There are different types of alternative funds vehicles in Brazil, each one with specific rules and strategies. They are not incorporated as legal entities such as companies, corporations, partnerships or trusts; but, rather, are organised as a pool of assets jointly owned by the fund's quotaholders under the structure of a co-property.

The administration and management of investment funds in Brazil is regulated by the Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários, or CVM) and only authorised people and entities can operate. There are rules that must be observed by the players in order to guarantee independence and compliance with the obligations.

There are also rules to define different types of investors and certain rules applicable in each case, in order to ensure the proper disclosure of information and adequacy of the investments.

The relationship between the investor and the fund is governed by the fund's by-laws, which establish the rules and procedures to resolve or prevent conflicts of interest.

In addition, the Brazilian Association of Financial and Capital Markets Entities (Associacao Brasileira das Entidades dos Mercados Financeiro e de Capitais, or ANBIMA) is a self-regulatory entity that promotes guidance and best practices to the funds and associated managers. It aims to promote transparency, raise fiduciary standards and standardise procedures, along with increasing the quality and availability of information. Its codes must be observed by all institutions affiliated with ANBIMA, which makes their observance essential for operating in the alternative funds market in Brazil.

Finally, under Law No 6,385/1976 (the “Capital Markets Law”), any public offering in the Brazilian territory must be registered with the CVM, which is responsible for monitoring and supervising the activities and services of the capital markets. On 29 December 2003, the CVM enacted CVM Instruction 400, which established the requirements for the registration of any public offering ‒ including any debt security ‒ in the primary and secondary markets in Brazil.

Once the market was more established and had adapted to that regulatory system, the CVM enacted CVM Instruction 476on 16 January 2009, which exempts the public offering of certain securities from registration with the CVM if they are offered on the market under certain conditions. Public offerings that are made in accordance with CVM Instruction 476 are much faster than those made under Instruction 400.

The most commonly established types of alternative funds are receivable investment funds (Fundo de Investimento em Direitos Creditórios, or FIDC), private equity investment funds (Fundo de Investimento em Participações, or FIP) and real estate investment funds (Fundo de Investimento Imobiliário, or FII).

More recently, Law No 8,668 of June 1993, amended by Law No 14,130 of March 2021, established the Investment Fund in Agro-Industrial Productive Chains (Fundo de Investimento nas Cadeias Produtivas Agroindustriais, or FIAGRO), which can be subsidiarily classified as a receivable fund, a real estate fund or a private equity fund.

Alternative funds in Brazil, such as those mentioned in 2.1 Types of Alternative Funds, are jointly owned by the fund's quotaholders under the structure of a co-property, without being incorporated as a legal entity. This means there is no corporate structure behind pools of assets held through an investment fund structure. Investors hold quotas that represent their co-investment in the assets that belong to the funds, each corresponding to a notional fraction of all the assets held by the fund.

Recent updates in Brazilian legislation have introduced benefits to the non-corporate structure of investment funds. Law No 13,874 (the “Economic Freedom Act”) allows funds to establish quota classes of distinct rights and obligations, thereby limiting the liability of each owner to the value of their shares and making it possible to set up separate assets for each class.

The Brazilian financial system, including the capital markets, is overseen by the following:

• National Monetary Council (Conselho Monetário Nacional, or CMN), which is responsible for setting monetary and credit policies;
• Brazilian Central Bank (Banco Central do Brasil, or BACEN), which is the monetary authority responsible for the implementation of monetary and credit policies enacted by the CMN; and
• the CVM, which is the federal agency responsible for monitoring the activities and services performed in the capital markets.

There are also self-regulatory authorities that contribute to a stable and more confident environment for trading activities in the capital markets, namely:

• B3 stock exchange, which is the main equity and OTC market in Brazil;
• BSM Market Supervision, which is responsible for supervising the transactions carried out on the B3 stock exchange and ensuring their compliance with all applicable laws and regulations; and
• ANBIMA, which oversees the capital markets intermediaries' financial and ancillary institutions and regulates its associates, as well as their products, activities and best practices.

The investment's objective and limitations depend on the strategy of the specific vehicle and sector involved. Receivable funds must allocate a minimum of 50% of their investments in credit rights, whereas private equity funds can invest in equity or other assets such as debentures (convertible or otherwise) and must follow some minimum rules on corporate governance to ensure the participation of the fund in the decision-making.

