Tax Considerations relating to Tax Considerations relating to Real Estate Investment in BrazilReal Estate Investment in Brazil

Presented byPresented by

Ivan TauilIvan TauilSenior Partner / Dallas-TXSenior Partner / Dallas-TXThompson & Knight LLPThompson & Knight LLP

March 5, 2008March 5, 2008

Summary Summary

1.1. Comparative Charts – FFI, FIP and SPEComparative Charts – FFI, FIP and SPE

2.2. International Planning for Investments in BrazilInternational Planning for Investments in Brazil

11 – Chart 5 (FII vs. FIP vs. SPE) – Chart 5 (FII vs. FIP vs. SPE) – General Aspects– General Aspects

FII – Real Estate Investment FundFII – Real Estate Investment Fund FIP – Equity Investment FundFIP – Equity Investment Fund SPE – Special Purpose CompanySPE – Special Purpose Company

Purpose: To invest exclusively in real estate ventures

Regulated by CVM

Purpose: To invest and participate in companies, including from the real estate sector, receive dividends and make profits by way of the fortuitous sale of interests

Regulated by CVM

Purpose: To invest in a specific investment vehicle – a company constituted to develop a specific project

WITHOUT regulation by CVM (except if a publicly-held company)

Suitability: Moving savings accounts of qualified investors into real estate ventures that generate income

Suitability: Creation of a capital pool of increase value within one or several companies by way of participation in the policies, administration and control of the companies

Suitability: Intermediate “joint-ventures” between investors, from the Brazilian real estate sector or not, in such a manner that each may participate in the specific project

11– Chart 6 (FII vs. FIP vs. SPE)– Chart 6 (FII vs. FIP vs. SPE) – General Aspects– General Aspects

FII – Real Estate Investment FundFII – Real Estate Investment Fund FIP – Equity Investment FundFIP – Equity Investment Fund SPE – Special Purpose CompanySPE – Special Purpose Company

Participation: Investor’s interests shall grant each identical voting and economic rights (e.g., cascading distributions are not allowed)

Participation: Investor’s interests may grant different voting rights but shall grant the same economic rights to investors (except in that different fees to the administrator of the fund, including performance fees, may be due by the different classes of interests in accordance with the provisions of the fund’s charter)

Participation: The shares of an S.A. may grant different voting and economic rights to shareholders. The quotas of a Ltda. may grant different economic rights but each quota shall be entitled to one vote at the meetings or upon the resolutions of the Ltda.

Disclosure: Subject to several disclosure requirements

Disclosure: Subject to several disclosure requirements (however, less strict than the requirements imposed on an FII)

Disclosure: Less disclosure requirements than an FII and FIP

Debt: Restricted for obtaining or granting loans

Debt: Restricted from obtaining (except from multilateral bodies) or granting loans

Debt: Generally, no restrictions

1 – Chart 7 (FII vs. FIP vs. SPE)1 – Chart 7 (FII vs. FIP vs. SPE) – Fund Taxation– Fund Taxation

FII – Real Estate Investment FundFII – Real Estate Investment Fund FIP – Equity Investment FundFIP – Equity Investment Fund SPE – Special Purpose CompanySPE – Special Purpose Company

Fund Taxation:

General Rule – not subject to IRPJ levied upon rental incomes (condominium)

Exceptions –

a) revenues and net profits arising from financial investments subject to the IRRF

b) b) will be taxed as a Corporate Entity if invest in real estate ventures where the entrepreneur, principal contractor or partner holds title (individually or jointly) to 25% or more of the FII

Fund Taxation:

In relation to the acquisition and sale of ventures in Brazil: not subject to taxation

Income received from those investments are tax free

Companies in which the FIP holds an interest are typically subject to Brazilian taxation as corporate entities

Company Taxation:

Income is taxed at a rate of 34% (IRPJ 25% + CSLL 9%)

1 – Chart 8 (FII vs. FIP vs. SPE)1 – Chart 8 (FII vs. FIP vs. SPE) – Taxation of – Taxation of InvestorsInvestors

FII – Real Estate Investment FundFII – Real Estate Investment Fund FIP – Equity Investment FundFIP – Equity Investment Fund SPE – Special Purpose CompanySPE – Special Purpose Company

INCOME

(i) Foreign investors not domiciled in a tax haven and under Resolution No. 2.689/00 owes an IRRF of 15%

(ii) Foreign investors domiciled in a tax haven or outside Resolution BACEN 2.689/00 owes an IRRF of between 15% and 22.5%

