Brazil – Tax & Legal 2010/2011 Snapshot William Heuseler

Brazil – Tax & Legal 2010/2011 Snapshot William Heuseler March 2011

Slide title: Trebuchet normal 20, dark gray • Slide font: Trebuchet normal 20, black • Bullets color: orange • Leave at least 1 line between each topic • Brazil Residence Concept Slide Agenda

Concept of Residence Individual • Who comes to Brazil on a long term basis; • Holder of a permanent visa as of arrival date or granting of such visa; • Holder of a temporary visa who: • Arrives in Brazil to work under an employment contract as of arrival date or signature of the contract; • Stays in Brazil for more than 183 days, consecutive or not, over a twelve-month period counting from the date of any arrival, as of the day following the completion of the 183 days. • New Regulation – Law 12.249/10 – art. 27 • Distintiction of “Vital Center” or 183 days rule

Slide title: Trebuchet normal 20, dark gray • Slide font: Trebuchet normal 20, black • Bullets color: orange • Leave at least 1 line between each topic • Brazil Tax System – Individuals Slide Agenda

Income Tax Individual – Worldwide taxation • Annual income tax return; • Investments abroad: • Capital gains (investments directly detained by individual) – Fixed rate (15%); • Income – flat tax rates (progressive rates from Zero up to 27,5% • Zero, 7.5%, 15%, 22.5% and 27.5% • Investments on Domestic financial and capital markets – Exclusive Taxation (22,5% to 15%) New Regulation • 6.38% IOF on Credit Card expenses done abroad

Taxation – Triggering event • Individuals: • Cash Basis – upon availability. • Legal entities: • General rule- accrual basis: accounting of revenues upon unconditional right to such revenues (annually); • Possibility to adopt “Cash Basis” system – upon availability (Presumed Profits System).

Slide title: Trebuchet normal 20, dark gray • Slide font: Trebuchet normal 20, black • Bullets color: orange • Leave at least 1 line between each topic • Inbound Investments – General Concepts Slide Agenda

Inbound Investment • Law 4131 – Direct Investment • Foreign investment must be registered with the Central Bank of Brazil – BACEN. That entitles the foreign investor to repatriate capital and remit dividend payments. • Resolution No. 2.689 – Financial Market Access • Special tax regime for non-resident investors in the Brazilian financial and/or capital market • IOF New Rules • 6% IOF upon FX transaction (inbound) for fixed interest market • 2% upon FX transaction (inbound) for stock market investments

Investing directly in Brazil“2689 Account” • Resolution 2.689 was issued by the National Monetary Council in January 2000 • It allows nonresidents to invest in the Brazilian capital and financial markets • Establishes that foreign investors must have a local custodian, legal and a tax representative in Brazil and regulates the conditions for operating the account in Brazil • Assets are always registered under the final investor’s name • A Financial Institutional will provide the full service:

Investing directly in Brazil“2689 Account” Investments Allowed: • Assets traded in the stock exchange (BOVESPA and BM&F): Stocks and Derivatives Markets • Equities • Commodities (gold, agribusiness) • Forwards (US Dollar, Gold) • Futures (Equities, DI, Ibovespa Index, US Dollar/ EURO, Gold, IPC-A/IGP-M) • Options (DI, Ibovespa Index) • Indexes (Bovespa Index, Brazil 50 Index – IbrX 50, Brazil Index - IbrX) • Assets traded in the OTC market, but registered in depository systems recognized by the CVM and BCB, such as CETIP and SELIC (currently Itaú works only with SELIC) • Investment funds that accept 2.689 investors dully registered at the CVM and with the quotas registered at CETIP • Funds offered by Itaú Asset Management • Third Party Funds *CVM (Brazilian Securities Exchange Commission) **Special System for Liquidation and Custody (SELIC); Central Office for Custody and Financial Liquidation of Private Bonds (CETIP)

