The changes in the taxation of the so-called exclusive funds may affect about 2,500 super-rich Brazilians, according to the federal government. It means 0.001% of the country’s population. However, the expected revenue from the measure can generate enough money to finance about one-third of the Minha Casa, Minha Vida program (My House, My Life Program).
According to the government, the taxation of exclusive funds may generate 24 billion reais to the state between 2023 and 2026. Next year, the tax revenue may surpass 13 billion reais. This year, similarly to estimates for 2025 and 2026, the tax revenue could reach 4 billion reais each period.
The program was relaunched by President Luiz Inácio Lula da Silva (Workers’ Party) and has a budget of 10.5 billion reais (about US$ 2.15 billion) in 2023. Until 2026, the program intends to build 2 million houses.
The taxation of exclusive funds was established in a provisional measure (MP, in Portuguese) signed by President Luiz Inácio Lula da Silva on Monday (28). According to Alexandre Tortato, a lawyer with a master’s degree in Tax Law, it equalizes the taxation of funds of the super-rich with those of ordinary investments offered by banks and financial brokerages to ordinary citizens.
Investors on regular funds pay between 15% and 20% in taxes on their income with investments twice a year in the so-called “quota eater” system. Before the measure, the taxation of this kind of income only happened with the reclamation of the money invested.
“What we are doing is to equalize the taxation of these models, which is the right and fair thing to do”, Tortato summarized. “Why won't the taxation of someone who has 10,000 reais in an open-end fund be the same as that of someone who has 30 million reais in an exclusive fund?”, he asks.
According to the federal government, exclusive funds have a combined asset worth 756.8 billion reais, representing 12.3% of all the money invested in Brazil. In order to have access to an exclusive fund, an investor must have at least 10 million reais available to invest. The investor also needs to be willing to pay up to 150,000 reais a year in management fees.
“These are family or individual funds. That is why they are called exclusive. Financial experts say the balance average of these investors is 20 million or 30 million reais needed to create a balance to cover the expenses of regulatory agencies”, Tortato added.
Offshores
On Monday, Lula also signed another bill to tax investments of Brazilian citizens obtained abroad through offshore companies, most of them in tax havens. Tortato restated that, in this case, there was also an adjustment in taxation.
Offshore owners already had to pay taxes on the income from their investments abroad when they reclaimed it. Now, they will have to pay taxes on income.
Tortato highlighted that offshore investments are legal in Brazil, as long as reported to Brazil’s Revenue Service. In 2021, for instance, over 800,000 Brazilians had offshore investments or accounts abroad reported to the Revenue Service. Among them are former Minister of Economy Paulo Guedes and the current chief of Central Bank Roberto Campos Neto.
By the way, Guedes was summoned to Congress to explain his investments in the British Virgin Islands, a tax haven. At the time, he stated that he had an offshore since 2014 to avoid paying taxes.
According to the federal government, Brazilians have over 1 trillion reais invested abroad, which can generate 7 billion reais per year in taxes. The sum is almost the same as the transfers that the government makes to the private sector to boost sectors of the economy.
The taxation varies from 0% to 22.5% depending on the investor's income abroad.
Lula’s statement
On Tuesday (29), President Lula said the changes in taxation are commitments he made during his election campaign and aim for the well-being of the Brazilian population. “It is crucial people understand that the welfare state in Europe and other countries exists because of the equitable contribution and fairer taxation on income. It isn’t like what we see in Brazil, where poor people pay more taxes proportionately than bank owners”, he said.
“We prepared a bill to tax the super-rich and people who invest money in offshores, mainly those abroad. That is, [we want to tax] those people that earn more money and pay less taxes to Brazil’s Revenue Service”.
Both the provisional measure on exclusive funds and the bill on offshores will need to be approved by Congress to become law. The taxation of offshore companies, by the way, was sent in the form of a provisional measure but lost its validity. It is now being presented as a bill.
Lula said that this time, he expects parliamentarians "instead of protecting the richest people, protect the poorest ones".