(iii) Brazilian Individuals are EXEMPT

but if outside Resolution BACEN 2.689/00 owe between 15% and 22.5% (definitive taxation)

(iv) Brazilian Corporate Entities owe an IRRF of between 15% and 22.5% (provisional IRPJ)

CAPITAL GAINS

From 0% (Res. 2.689) to 15%, depending on the facts of each case

INCOME

(i) Foreign investors not domiciled in a tax haven and under Resolution No. 2.689/00 owe an IRRF of 0%, or 15% if not in compliance with those conditions

(ii) Foreign investors domiciled in a tax haven owe an IRRF of 15%

(iii) Brazilian Individuals owe an IRRF (definitive taxation) of 15% (or a progressive tax rate of between 15% and 22.5%)

(iv) Brazilian Corporate Entities owe an IRRF of 15% (or a progressive tax rate of between 15% and 22.5%) – provisional IRPJ

CAPITAL GAINS

From 0% to 15%, depending on the facts of each case

INCOME

Dividends received are not subject to taxation

Interest received - IRRF of 15% or IRRF of 25% if participating investor / resident shareholder resides in a tax haven

CAPITAL GAINS

From 0% to 15%, depending on the facts of each case

2 – Chart 9 - Investment Structure2 – Chart 9 - Investment Structure- Brazilian Subsidiary- Brazilian Subsidiary

● International Investment “Pure Equity”International Investment “Pure Equity”

Foreign Investor Abroad

Brazil

Subsidiary BrazilCo

Project No. 01BrazilCo

1. ForeignCo raise funds for BrazilCo to develop Project No. 01

2. Project No. 01 produces results = R$ 1003. BrazilCo pays R$ 34 for IR and CSLL 4. BrazilCo pays dividends of R$ 66

Total Taxation of ForeignCo = 34%

2 – Chart 10 - Investment Structure2 – Chart 10 - Investment Structure- Brazilian Subsidiary- Brazilian Subsidiary

● International Investment “International Investment “Debt + EquityDebt + Equity” ”

Foreign Investor Abroad

Brazil

SubsidiaryBrazilCo

Project No. 01BrazilCo

1. ForeignCo lends resources to BrazilCo for development of Project No. 01

2. BrazilCo pays R$ 15 in interest to ForeingCo, which receives net R$ 12.75, after payment of 15% IRRF

3. Project No. 01 produces results = R$ 854. BrazilCo pay dividends of R$ 56.01

Total Taxation for ForeignCo = 31.15%Save = 2.85%

2 – Chart 11 - Investment Structure2 – Chart 11 - Investment Structure- SPE- SPE

● “ “Debt + EquityDebt + Equity” in SPE with Local Company” in SPE with Local Company

Foreign Investor Abroad

Brazil

SubsidiaryBrazilCo ABC Incorporation

Project BABC Incorporation

Project ASPE

Loan

Corporate Interests in SPE

2 – Chart 12 - Investment Structure2 – Chart 12 - Investment Structure– SCP– SCP

● “ “Debt + EquityDebt + Equity” in SCP ” in SCP Local IncorporationLocal Incorporation

Foreign Investor Abroad

Brazil

SubsidiaryBrazilCo ABC Incorporation

Project BABC Incorporation

Project ASPC

Loan

Limited Partnership

2 – Chart 13 - Investment Structure2 – Chart 13 - Investment Structure- Foreign SPE- Foreign SPE

Foreign Investor Country 01 – LTJ

BrazilSubsidiaryBrazilCo ABC Incorporation

Project BABC Incorporation

Project A SPE

Loan

Limited Partnership

Country 02

Foreign Investor Owner

2 – Chart 14 - Investment Structure2 – Chart 14 - Investment Structure- F.I.O. sells F.I. to buyer- F.I.O. sells F.I. to buyer

Foreign Investor Country 01 –

LTJ

BrazilSubsidiaryBrazilCo ABC Incorporation

Project BABC Incorporation

Project A – SPE

Loan

Limited Partnership

Country 02

Foreign Investor Owner

Buyer

THANK YOU!THANK YOU!

Ivan TauilIvan Tauil

Tauil, Chequer e Mello AdvogadosTauil, Chequer e Mello Advogados

Senior Partner – Thomson & Knight LLPSenior Partner – Thomson & Knight LLP – Dallas / TX – Dallas / TX

Rua do Carmo nº. 43, 8º e 9º andaresRua do Carmo nº. 43, 8º e 9º andares

Centro – Rio de Janeiro – RJCentro – Rio de Janeiro – RJ

+ 55 21 2271 4210+ 55 21 2271 4210