As a general rule, none of the alternative funds can originate loans. However, the following exceptions are set forth by the specific regulations that apply to each type of fund.       

Receivable Funds

The fund can originate loans only to constitute credit and assume liability for debts arising from operations carried out in derivatives markets, and for use as collateral in operations in such markets.

Private Equity Funds

The FIP that obtains direct financial support from development agencies is authorised to borrow an equivalent amount of up to 30% of the fund's assets directly from funding agencies. It is also permitted in the modalities  established by the CVM or in order to face the default of quotaholders who fail to pay in their quotas subscribed.

Real Estate Funds

The fund may lend its bonds and securities, provided that such loans are:

• processed exclusively through a service authorised by the Brazilian Central Bank or the CVM; or
• used to provide guarantees for the fund's own operations.

FIDCs can invest in rights and securities that represent money originating from operations carried out in the financial, commercial, industrial, real estate, mortgage, leasing and service-rendering sectors. FIDCs can also invest in warrants, contracts and other securities.

The CVM created a FIDC Não Padronizado (“non-standardised FIDC”) specifically for the acquisition of riskier assets – for example, litigation funding and other assets that are not covered by CVM Instruction 356/2019's provisions for common receivable funds.

Private equity funds most commonly invest in equity, but can also invest in warrants, debentures and other securities (be they convertible or exchangeable). Investing through debt structures is another way of insulating or mitigating shareholders' liability for the invested company's obligations, even though the invested company's financial health and ability to pay may represent risk to the investor.

Real estate funds can invest in a number of assets set forth in CVM Instruction 472/2008 (eg, shares, debentures, subscription warrants, coupons, rights, subscription receipts and split certificates, certificates of deposit of securities, debenture notes, investment fund shares, promissory notes and any other securities), provided the issuers are registered with the CVM and their main activities are permitted for FIIs.

Several types of alternatives funds may invest in such non-traditional assets, depending on their nature and structure. However, it makes most sense for the non-standardised FIDC to invest in such assets.

How long it takes to obtain regulatory approval depends on the type of public offering. In case of a public offering with restricted efforts, prior registration with the CVM is not required under CVM Instruction 476 and the constitution of the fund should be straightforward.       

On the other hand, a public offering under CVM Instruction 400, which makes it possible for real estate funds to acquire retail funds, may take up to four to six months to be concluded because prior CVM registration and approval is required.

Public offerings with restricted efforts that target professional investors do not require prior authorisation from the CVM, as long as certain CVM requirements are met, including limitations on the number of prospective investors.

For a private placement, the quotas of a private equity fund can be directly offered on a one-on-one basis to investors who are resident and domiciled in Brazil without prior authorisation from the CVM, provided that such investors have a pre-existing relationship with the offeror or the distributor of securities. Accordingly, the private placement should be aimed at investors who have had a close and regular previous investment, commercial, credit or work relationship with the offeror or the distributor of securities.

The number of investors is irrelevant when determining whether an offering is public or private. It depends on how investors are approached. However, Brazilian regulation does not specify safe harbours or procedures for private placement of securities. The CVM has the discretion to characterise certain offerings of securities as irregular public offerings based on a case-by-case analysis.

Only legal entities that are authorised by the CVM to manage securities portfolios professionally can be responsible for managing a local investment fund.

Fund administrators and portfolio managers are legal entities who are regulated by CVM Resolution No 21 (of 25 February 2021) and meet the requirements imposed by the CVM to manage a local investment fund, including obtaining the relevant licences.

In order to obtain the relevant licences to manage a local investment fund, the legal entity must:

• list securities portfolio management as an activity in its corporate purpose;
• include in the corporate purpose any securities advisory activity the manager intends to perform;
• assign management responsibility to an appointed director who is a natural person and a CVM-accredited portfolio manager; and
• assign responsibility for compliance with rules, policies, procedures and internal controls to one director; and
• assign responsibility for risk management to another director, who may ‒ if justified by exceptional circumstances ‒ be the same person appointed compliance director.

Local investment managers must establish the following policies:

• risk management;
• apportionment;
• personal investment;
• KYC and AML (within the compliance policy);
• segregation of activities and confidentiality (within the compliance policy); and
• suitability for distributing quotas of the manager's own funds (within the compliance policy, where applicable).

