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Posted 3/15/2022 6:40 PM Updated 3/15/2022 8:43 PM

Federal Government launches new framework for securitization and improvement of rural guarantees

President Jair Bolsonaro participated in the signing ceremony of the two provisional measures. - Photo: Alan Santos/PR

 

Two Provisional Measures (MPs) that strengthen the capital and credit market in the country, by creating a framework for securitization and improving the use of rural guarantees, were signed by the President of the Republic, Jair Bolsonaro, this Tuesday afternoon. Friday (15/03), in a ceremony at Palácio do Planalto.

 

One of the signed measures covers the new framework for securitization companies. An important activity in the economy, securitization is the act of anticipating the receipt of a debt by a company through the sale of negotiable securities with investors. It works like this: a company that has a lot of debt to receive from its customers, and that needs immediate cash to invest in its projects, transforms these debts into debt securities that are then sold to investors. It is the securitization company that buys and then sells to investors and, in this way, holds the rights to receive the securities and starts trading with investors.

 

Until now, legislation involving securitization companies was dispersed in specific rules. The MP sets rules for the process of transforming the credits that a company has to receive into debts converted into bonds and for the issuance of receivables certificates (securities that generate credit rights). Now, these bonds can also be issued abroad. The objective is to diversify the sources of financing for companies, reduce the cost of raising funds and transfer the risks of receivables to investors.

 

The second MP covers rural guarantees through the Rural Product Cédula (CPR), a security issued by producers to finance production or agricultural ventures. In order to be effective against third parties, it is necessary to register these securities at the Real Estate Registry Office of the issuer's domicile. The Provisional Measure improves the rules for the electronic signature in book-entry CPR and in annotations and records of guarantees linked to these ballots.

 

According to the Ministry of Economy, this measure will directly benefit agribusiness and rural producers, further expanding the credit available to the sector.

 

End of IOF on foreign exchange transactions

The Federal Government also issued a decree that will reduce to 0%, until 2028, the rates of the Tax on Credit Operations (IOF) levied on foreign exchange operations. The reduction will be gradual and staggered over eight years. The objective is to align Brazil with the Organization for Economic Cooperation and Development (OECD), which the country is in the process of joining.

 

Today, the IOF rate on exchange is 6.38% and 1.1% for the purchase of foreign currency in cash.

 

According to the Ministry of Economy, the measure will facilitate the opening of the Brazilian market to international trade, increase the attraction of international investors and make it easier for Brazilian companies and investors to do business and invest abroad, adapting Brazilian tax legislation to the standard already adopted by the world's largest economies.

 

The Federal Government estimates that the IOF reduction will reduce the tax burden by R$ 468 million in 2023; R$930 million in 2024; BRL 1.4 billion in 2025; and so on progressively until the year 2029, when all exchange operations will be reduced to zero.

 

The effective reduction of taxes will only begin in 2023. As it is a decree, it does not depend on the approval of the Legislature.

 

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