completion. Therefore, a creditor’s review of construction agreements and pre-operational issues is usually not extensive, and credit analysis for these risks is mostly based on sponsors. Equity support agreements are also commonly used to guarantee contributions from sponsors in order to achieve completion. Some equity support agreements go beyond typical international practice and provide that sponsors must cover the amount of the debt.
Due to the influence of international sponsors and private equity players, there has been some discussion in recent years regarding the reduction of the amount of recourse against sponsors during the construction phase, which has led to an interesting debate about the optimal risk allocation among the parties involved in a project.
In 2022, the BNDES funded a “first-of-its-kind” non-recourse financing of BRL6.9 billion for the construction and operation of Line 6 of the São Paulo metro. The BNDES’ risk during construction is partially covered by non-recourse bank guarantees, which is an innovative feature for BNDES-funded financings.
In the next few months, the expectation is that international and private equity sponsors will continue to push for a more limited recourse structure in Brazil. This will force lenders to be more creative and to identify, analyse and allocate project risks adequately.
Capital Markets – Green Bonds
Along with the efforts to boost the capital and financial markets to replace traditional sources of financing, Brazilian public and private entities are also motivated to allocate resources to low-carbon infrastructure projects in order to comply with the ambitious environmental commitments made under the Paris Agreement. Because of this strategy, the BNDES has issued a USD1 billion green bond to raise resources in the foreign market to fund eight wind power projects in Brazil.
Companies and commercial banks in Brazil have shown an interest in the Brazilian potential to develop the green agenda. National and foreign institutional investors representing around BRL1.8 trillion of assets in Brazil have signed the Brazil Green Bonds Statement, in which they commit to contribute to the development of the green bond market in Brazil.
Bonds for infrastructure projects are also becoming more common, and may result in tax benefits for investors when the use of the proceeds involves the construction of new works (greenfield or brownfield projects) and the project is within the requirements set out by the government for “priority infrastructure projects” (as per Brazilian Law No 12,431 of 27 June 2011).
In addition, in 2018 the BNDES and the InterAmerican Development Bank released a partnership to set up a BRL1.2 billion infrastructure credit fund. The purpose of the fund is to foster investment in debt instruments in the transportation, energy and sanitation sectors, and in social infrastructure, such as health and education.
Finally, the above-mentioned changes made by Brazilian policymakers in response to the current macro-economic scenario are expected to increase the share of capital market and commercial banks in Brazilian project financing. Therefore, project finance in Brazil is expected to remain one of the main sources of funds, at least for the near future.
Capital Markets – Infrastructure Private Equity Investment Funds
With interest rates in Brazil reaching their lowest levels in history, sponsors are energetically looking for capital markets structures to finance infrastructure projects. In this context, several FIP-IEs were structured and issued in 2022, under Brazilian Law No 11,478 of 29 May 2007.
Investors in FIP-IE structures have some tax benefits (Brazilian-resident individuals are entitled to a zero income tax rate, both in the distribution of earnings via quota amortisation and in capital gains obtained with the sale of quotas, subject to some requirements), which makes the FIP-IE a popular product in the Brazilian capital markets.
At least 90% of a FIP-IE portfolio must be comprised of securities issued by companies (sociedades por ações) incorporated under Brazilian law (eg, shares, warrants and debentures) and related to infrastructure projects in the following sectors:
The FIP-IE could be an alternative for projects that cannot tap the Brazilian capital markets through infrastructure debentures.