Brazil to exempt foreign investors from income tax, says economy minister

RIO DE JANEIRO, BRAZIL – The Brazilian government is expected to announce in the coming days the exemption of foreign investments in debt instruments of Brazilian companies from income tax.

In practice, this means that it will become cheaper for companies to obtain funds from foreign loans.

The measure is expected to encourage the capitalization of companies that have invested in privatizations in Brazil, such as road concessions.

“Private companies need cheap financing. In the past, when the government was the driving force [for investment], we gave foreign investors a tax exemption for buying [government-linked] bonds. Now that private investment is the driving force, we have to give the same exemption. So we will eliminate taxes on foreign investment in private bonds. We should announce this next week,” Minister Paulo Guedes told Folha in New York.

The measure is expected to reduce tax revenues by R$450 (US$85) million per year and can be adopted by the executive branch without going through Congress. Currently, 15% of capital gains from these investments are taxed when made by non-Brazilians.

Guedes traveled to the U.S. for meetings with investors in New York and Miami. On Tuesday, the minister attended an event at the Brazilian American Chamber of Commerce in New York. He spoke for about two hours to an audience of about 40 people made up of businessmen and financial market representatives.

He said that people abroad may be misinformed about Brazil’s current situation, highlighted positive figures in the country, such as the drop in unemployment to 11.6%, and said again that inflation in the country should be controlled this year.

“In Brazil, inflation [before the pandemic] was 3% and reached 10%. We are already living at 5,000%. Therefore, 10% is a no-brainer for us. It will be a matter of six or nine months, and then it will be over. But not here [in the U.S.]. Inflation is waiting for you at the next corner,” he said.

Guedes defended the government of Jair Bolsonaro. He said the government is making the transition from a state-led economic model, which he said has been adopted by all governments since the military dictatorship, to a scenario in which private investment prevails.

He believes that the current Brazilian crisis, with high unemployment, loss of income and purchasing power, is the result of previous governments that spent too much public money and suppressed entrepreneurship through excessive regulations and taxes.

“It is not Bolsonaro who has destroyed Brazil. The country has been destroyed for 40 years,” Paulo Guedes said. “He has bad manners, but he’s a nice guy,” he said in English.

He also said Bolsonaro and the right-wing parties are in a competitive situation in this year’s elections. “I’m not saying Lula won’t win, but it will be a contested election,” he predicted. Guedes also praised Tarcísio de Freitas, the current minister of infrastructure. “Tarcísio will be the next governor of São Paulo,” he predicted.

The minister also raised the idea of a common currency on the South American continent, in which Brazil could be the anchor, “just as Germany is with the euro.” If the idea had come up a few years ago, the economies of Argentina and Venezuela “could have been saved.”

“In four, five years, we will have a digital currency, blockchain, and no one will use cash anymore. Just like in China, where everyone pays with their cell phones,” he predicts. “In a few years, there will be six or seven relevant currencies in the world, and the others will disappear because of their irrelevance. Even the citizens of the countries that use them will abandon them,” he estimates.

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