Local investment funds can only be managed by a legal entity established in Brazil and authorised by the CVM to manage securities portfolios professionally (see 2.7 Requirement for Local Investment Manager). Where applicable, the administrator can hire other service providers licensed by CVM to be responsible for some activities (eg, the management of a specialised consultancy.

In case of private equity funds, a manager must be assigned responsibility for the fund. There are also some minimum legal corporate governance requirements that must be complied with in the case of both local investment and assets offshore.

CVM Resolution 21 and CVM Resolution 32 apply to providers of other services, including custodians, administrators, AML reporting officers and compliance officers. One of the requirements is that such service providers are domiciled in Brazil.

It is mandatory to assign responsibility for the management activities and the compliance, distribution and AML policies to statutory directors. 

Non-local service providers are only subject to regulation and registration requirements if they intend to access local investors or practise a regulated activity in Brazil. In the former case, the non-local service providers would need to observe some applicable rules on public offerings and marketing materials.

There are different tax factors to be considered in each type of investment fund.

Private equity funds are exempt from taxation, to the extent that income and gains deriving from the portfolio of FIP assets are not subject to taxation at FIP level. Under the Brazilian Monetary Council's Resolution No 4,373 dated 29 September 2014 (“Resolution 4,373”), the withholding tax can be reduced to zero if investor is non-resident in Brazil and complies with all the requirements provided by Normative Ruling 1,585/2015.

The pass-through of dividends without any taxation is not allowed. Therefore, payment of dividends made to the FIP and later distributed to the foreign investor is not exempt from taxation; however, it will be treated as quota amortisation/redemption and subject to the withholding tax at a 15% rate, unless the non-resident investor complies with the aforementioned tax requirements to benefit from the withholding tax at a zero rate.

Since investment funds do not have legal personality, there is some discussion around whether such funds could qualify for treaty benefits. Although such discussion has not reached the Brazilian Superior Courts, the majority of the Brazilian scholars believe that funds are entitled to treated benefits.

It is common practice in Brazil to use subsidiary companies for investment purposes. New LLPs or corporations that have a specific objective and a very restricted activity ‒ and, in some cases, a determined/definite period of existence ‒ usually share the financial risk of developing such activity by using an SPV. This type of investment is more often used in the context of private equity funds and real estate funds.

Brazilian private equity and venture capital sponsors have traditionally targeted foreign (ie, non-resident investors) and institutional investors. In a few exceptional cases, asset managers have opened their products to Brazilian family offices and high net worth individuals.

Most investors in alternative funds in Brazil are Brazilian, but non-resident investors are also very common. Investment in the Brazilian financial and capital markets by non-resident investors must be carried out in accordance with the procedures established in Resolution 4,373, which regulates all transactions entered into by foreign investors in Brazilian money markets (see 2.11 Funds: Tax Regime).

Investment funds are regulated by CVM, which means they are governed by a specific regulation and are deemed neither investment companies nor financial institutions.

Although private equity tends to focus on companies in a more mature phase, there are also venture capital funds. These funds are appropriate for innovative projects that are still at an early stage but have high potential to grow to reach another market level – in particular, SMEs initiating their first expansions. Venture capital companies usually invest in areas of innovation such as technology.

Venture capital investments are relatively high-risk compared with those in private equity, as the investee business has not yet been tested in the market and this makes it harder to form a realistic assessment of its chances of success.

Another difference is the investor's level of control over the investee company's decision-making process. Private equity investors usually take a relatively passive role in the decision-making process of the investee company, unless the purpose of the acquisition/investment is the leverage of the company. However, venture capital investors undertake a more active role in the management of the investee company.

Also, in 2021, CVM issued Law No 14,130 to provide for the constitution and tax regime of FIAGROs, which were created specifically with the scope of investing in the agribusiness sector.

A FIAGRO may invest its assets in:

• rural land;
• 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 companies that are part of the agro-industrial production chain;
• agribusiness credit rights and securitisation bonds backed by agribusiness credit rights;
• real estate credit rights relating to rural properties and securitisation securities backed by these credit rights; and
• quotas of investment funds that invest more than 50% of their equity in the assets referred to in the first three items.

The variety of assets that can be invested by a FIAGRO makes this fund a versatile investment instrument, with access to the entire agro-industrial chain and the ability to allocate resources in debt securities, credit rights, interests in companies and rural land.

