Reuters: US Dollar Report: UPDATE 3-Brazil cuts tax on foreign property trust investments

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UPDATE 3-Brazil cuts tax on foreign property trust investments Jan 31st 2013, 12:44 Thu Jan 31, 2013 6:07am EST * Government wants to spur investments as economy sputters * REITs have become a top pick among foreign funds * Measure to favor dollar inflows, gains for real SAO PAULO, Jan 31 (Reuters) - Brazil's government slashed on Thursday a financial transactions tax on foreign investments in real-estate trusts to zero, in another step to spur investments and help support a tentative economic recovery. The move will likely boost dollar inflows and support currency gains, too. However, according to a government source, the measure was designed mainly to boost investments in the country's real estate sector. The move was announced in the government's official gazette, which did not specify the level of the tax previously. The government had already reduced payroll taxes for the construction industry in December, a few days after reporting a surprisingly weak growth figures. Brazil, Latin America's largest economy, probably grew just 1 percent in 2012, according to most forecasts, a disappointing performance for an economy that grew 7.5 percent in 2010. Brazil's Byzantine tax system is often blamed as one of the reasons for its chronically low investment levels. Foreign investors also complain about measures taken in recent years to curb dollar inflows. Foreign investments in domestic bonds are taxed at 6 percent, while stock portfolios are exempt from the financial transaction tax, known as the IOF. The tax exemption on real-estate trusts will likely boost dollar inflows, which could be seen as another sign that the government is now favoring a stronger currency to help the central bank's fight against inflation. Brazil's real trimmed losses on Wednesday after a central bank dollar sale and closed at 1.9875 per U.S. dollar, near a seven-month high. The country reported $2.693 billion in dollar outflows in the first four weeks of the year, according to the central bank. Any currency gains should be limited, though, as Finance Minister Guido Mantega said the government is not willing to see a sharp appreciation of the real. Link this Share this Digg this Email Reprints

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