Brazil took steps in December to stimuluate the provision of long-term capital to infrastructure projects.
The country is host to the soccer World Cup in 2014 and to the summer Olympics in 2016.
It eliminated a 15% withholding tax at the border on interest that domestic borrowers pay to foreign lenders, provided the loans have an “average life,” calculated under special rules, of at least four years.
The loans must be made by December 2015. The borrower cannot have a right to prepay in the first two years. The interest payment periods must be at least 180 days. The lender cannot be in a tax haven or other country where the interest income faces a maximum tax rate of 20% or less.
Domestic individuals and corporations who make similar loans through special infrastructure funds to projects that are considered priorities by the government will also be given tax breaks. Individual investors will be exempted from the current 22.5% income tax on their returns and the corporate rate will be reduced from 34% to 15%.
In a move to attract more investment by foreign private equity funds, the government reduced a financial operations tax called the IOF tax from 6% to 2% on investments made by such funds, and it waived the five-year minimum hold period to qualify for an exemption from capital gain taxes upon exit.
Details of the new measures are in Provisional Measure 517/2010 and were published in the official gazette on December 31.