Investing directly in Brazil“2689 Account” - Taxation http://bestbrazil.org.br/pages/publications/091117_foreign_investors_guide_2009.pdf

Slide title: Trebuchet normal 20, dark gray • Slide font: Trebuchet normal 20, black • Bullets color: orange • Leave at least 1 line between each topic • Outbound Investments Slide Agenda

Individual Investing Abroad Fund Personal Account PIC Personal Account Abroad Brazil Taxation • Capital gain tax on withdraws from the investment – 15% on the gain • F/X variation – periodical impact (when income and interests are deposited on the individual’s account) Taxation • Capital gain tax on withdraws from the investment – 15% on the gain • F/X variation – periodical impact (when income and interests are deposited on the individual’s account) Taxation • 15% over capital gain; and • 0% to 27,5% over dividends, when they are distributed to the individual • F/X variation – periodical impact (when income and interests are deposited on the individual’s account)

Declaration if Investment Abroad Central Bank Individuals and Legal entities • Legal scenario: • MP No. 2224/01 + Central Bank’s normative ruling – annual statement. • Obligation to declare: • Residents in Brazil (individuals or legal entities). • Scope: • Assets in rights held abroad amounting US$ 100,000.00 or more (on December 31st). • Market Value • Penalties: • Lack of declaration, providing false, incorrect or incomplete information, or failing to meet deadline – fine up to R$250,000.00. • Trusts: • No specific requirements in the legislation nor in the regulations regarding the declaration of trusts. • Central Bank’s Q&A.

Investments Abroad Law 7.492/86 White Collar Law: crimes against the national financial system • Art. 22 to perform non-authorized foreign exchange transaction, with the intent of transferring money out of the country: • Penalty – Imprisonment - 2 to 6 years + fines • § 1. the same penalty will be applied to those who, with any objective, promotes, without legal authorization, the exit of currency or values out of the country, or keep offshore deposits which are not declared to the competent authorities (this crime does not lapse/ expire because it is committed every year that the money is not declared)

Slide title: Trebuchet normal 20, dark gray • Slide font: Trebuchet normal 20, black • Bullets color: orange • Leave at least 1 line between each topic • Estate Planning – International Slide Agenda

Trust / Foundation Concept • Brazilian law does not contemplate trusts/foundations • No domestic rules on the taxation of trusts/foundations and their settlors/founders and beneficiaries • Introductory Law to the Civil Code - Article 7 – the law where the party is domiciled shall govern its legal capacity • Trust - it is likely that the Brazilian tax authorities would treat it as a non-resident legal entity • Foundation – legal entity

Trust / Foundation Main issues • When does occur transfer of assets / Funding • Occurs by the actual transfer of possession • Some assets require specific registration with proper authorities (e.g. real estate, interest equity, vehicles) • No provision preventing/limiting an offshore trust/foundation to hold assets in Brazil • Nature of transfer of assets to the trust • Revocable trust (fiduciary transfer not typified under Brazilian civil law) • Taxation on transfer • Settlor may keep the basis for the assets in his income tax return • Irrevocable trust or foundation (donation or gift) • Taxation on transfer: ITCMD • Settlor/Founder does not keep basis for the assets in his income tax return

Trust / Foundation Main issues • Forced heirship rules • Limitations to the possibility of constituting trusts – marital regime and forced heirship • Distribution of assets to the beneficiaries • Real estate: subject to ITBI and generally characterize ordinary income (27.5% income tax) • Other types of income (ex. Dividends): characterize ordinary income • Donation of real estate: subject to ITCMD (State Level Tax – 0% to 8%) • Life insurance proceeds distributed: non-taxable income (Brazilian legislation)

Directors Board of Directors Investment Advisor Beneficiaries Investment Advisor Trust/Foundation $ $ Trustee/ Corporate Settlor PIC Foundation

Slide title: Trebuchet normal 20, dark gray • Slide font: Trebuchet normal 20, black • Bullets color: orange • Leave at least 1 line between each topic • Local Legislation and New Trends Slide Agenda

