The Investment Fund in Agroindustrial Production Chains (Fiagro), created in the first quarter of this year through Law No. 14,130/21, is an investment instrument focused on financing agribusiness production chains. Its creation, driven by the sector, followed a rapid process of the bill in the National Congress and allows the transition of the financing model of Brazilian agribusiness, today based mainly on government subsidies, to a model that increasingly includes private credit.
Faced with the high indebtedness of the federal government, fiscal restrictions and major socioeconomic issues to be faced, there are indications of an increasing shortage of public resources for the sector in the coming years, which had already been perceived and eventually drove the creation of the fund. It opens up the possibility for private investors to make a strategic and valuable contribution to the country's productive sector.
In the face of several climate changes in various agricultural regions and population growth on a global scale, Brazil has remained one of the main suppliers of agricultural commodities in the world, thanks to the increasing efficiency of Brazilian agribusiness, which increasingly relies on technology as an ally. The expectation is that the sector will continue to grow, but its development, which involves continuous investment in modernization, requires funding.
Fiagro allows investments in the following listed assets, directly related to agribusiness financing:
- properties, which may be leased or disposed of by the fund;
- participation in companies that explore activities that are part of the agro-industrial production chain;
- financial assets, credit securities or securities issued by individuals and legal entities that are part of the agro-industrial production chain (including the Rural Product Note (CPR), the Agribusiness Credit Rights Certificate (CDCA), the Agribusiness Letter of Credit (LCA), the Agricultural Deposit Certificate (CDA), the Warrant Agricultural (WA), the Rural Real Estate Note (CIR);
- agribusiness credit rights and securitization securities issued with ballast in agribusiness credit rights, including Agribusiness Receivables Cerificates (CRAs) and quotas of Investment Funds in Credit Rights (FIDCs) – standardized and non-standard – that apply more than 50% of their equity in said agribusiness credit rights;
- real estate credit rights related to rural real estate and securitization securities issued with ballast in these credit rights, including CRAs and quotas of FIDCs – standardized and non-standard – that apply more than 50% of their assets in said real estate credit rights; and
- investment fund quotas that apply more than 50% of their equity to the assets listed in the assets listed above.
However, as Law No. 14,130/21 was partially sanctioned, with a veto of important provisions that conferred fiscal attractiveness to the fund, the use of the instrument in question was called into question in the last two months. There was great expectation in the market, especially among entrepreneurs and agribusiness investors, about the overthrow or not of vetoes in the National Congress, on which the economic viability of the instrument depended as a true alternative to attract private investment.
On June 1, however, the vetoes were all overturned by the National Congress, and Fiagro became in fact an excellent alternative for the agribusiness sector, with real fiscal attractiveness for investors, namely:
- Withholding Income Tax exemption for incomes earned by Fiagro whose quotas are traded on a stock exchange or over-the-counter market and are distributed to individuals, provided that the following requirements are met. As in the Real Estate Investment Fund - FII, in order to obtain this benefit, Fiagro must have at least 50 quota holders, and the individual enjoying the benefit may not have (i) quotas representing 10% or more of all quotas issued by Fiagro or (ii) quotas entitled to receive income greater than 10% of the total income earned by Fiagro;
- deferral for payment of income tax arising from the capital gain on quotas paid with rural property by natural or legal person to (i) the date of sale of these quotas or (ii) the date of redemption of these quotas, in the case of liquidation of the fund. The payment of such deferred tax shall be proportional to the amount of quotas sold. This provision is a great stimulus for the payment of FIAGRO quotas with rural properties, allowing the structuring of FIAGRO by rural owners in a less costly way, once there will be no need for payment by the quotaholder of the capital gain at the time of the payment of the quotas with the rural property (but only at the time of sale or redemption of the quotas), which makes the structure more affordable;
- the investment, through the Fiagro structure, in Agricultural Deposit Certificate (CDA), Warrant Agricultural (WA), Credit Rights Certificate (CDCA), Agribusiness Letter of Credit (LCA), Agribusiness Receivables Certificates (CRA) and Rural Product Note (CPR) becomes attractive, since it will be up to the same Withholding Income Tax exemption applicable to the individual. The Withholding Income Tax incentive is quite similar to that granted to the Real Estate Investment Fund to invest in securities related to real estate financing, which, at that time, led to the broad adoption of Real Estate Investment Funds structures.
additionally it is also worth remembering that the taxation of Fiagro's earnings and income may be postponed to the time of amortization, redemption or disposal of its quotas, since, unlike the Real Estate Investment Fund, Fiagro is not obliged to distribute to its quota holders a minimum of 95% of the profits earned, calculated according to the cash regime, based on balance sheet or semiannual balance sheet.
Because they are securities, Fiagro's quotas attract the regime of Law No. 6,385/76 and the competence of the Brazilian Securities and Exchange Commission (CVM) to regulate the form of constitution, operation and administration of the fund. It is expected that, soon, the CVM will edit a regulation on Fiagro, which should comply with the guidelines of Law No. 14.130/21. The expectation is that this will give way to the creation of several funds of such type.
With the initiative, agribusiness now has an important private financing instrument to enhance its growth at a time of strong fiscal constraints, while the capital market now has a new and attractive financial product.
For more information on the characteristics of Fiagro, please visit our article Fiagro: new alternative of private financing for Brazilian agribusiness.