It is important to highlight, however, that the CVM has not issued specific regulation for FIAGROs yet. In the meantime, according to CVM Resolution 39/2021, FIAGROs may be classified in three other categories ‒ ie, receivable funds, real estate funds or private equity funds ‒ using the existing rules subsidiarily.

With regard to marketing activities of quotas issued by investment funds, Brazilian law provides that only members of the distribution system duly registered with the Brazilian Central Bank and the CVM are authorised to engage in the intermediation of securities in Brazil. Any participation of entities that are not members of the Brazilian securities distribution system in the marketing, sale, promotion or underwriting of securities is expressly prohibited. Thus, any communication targeted at investors for marketing purposes must be made by an accredited and authorised distribution agent.

Further, Brazilian legislation establishes that no public offering of securities in the Brazilian capital markets (including quotas of investment funds) can occur without prior registration with the CVM. Activities that characterise a public offering of securities include:

• using sale or subscription lists or slips, leaflets, prospectuses or advertisements targeted at the public;
• seeking securities subscribers or purchasers through employees, agents or brokers; and
• conducting trading either:
1. at shops, offices or facilities open to the public; or
2. through the use of public communication services.

In addition, managers need to carry out KYC and suitability processes for the purposes of knowing the profile of their customers and keeping a track record of information about their customers. This strategy aims to avoid the risks of financial fraud, corruption, money laundering, terrorist financing and other finance-related threats.

In July 2022, CVM issued the CVM Resolution 160, thereby updating the regime applicable to public offerings for primary or secondary distribution of securities in Brazil.

As of January 2, 2023, the two main regulations governing public offerings (CVM Instruction 400 and CVM Instruction 476) will be replaced by CVM Resolution 160, which aims to simplify operations in the capital markets by  providing them with more agility and flexibility.

In light of this, it is important to highlight some items related to primary and secondary offerings under this new regulation.

CVM Resolution 160 offers a clearer picture than CVM Instructions 400 and 476 and is now divided into either a new “automatic procedure” and a new “ordinary procedure” for offerings, with specificities relating to each format.

Unlike offerings regulated by CVM Instruction 476, offerings with automatic registration will need to target professional investors and will no longer have:

• limits on the number of potential investors who can be accessed or who can effectively subscribe/acquire the papers;
• restriction on trading in the secondary market after supply; and
• a four-month lock-up period in which the realisation of a new restricted offer is sealed.

Among the recent changes, after collecting comments from participants, in April 2021 CVM closed the public hearing on a new resolution that will regulate investment funds in Brazil. A novelty introduced in the draft standard has had a positive impact: the socio-environmental FIDC (ie, buying receivables from companies/assignors with social and/or environmental characteristics) will already have regulations in place as soon as the new CVM resolution is approved and published. Thus, there is already a sustainability seal provided by the regulator itself for one of the securities (FIDC shares) regulated by it.

Also, more recently, Law No 14,430 was enacted in August 2022 and sets forth the new securitisation framework, which is a process that allows the transformation of debts into negotiable securities. Prior to the edition of this new regulation, the rules were dispersed in several laws, and the government deemed it necessary to issue a legal diploma for the sector.

The professional management of alternative funds comprises activities related ‒ directly or indirectly ‒ to the operation, maintenance and management of a securities portfolio, including the application of financial resources in the securities market on behalf of the investor.

Securities portfolio managers may be required to register as an administrator or asset manager (or both).

The following may be registered in the administrator category:

• financial institutions and other institutions authorised to operate by the Brazilian Central Bank, subject to specific regulations;
• legal entities that continuously maintain amounts equivalent to at least 0.20% of the financial resources under management or more than BRL550,000 ‒ whichever is greater ‒ in each of the following balance sheet accounts (prepared in accordance with Law No 6,404, dated 15 December 1976, and CVM rules):
1. shareholders' equity; and
2. cash and cash equivalents, together with investments in federal public securities; and
• legal entities that carry out activities exclusively in:
1. private equity investment funds;
2. mutual funds for investment in emerging companies (FMIEEs);
3. funds of funds (FICFIPs);
4. private equity investment funds in infrastructure (FIP-IEs);
5. private equity investment funds in intensive economic production in research, development and innovation (FIP-PD&Is); and
6. managed portfolios.

The management of alternative funds is a private activity of a person authorised by the CVM under CVM Resolution 21, dated 25 February 2021.

