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The taxation of Angel Investment in Brazil

28/09/2018

Startups are small companies with a huge growth potential. In Brazil, they usually adopt a simplified tax regime so-called “Simples Nacional”.

In order to boost the growth of startups, the Angel Investment Law (Complementary Law No. 155/2016) allowed companies opting for the Simples Nacional to receive angel investments, which are special capital contributions, that are not part of the company’s capital stock and can be made by any foreign or local individual or legal entity and investment funds.

The Brazilian Federal Revenue Service, however, treats the income received by angel investment as a financial investment, with a withholding income tax at a regressive rate of 22.5% to 15%, according to the term of the investment.For angel investors who are individuals or legal entities opting for the Simples Nacional the only tax to be paid will be the withholding income tax.

For other angel investors, that is, for legal entities that opt ​​for other tax regimes (i.e. real profit or presumed profit regimes), the withholding income tax will be considered an advance of the tax due at the end of each fiscal year.

Treating the angel investment’s income as a financial investment raises the discussion whether the Federal Revenue Services can charge taxes by equalization, without a law that institute the collection.

But this discussion may come to an end if the Brazilian Congress passes Bill No. 494/2017, which exempt the angel investments from income tax. The bill is under discussion at the Senate and waits an opinion from the Committee on Economic Affairs.

Investors who wish to invest under the Angel Investment Law should consult their legal advisors to seek efficient alternatives to enable investment in startups.

Candido Martins is available to provide any clarification on the subject.