International Life Insurance • Complementary Law nº 126/07 establishes several additional restrictions for the acquisition of international insurance by Brazilian residents • According to Law nº 126/07, Brazilian residents must contract only onshore life insurances, except in the following situations: • The specific risk is not covered by any type of insurance available in Brazil • Insurance was contracted while the individual was not resident in Brazil and is valid only until the individual is an offshore resident • 10 quotes rule • International treaties duly executed by the Brazilian Congress allowing the specific insurance • Insurance contracted prior to the enforcement of Law nº 126/07

Family and Successions Marriage Property Regime: Mandatory Separation • Current: Marriage regime imposed for individuals older than 60 years • Trend: Possible amendment, since some consider it is a discriminatory rule • Main Bills (in course at the House of Representatives): • Bill No. 108/2007 (Federal Representative SolangeAmaral): Mandatory separation - 70 years of age • Bill No. 2285/07 (Families Statute, Federal Representative SérgioBarradasCarneiro): Suppresses the mandatory regime, free stipulation by the spouses Source: Choaib, Paiva & Justo

Family and Successions Same Sex Union • Current: Implied partnership rather than family entity. Omission in legislation. Property acquired through mutual effort (Digest No. 380 of the STF – Federal Supreme Court) Dependant on healthcare plan. Death allowance (Normative Ruling INSS No. 25/2000) • Trend: Family entity (stable union). Dignity, Liberty and Isonomy • STJ – Superior Court of Justice (2008) juridical possibility of discussing action on union of people of the same sex • Law No. 11340/06 family: intimate affective relation not dependant on sexual orientation; and • Reality of facts: 17.9 million homosexuals in Brazil (ABGLT, 2008). IBGE 2010. • Bill No. 1151/95 (Federal Representative Marta Suplicy) in course at the House of Representatives • Civil Partnership: inheritance, dependence before the Tax Authority Source: Choaib, Paiva & Justo

Family and Successions Concubinage • Current: Implied partnership rather than family entity • Partition of property acquired through mutual effort (Digest No. 380 – STF) • Forbidden: donation to the concubine and appointment as heir or legatee • Innovative Decisions grant rights to concubine (minority). Dignity, Isonomy, Affection and Reasonability • Indemnification for house-keeping services (STJ, 2007); • Division of the social security pension between widow and concubine (STJ – 2005); • Double union – property acquired in the course of the union are distributed through wife, companion and the deceased (TJRS, 2007). STF still denies rights to the concubine: impossibility of apportionment of the social security allowance, since concubinage does not have legal protection (STJ, 2008) Source: Choaib, Paiva & Justo

Family and Successions Paternity Law No. 12.004, of July 29, 2009, on paternity investigation. Paternity presumed upon refusal of the supposed father to have his genetic code tested – DNA test, to be analyzed along with the context of proof. Source: Choaib, Paiva & Justo

This presentation does not constitute an investment offer or recommendation. Itaú Private Bank International (“Itaú”) does not provide legal or tax advice and this presentation dos not constitute such advice. Itaú strongly recommends to all persons considering the products or services described in this presentation to obtain appropriate independent legal, tax and other professional advice. The data and information to which you shall become privy are provided in an informative and generic manner. They may not be reproduced or redistributed to third parties without the prior consent of Itaú Private Bank International. The sources mentioned herein are deemed as trustworthy by Itaú, however, nothing in this presentation should be interpreted as a guarantee or assurance by the Bank as regards the discernment criteria of each of the sources mentioned. The data mentioned herein are valid for the date of the current document, therefore Itaú has no responsibility for updating them should they undergo any alteration. The interest manifested by the investor in becoming acquainted with the information contained herein does not imply any kind of commitment or obligation. Itaú and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with Itaú of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

Brazil – Tax & Legal 2010/2011 Snapshot William Heuseler