Registration in the asset manager category authorises the management of a securities portfolio, including the application of financial resources in the securities market on behalf of the investor. Registration in the administrator category authorises the exercise of all activities related – directly or indirectly – to the operation and maintenance of a securities portfolio, including the application of financial resources in the securities market on behalf of the investor, with the exception of the portfolio management activity.

In principle, fund managers are subject to the same tax treatment that applies to service providers carrying out business in Brazil. Their fees are subject to:

• income taxes (Imposto de Renda sobre Pessoa Jurídica, or IRPJ/Contribuição Social sobre o Lucro Líquido, or CSLL);
• social security contributions on gross revenues (PIS/COFINS); and
• municipal tax on services (ISS).

There are no exemptions or other rules to ensure that alternative funds with a Brazilian manager do not have a permanent establishment or other taxable presence in Brazil.

Financial expenses incurred with the issuance of debt securities can be treated as deductible expenses for corporate income tax purposes – that is, payment of corporate income tax (IRPJ) and the social security contribution on net profits (CSLL) – provided that:

• remuneration is based on a market basis; and
• those expenses can be considered usual and necessary for the maintenance of the company's activities.

The rules concerning financial transfer pricing and the thin capitalisation rules may apply to foreign investors, depending on who they are, the tax regime they are subject to and their country of residence ‒ for example, related parties (as defined by the Brazilian tax legislation) or foreign holders residing in tax havens or privileged tax regimes.

For local investors, any income arising from debt securities will be treated as income arising from fixed-yield investments. This is subject to withholding income tax (IRFonte) at the following rates, which vary based on how long the investor holds the investment.

• 22.5% for fixed-yield investments with a term of up to 180 days from the date of the principal disbursement.
• 20% for fixed-yield investments with a term between 181 and 360 days from the date of the principal disbursement.
• 17.5% for fixed-yield investments with a term between 361 and 720 days from the date of the principal disbursement.
• 15% for fixed-yield investments with a term of more than 720 days after the date of the principal disbursement.

The securities portfolio manager and/or the fund administrator may contract, as provided by applicable funds regulations, third parties to perform auxiliary services as part of the management of securities portfolios.

Consent from the client must be obtained before third parties can be contracted to provide auxiliary services when:

• the remuneration of the service provider is borne by the client; or
• the service provider is responsible for the management or activities of custody and controllership of assets in the securities portfolio.

The aforementioned prior consent must be given upon presentation of the following information:

• justification for contracting a third party;
• scope of the service to be provided;
• qualifications of the person hired; and
• description of remuneration and payment method for the contracted service.

The administrator and/or the manager must inspect the services provided by third parties hired on behalf of the fund or the holder of the managed portfolio, in order to verify that (at a minimum):

• the service providers meet the limits and conditions established in:
1. the regulation
2. the by-laws of the fund; or
3. the contract of managed portfolio;
• the service provider has adequate and sufficient human, computer and structure resources to provide the contracted services;
• the asset manager adopts a consistent and verifiable risk management policy, which is effectively taken into account in the investment decision-making process;
• the asset manager adopts a risk management policy compatible with the investment policy it intends to pursue; and
• the custodian has systems for the settlement, validation, control, reconciliation and monitoring of information that ensure adequate, consistent and safe treatment for the assets held in custody.

In addition, when contracting a related party for the provision of services, the administrator and the manager must ensure that the operations strictly observe commutative conditions.

In order to obtain and maintain authorisation by the CVM, the securities portfolio manager must:

• be headquartered in Brazil;
• have as its corporate purpose the exercise of managing securities portfolios;
• be regularly constituted and registered in the National Registry of Legal Entities (CNPJ);
• assign responsibility for the management of securities portfolios to one or more statutory directors authorised by the CVM to carry out such activity;
• assign responsibility for compliance with rules, policies, procedures and internal controls to a statutory officer;
• assign responsibility for risk management to a statutory director, who may be the same person responsible for above-mentioned compliance, if the registration is in the “portfolio manager” category;
• ensure its direct or indirect controlling partners meet the requirements set forth in CVM Resolution 21;
• fill in the Annual Report in Annex E of CVM Resolution 21, in order to prove it has the aptitude to carry out the activity; and
• establish and maintain human and computer resources appropriate to the size and area of ​​activity of the legal entity.

