ANNOUNCEMENT 02 May 2016
The Government of Brazil introduced several changes related to the IOF tax related to the purchase of foreign currency.
NUMBER OF INTERVENTIONS
Presidency of the Brazilian Republica. Presidência da República. Decreto 8731 de 30 de Abril de 2016, published in the Official Gazette on May 2, 2016. Available at: http://www.planalto.gov.br/ccivil_03/_ato2015-2018/2016/decreto/D8731.htm
KPMG, Tax News: Purchase of foreign currency in kind. Available at: https://home.kpmg.com/br/en/home/insights/2016/05/tax-news-purchase-of-foreign-currency.html
Thomsons Reuters. Practical Law. Tax on corporate lending and bond issues in Brazil: overview. Available at: https://content.next.westlaw.com/Document/Ieb4a250a1cb511e38578f7ccc38dcbee/View/FullText.html?contextData=(sc.Default)&transitionType=Default
residency of the Brazilian Republica. Presidência da República. Decreto 9,297 de 1 de março de 2018. Available at: http://www.planalto.gov.br/ccivil_03/_Ato2015-2018/2018/Decreto/D9297.htm
On May 2, 2016, Decree 8,731 was published on the Official Gazette of Brazil increasing to 1.10% the applicable IOF to the purchase of foreign currency. The previous applicable IOF tax was set at 0.38%.
The IOF is a tax levied on any lending/borrowing transaction; or any conversion of foreign currency into Brazilian Reais (BRL), or vice-versa; and on any issuance, purchase, sale, redemption or liquidation of securities, including quotas of funds or bonds.
In the cases of loans, even though the borrower is the taxpayer, the creditor is responsible for calculating, withholding and collecting this tax.
As to foreign currency conversions, and more specifically in the case of a borrowing/lending transactions, the IOF is levied on inflows and outflows of funds corresponding to loans obtained from, or granted to, foreign entities or persons.
This tax emerged to control foreign capital inflows/outflows since the appreciation of the Brazilian real was hurting the manufacturing sector in the country.
For more information on the evolution of this tax, please see related state acts.