Brazil cuts tax on foreign investment in PE funds

Already private equity friendly, Latin America’s largest economy has reduced taxes for foreign investments in private equity funds, according to reports.

Brazil’s government has taken another step in creating a friendly environment for private equity – the government reduced taxes on foreign investments in private equity funds to 2 percent from 6 percent, according to a Reuters report.

The government cut the so-called IOF tax on foreign exchange transactions by overseas investors in an effort to increase long-term financing in the country. The 2 percent tax rate is for foreign investment in long-term Brazilian FIEE emerging company funds and FIP holding funds.

In October, the government raised the IOF rate on certain fixed-income and derivatives investments to 6 percent from 2 percent as part of an effort to slow heavy foreign investment and the recent strong appreciation of Brazil’s local currency.

The Brazilian government has taken a number of steps to build up the private equity market in the country, including authorising public pensions to invest in private equity funds. A number of well-established private equity shops have taken advantage of the friendlier environment, making big moves into the country.

The Carlyle Group and Apax Partners made their debut Brazilian investments in 2010, and The Blackstone Group bought a 40 percent stake in Brazilian asset manager Patria Investimentos. JPMorgan also moved into the country, buying a stake in Gavea Investimentos.

In May, global mid-market firm Advent International closed its fifth Latin America-focused fund on $1.65 billion, taking the title for the region’s largest ever private equity fund. The distinction did not last long, however, as Buenos Aires-based Southern Cross broke the record again in September by closing its fourth buyout fund on $1.68 billion.