The above-mentioned computing resources must be protected against tampering and keep records that allow audits and inspections to be carried out.

The exercise of securities portfolio management must be kept separate from other activities carried out by the legal entity by adopting operating procedures that:

• ensure the physical segregation of facilities between the area responsible for managing securities portfolios and the areas responsible for the intermediation and distribution of securities;
• ensure the good use of facilities, equipment and information common to more than one sector of the company;
• preserve confidential information and allow the identification of people who have access to them; and
• restrict access to files and allow the identification of people who have access to confidential information.

The management of securities portfolios in Brazil is a private activity of a person authorised by the CVM, as detailed in 3.2 Managers: Regulatory Regime.

For many decades, Brazilian investors have limited their investments to fixed-income strategies. Retail investors were seen as unsophisticated and risk-averse agents, but recent developments and tax benefits have presented a new scenario for the institutional and retail investors market in Brazil.

Investing in alternative funds shares is not suitable for investors who need immediate liquidity. Alternative funds shares do not have a history of liquidity in the Brazilian market, despite the possibility of being traded on the stock exchange. In addition, these funds are constituted in the form of a closed condominium, which does not allow for the possibility of redeeming its shares.

Under the laws of Brazil, there is no legal definition of a “high net worth individual”, “family office” nor any similar definition of what is locally considered to be a sophisticated investor.

Notwithstanding the above, CVM Resolution 30, dated 11 May 2021, defines two categories of investors, both of which are used in many CVM regulations to determine the level of protection that needs to be granted to investors.

Professional Investors

The CVM Resolution 30 defines professional investors as a group of investors that includes:

• financial institutions and other institutions authorised to operate by the Central Bank of Brazil;
• insurance companies;
• pension entities;
• individuals or legal entities that have financial investments worth more than BRL10 million and also attest in writing their status as professional investors in specific terms in accordance with Annex A of CVM Resolution 30;
• investment funds;
• investment clubs, provided that their portfolio is managed by a securities portfolio manager authorised by the CVM;
• autonomous investment agents, securities portfolio managers, securities analysts and securities consultants who are authorised by the CVM in relation to their own resources; and
• non-resident investors.

Qualified Investors

The CVM Resolution 30 defines qualified investors as a group of investors that includes:

• professional investors;
• individuals or legal entities that have financial investments worth more than BRL1 million and also attest in writing their status as qualified investors in specific terms in accordance with Appendix B of CVM Resolution 30;
• individuals who have the required technical qualification examinations or CVM-approved certification to register as autonomous investment agents, securities portfolio managers, securities analysts and securities consultants; and
• investment clubs, provided that their portfolio is managed by one or more quota holders who are qualified investors.

Nevertheless, the client’s qualification and expertise in the capital and financial markets are not a legal requirement for the purposes of marketing activities to be eventually performed by the fund.

Under CVM Resolution 30, private equity funds and receivable funds can only target qualified investors. Real estate funds can target retail investors.

The CVM regulates the intermediation of transactions and offerings of securities that are issued and admitted to trading in other jurisdictions (such as the shares of the property, joint venture or fund) and the procedures to advertise such securities to investors residing in Brazil.

Pursuant to the applicable rules, only members of the securities distribution system duly registered with CVM are authorised to:

• perform the activity of intermediating transactions involving securities in Brazil; or
• exercise an intermediation activity in Brazil.

Therefore, only a member of the Brazilian securities distribution system registered with the CVM may conduct activities in Brazil involving marketing of securities issued and admitted to trading in other jurisdictions to investors residing in Brazil. Any participation of entities that are not members of the Brazilian securities distribution system in the marketing, sale, promotion or underwriting of securities is expressly prohibited.

Law 6,385/76 establishes that no public offering of any kind of securities in the Brazilian capital markets may occur without prior registration with the CVM. Also, there is no specific rule and distinction regarding marketing stages such as pre-marketing or marketing period.

Local investors may invest in alternative funds established in Brazil (see 4.2 Market of Alternative Funds).

Law 6,385/76 establishes that no public offering of any kind of securities in the Brazilian capital markets may occur without prior registration with the CVM (see 2.17 Disclosure/Reporting Requirements). The following activities characterise a public offering of securities under Law 6,385/76:

• use of sale or subscription lists or slips, leaflets, prospectuses or advertisements targeted at the public;
• seeking securities subscribers or purchasers through employees, agents or brokers; and
• trading conducted at shops, offices or facilities open to the public or through the use of public communication services.

