As of August 1st, it will be possible to establish the first Investment Funds in Agroindustrial Production Chains (Fiagros) based on the CVM Resolution No. 39/21 recently issued by the Brazilian Securities Commission (CVM). Created through Law No. 14,130/21, Fiagro is a collective investment vehicle aimed at private agribusiness financing, in the assets listed below:
- 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 Certificates (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
With the new resolution issued by the Brazilian Securities Commission – which has normative powers to regulate the form of constitution, operation and administration of investment funds, pursuant to Article 1,368-C of the Brazilian Civil Code – doubts were dispelled as to whether, in order to shorten the regulatory process, the public agency would allow the Fiagros to use CVM Instruction No. 472 regime, which regulates the functioning of real estate investment funds.
CVM Resolution No. 39/21 did not create a specific discipline for Fiagro, but, more quickly and without the opening of a public hearing, it admitted that, depending on the assets that will make up the fund's portfolio, it will be possible to use the existing regulations applicable to credit rights investment funds, real estate investment funds or equity investment funds, whichever is more appropriate. That is, the administrator must register the Fiagros with the Brazilian Securities Commission in one of the three categories indicated below:
- Credit rights investment fund, which should include in its name the expression "FIAGRO – Direitos Creditórios" (FIAGRO – Crédit Rights). CVM Instruction No. 356 will be applied to these funds and their registration will not be accepted in the category of non-standardized credit rights investment fund, a modality that the Brazilian Securities Commission is about to terminate, as indicated in the recent Public Hearing SDM 08/20;
- Real estate investment fund, which should include in its name the expression "FIAGRO - Imobiliário" (FIAGRO – Real Estate). CVM Instruction No. 472 will be applied to these funds, which can also invest in Agribusiness Receivables Certificates (CRA) and Agribusiness Letters of Credit (LCA); or
- Equity investment fund, which should include in its name the expression "FIAGRO - Participações" (FIAGRO – Holdings) and will be submitted to CVM Instruction No. 578.
The Brazilian Securities Commission also informed that the regulation is temporary and experimental. This indicates that the public agency will be able to edit a specific rule to discipline Fiagro in the future, even taking advantage of this experience, which will probably have a more extended regulatory process, with the participation of the market in a public hearing.
Fiagro’s tax incentives can expand credit for agribusiness
Created in a scenario of growing shortage of public resources, which are currently the main source of financing for Brazilian agribusiness, Fiagro aims to build a channel to expand the flow of private credit in financing the national productive sector, including allowing the participation of retail investors. Among the tax attractions of Fiagro, the following stand out:
- 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 fund has 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);
- 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) with the same Withholding Income Tax exemption applicable to the individuals.
In addition to these incentives, 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.
Therefore, we will soon see the creation of the first Fiagros in Brazil, initiating the realization of the idea of operating a transition in the Brazilian agribusiness financing model that motivated the creation of this legal instrument, in addition to allowing the use of such fund for estate and succession planning, among other possibilities that the market can explore.
For more information on the characteristics of Fiagro, please visit our articles: Fiagro: new alternative of private financing for Brazilian agribusiness and Fiagro: after overturning vetoes in the National Congress, agribusiness gains financing mechanism with fiscal attractiveness for investors.