Brazil’s lower house approves bill taxing offshore, closed-end funds

BRASILIA (Reuters) -Brazil’s lower house approved on Wednesday a government bill that seeks to increase public revenue by eliminating tax advantages currently benefiting wealthier Brazilians who invest in offshore and closed-end funds.

The measure, which is part of Finance Minister Fernando Haddad’s plan to erase the primary budget deficit next year, was approved by 323 votes against 119 and now needs Senate approval.

While it represents a victory for the administration of leftist President Luiz Inacio Lula da Silva, the bill ended up with lower tax rates than designed by the government, which initially aimed to raise 20 billion reais ($4 billion) in 2024.

Closed-end funds provide attractive investment opportunities by taxing earnings only when distributed to investors. With the proposal, they will now be required to pay semi-annual tax over gains, similar to the current practice for regular funds.

Regarding the taxation of offshores, the government’s measure aimed to prevent Brazilian individuals with assets in tax havens from indefinitely deferring the payment of income tax on their earnings.

Initially, the government proposed a 22.5% tax rate for profits exceeding 50,000 reais annually, but the version approved by the lower house would establish a levy of 15%.

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