If a foreign intermediary intends to publicly offer securities issued in other jurisdictions to investors resident and domiciled in Brazil by prospective investors in Brazil, they have to:

• register with the CVM as members of the Brazilian securities distribution system or retain an institution within the Brazilian securities distribution system to perform the intermediation in Brazil; and
• register the public offering with the CVM.

Nevertheless, CVM’s instructions, guidance opinions and decisions only provide for specific procedures for the indirect registration of public offerings of foreign stocks, foreign exchange traded funds and foreign bonds through Brazilian Depository Receipts (excluding other foreign securities).

As far as a private placement is concerned, the securities may be directly offered on a one-on-one basis to clients resident and domiciled in Brazil with a pre-existing relationship with the fund. Accordingly, the private placement should be aimed at clients who have had a close and regular previous commercial, credit, partner or work relationship with the fund.

It is important to highlight that Brazilian regulation does not specify the procedures for private placement of securities. However, the private placement must not fall within the scope of a public offering and its above-mentioned characteristics and activities, particularly (but not limited to) the use of the internet to offer the relevant securities. The CVM has discretion to characterise a certain offering of securities as an irregular public offering based on case-by-case analysis.

Within the scope of a private placement of securities, it is advisable that any document provided to clients who have had a close and regular previous commercial, credit, partner or work relationship with the fund should contain the following disclaimer:

“This is a strictly privileged and confidential document for the purposes of a potential investment in foreign securities on a one-on-one basis with potential investors with a close and regular pre-existing relationship with the fund. This document contains information addressed only to a specific individual and is not intended for distribution to, or use by, any other person. This document (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments, and (iv) will be addressed to a potential investor with restrict access of information. The relevant securities have not been ‒ and will not be ‒ registered with the CVM or exempted from registration, and must not be offered or sold in Brazil except in circumstances that do not constitute a public offering or distribution under Brazilian laws and regulations. Any public offering, placement or distribution (as defined under Brazilian laws and regulations) of securities in Brazil is not legal without prior registration under Law No 6,385, of 7 December 1976, as amended. Documents relating to the offering of the relevant securities, as well as information contained therein, must not be supplied to the general public in Brazil (as the offering of the relevant securities is not a public offering of securities in Brazil) or used in connection with any offer for subscription or sale of the relevant securities to the general public in Brazil.”

In case of public offerings, the CVM determines some guidelines for the preparation of the marketing materials, such as the need to make clear on every page that:

• they are for marketing purposes;
• they are not a substitute for the offering documents;
• there are risk factors (and list them); and
• there are no guarantees of income.

In principle, both the remuneration paid to investors and capital gains deriving from the sale of funds’ quotas are usually subject to withholding tax, the rate of which may vary from 15% to 22.5% depending on the nature of the fund. Such withholding tax is considered to be merely anticipatory if the investor is a Brazilian company – that is, the remuneration received from a fund should be booked as a financial revenue and taxed accordingly. However, it is considered definitive in the case of foreign investors and Brazilian individuals.

In principle, foreign investors are subject to the same tax treatment that applies to Brazilian individuals. Foreign investors that are registered under CVM Resolution 4,373 are usually exempt from withholding tax on capital gains. FIP investors, in particular, may also benefit from zero withholding tax on the remuneration paid by this fund.

Finally, remuneration paid by certain investment funds (eg, real estate investment funds and FIAGROs) to Brazilian individuals may also be exempted from taxation provided that certain conditions are met.

Decree No 8003/2013 enacted an agreement between the Brazilian government and the US government concerning the exchange of information relating to taxes.

ANBIMA participates in the work carried out at International Organization of Securities Commissions (IOSCO) by participating in its Affiliate Members Advisory Committee. It advises their affiliated institutions to consult their legal advisors and evaluate their business structures, so that they remain in compliance with the requirements of the law.

One of ANBIMA's activities is monitoring international regulation, with the aim of sharing experiences with other countries but also anticipating international debates for the domestic market.

To discuss these issues, ANBIMA brings together representatives from various market institutions to form the Technical Group for International Regulation, known as the GTRI. The forum is linked to the Treasury Products Committee and aims to:

• support initiatives by local regulators in favour of regulatory harmonisation; and
• prepare positions that are forwarded to national and international regulators.