The Brazilian Collection System and the Discouragement of Investment in New Businesses

Recently we participated at the Congress of Investment Angel – CIA 2018, where national and foreign speakers discussed the development of angel investment and venture capital in Brazil. One of the relevant issues discussed at the event was the Brazilian Government’s collection policy as a barrier to the growth of this type of investment in the country, and how the other side of the coin – tax reliefs to new business investments – could actually increase tax collection in the country.
Notably, the Brazilian Government has taken some important steps to foster angel investment in the country. An example is the recently published Complementary Law No. 155/16, which brought greater legal certainty to investors mainly regarding asset protection in case the business sinks[1].
However, international experience shows that the increase of investments in new business is intrinsically linked to tax reliefs. In the United Kingdom and other European countries, for example, there are income tax exemptions on the capital gains of the angel investment and the possibility of offsetting part of the amount invested in taxes due. An emblematic case of tax reliefs is Turkey, which, after creating such incentives, jumped from 32nd to 5th position as the economies that most receive angel investments in Europe – according to European Trade Association for Business Angels, having received more than EUR512 million last year. How much of that investment is actually used for developing local economy is yet not known, but it is really a major breakthrough for that country.
According to a study prepared by Grant Thornton Brazil in partnership with Anjos do Brasil[2], the angel investment can leverage employment and income in a country and consequently – and perhaps the most important for a government that has a collection system – increases taxes. The study makes several simulations to show that with the fiscal relief on angel investors, for each R$1.00 invested by angel investors R$2.21 are created in taxes and contributions, R$ 2.89 in salaries and R$0.73 in expenses.
Brazilian Congress is evaluating passing laws that grant tax reliefs for investments in new and small businesses which, if approved, will put Brazil close to the most modern economies in this matter.
Candido Martins is following the discussions and is available for any clarifications.
 

[1] About the subject see the article writted by partner of the firm Renata Simon and published by Capital Aberto. Link: https://capitalaberto.com.br/secoes/artigo/por-mais-unicornios-brasileiros/#.W4mj1OhKiUk
[2] “The Relief as an incentive for investments in startups – the case of angel investment”.“O Estímulo como ferramenta para o fomento do investimento em startups – o caso do investimento anjo”).