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

1

  • 1 harmful
  • 0 neutral
  • 0 liberalising

SOURCE

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

Inception date: 02 May 2016 | Removal date: open ended

Controls on commercial transactions and investment instruments

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%.

IOF TAX
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.

 
UPDATE
On 2 March 2018, the government of Brazil adopted Decree 9,297/2018 extending the 1.10% IOF tax to foreign exchange transactions related to the transfer of funds from a Brazilian bank account to a foreign bank account held by a Brazilian resident. 

AFFECTED SECTORS

 
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AFFECTED PRODUCTS

 
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