Harneys Cayman Islands’ office hosted a conversation to apprise financial services professionals of developments in Brazil, including challenges and opportunities in Latin America’s largest country, and competition posed by rival jurisdictions to the Cayman Islands.
The event took place 4 December at the firm’s office at Queensgate House and featured Bradesco Private Bank superintendent of wealth management Claudio Di Pasquale Escobar, Harneys vice president of business development for Brazil Maria Pia Buchi and Harneys Cayman incoming managing partner Marco A S Martins, who is head of Harneys’ Latin American group.
Mr. Escobar highlighted Brazil’s hosting of the 2014 FIFA World Cup and the 2016 Summer Olympics, saying the major sporting events will bring investments into the emerging country’s infrastructure.
“It means Brazil is growing up,” he said.
Mr. Martins said Brazil has the distinction in recent years of having the highest increase in the number of high net worth individuals, and also the highest rate of drop in worth among high net worth individuals. He said that’s because some of the richest people in the country had over-concentrated their investments in certain domestic sectors, with significant negative results when the pace of the country’s growth slowed. He said that illustrates the need for offshore jurisdictions, such as Cayman, so Brazilians can diversify their investments.
Ms Buchi said Cayman is far and above the offshore jurisdiction of choice for Brazilian institutions, accounting for 35 per cent of the country’s offshore market.
However, other jurisdictions have been marketing themselves aggressively in Brazil for business from rich individuals and families. For example, the Bahamas has been marketing a product called a “smart fund”, which is a stripped-down version of a fund, with no auditor, administration, strategy, etc., but which therefore is inexpensive compared to Cayman’s full-fledged funds.
Ms Buchi said Brazilian tax attorneys are pondering whether smart funds are actually funds – and therefore exempt from certain Brazilian taxes, or are actually in reality more like companies – and therefore perhaps subject to higher Brazilian tax rates. She said the opportunity is for Cayman to market itself as an OECD white-listed, established funds jurisdiction to individuals who are looking into investing in funds.
Brazil wants to join Cayman and other countries on the OECD white list, and accordingly has strengthened its federal anti-money laundering law and is preparing to comply with the United States’ Foreign Account and Tax Compliance Act, Mr. Escobar said.
Additionally, Mr. Escobar said the Brazilian central bank is preparing FATCA-like legislation of its own in order to glean the identities of ultimate beneficial owners of funds.
Under the potential legislation, the Brazilian government would accept guarantees by Cayman fund managers that there aren’t Brazilians in a fund, due to Cayman being on the OECD white list, he said.
While Cayman is on Brazil’s “black list”, that encompasses countries with tax rates of less than 20 per cent, and applies to overseas investments into Brazilian equities, the speakers said.