(PE Manager) December 7, 2011 – Last week Brazil’s finance minister, Guido Mantega, revealed a package of tax reforms designed to encourage long-term investment in the country, including the elimination of the so-called IOF tax on overseas private equity commitments. 

The tax applied a two percent charge on foreign investment in FIP holding funds, a common Brazil private equity structure, and FIEE emerging company funds, a popular venture capital vehicle. 

The IOF tax, which applies to capital flows in and out of Brazil, is periodically adjusted by the government to control the appreciation of the real. The last adjustments came in January when the IOF tax dropped from six percent to two percent on overseas private equity investment, among other measures. 

Peter Furci, a tax partner at Debevoise & Plimpton, said “It’s hard to say for sure” whether the IOF tax on Brazil private equity funds might resurface in the near-term as it has “fluctuated quite a bit over the past two years.

“But for now, the government seems firmly in the camp of wanting to encourage equity investment in the country,” he added. 

By Nicholas Donato