Decree No. 10,387/20, published on June 5, is an important step towards the development of the green and social bonds market in Brazil. Green bonds are fixed-income securities issued in connection with the implementation, expansion, or refinancing of projects or assets that have a positive impact from an environmental or climate point of view. Social bonds are securities issued in connection with social projects with positive impacts for society in general.

The new rule extended the current priority treatment of infrastructure projects to those that generate relevant environmental or social benefits, which will now be entitled to the tax benefit of Law No. 12,431/11, as regulated by Decree No. 8,874/16.

According to these rules, the income from the incentivized debentures of a social or environmental nature will now be subject to income tax at the rate of 0%, when earned by individuals resident or domiciled in Brazil, and 15%, when earned by legal entities. The measure should attract more investors to finance infrastructure projects in Brazil.

According to Decree No. 10,387/20, projects that provide relevant environmental or social benefits are:

  • in the urban mobility sector, the following non-motorized and low-carbon public transportation systems: (a) urban rail transportation systems (monorails, subways, urban trains, and light rail vehicles - LRV); (b) the acquisition of electric buses, including fuel cell and biofuel or biogas hybrids, for transportation systems; and (c) the implementation of Bus Rapid Transit - BRT infrastructure;
  • in the energy sector, projects based on: (a) renewable technologies for solar, wind, and waste eletric power generation; and (b) small hydroelectric plants with a minimum power density of 4 W/m² of flooded area;
  • in the basic sanitation sector, the systems of: (a) water supply; (b) sanitary sewage; (c) rainwater management and urban drainage; and (d) urban solid waste management; and
  • projects carried out in subnormal agglomerations or isolated urban areas, as they are considered to have social benefits, according to the definition established by the Brazilian Institute of Geography and Statistics – IBGE (popularly known as “favelas” or slums).

Decree no. 10,387/20 also amended article 3 of Decree No. 8,874/16 to provide that ministerial ordinances governing projects with relevant environmental or social impacts considered a priority must necessarily establish:

  • simplified requirements for approval, through verification of institutional requirements of the project owner and the legal entity responsible for implementation of the project, if they do not coincide; and
  • the project's stages are monitored based on data self-reported by the project owner and reports periodically sent by it to the sector ministries responsible.