Brazilian government changes rules for tax on financial transactions (IOF)

Decree No. 12,466, published in the special edition of the Federal Official Gazette (DOU) on May 22, 2025, introduces significant changes to Decree No. 6,306/2007, which regulates the Tax on Credit, Foreign Exchange, and Insurance Transactions, or Transactions Involving Bonds or Securities (IOF).

Key highlights include increased rates across various sectors and transactions, the revocation of certain reductions, and a reversal of the attempted taxation of offshore investments by local investment funds.

This measure reignites debates over the legitimacy of using the IOF primarily as a revenue-raising tool and revokes the phased reduction proposed by the previous administration, as part of a series of changes in recent years aimed at aligning with OECD guidelines.

The new rules take effect today, May 23, 2025, except for specific provisions that will become effective as of June 1, 2025.

Key changes

1. Credit transactions (IOF/Credit): The decree has updated the IOF/Credit rates levied on credit transactions for corporate borrowers, setting them at 0.0082% per day – the same level applicable to individual borrowers. For transactions by legal entities under the Simples Nacional tax regime, including individual microentrepreneurs (MEI), where the amount is equal to or less than BRL 30,000, the rate is reduced to 0.00274% per day.

Moreover, an additional rate of 0.95% was established for corporate borrowers, while the additional rate for individuals and MEI remains at 0.38%, regardless of the transaction term.

As a result, the maximum rate for corporate borrowers in transactions with a defined term and principal has more than doubled, rising from 1.88% to 3.95%.

Forfait (risco sacado) now subject to IOF/Credit: The decree also establishes that payment advances to suppliers and supplier financing transactions (forfait or risco sacado in Portuguese) are to be treated as credit transactions and subject to IOF/Credit, with financial institutions responsible for collecting and remitting the tax. However, this inclusion may raise questions, given that such transactions are typically not characterized as credit transactions.

Although this change has been presented as a mere interpretative clarification to provide legal certainty, its effectiveness has been postponed to June 1, 2025, clearly indicating the creation of a new taxable event, which may lead to further debate and potential litigation.

2. Foreign exchange transactions (IOF/FX): The decree sets a 3.5% IOF/FX rate for various foreign exchange transactions, more than tripling the rates in effect until yesterday, including the:

• Settlement of obligations by institutions participating in cross-border payment arrangements that arise from the acquisition of goods and services abroad or cash withdrawals abroad;
• Purchase of foreign currency in traveler’s checks and loading of international prepaid cards for personal expenses on international trips;
• Inflow of funds into Brazil via external loans with a minimum average term of up to 364 days, with the zero rate maintained for principal repayments, interest payments, and foreign exchange transactions related to external loans with terms exceeding 364 days;
• Purchase of foreign currency in cash; and
• Transfer of funds abroad for availability by residents or their family members, except when funds are sent abroad for investment purposes, in which case the rate remains at 1.1%. The placement of funds abroad for investment purposes is a new taxable event, introduced today, May 23, 2025, by Decree No. 12,467, and represents a partial reversal by the government compared to the text published yesterday.

The zero rate is maintained for the payment of interest on equity (juros sobre capital próprio) and dividends, but foreign exchange transactions related to capital reductions or divestments of direct foreign investment have seen their rate increase from 0.38% to 3.5%. Meanwhile, rates applicable to the inflow and outflow of foreign investment in financial and capital markets remain at 0%.

For other non-exempt foreign exchange transactions: (i) outbound transfers are subject to a 3.5% rate, and (ii) inbound transfers are subject to a 0.38% rate.

Backdown regarding investment funds’ investments in international markets: In its initial version, Decree No. 12,466/2025 revoked, as of today, item III of Article 15-B, which provided for a zero IOF/FX rate on foreign exchange transactions related to transfers to and from abroad for investments in international investment funds. Such transactions would have become subject to the general rates of 3.5% on outflows and 0.38% on inflows. However, given the significant impact this would have had on foreign investments, and before taking effect, the government reversed this measure through Decree No. 12,467/2025, reinstating the previous wording of Article 15-B, item III, of Decree No. 6,306/2007. Therefore, the zero rate remains in effect for these transactions.

3. Insurance transactions (IOF/Insurance): The decree establishes a 5% IOF/Insurance rate on contributions to life insurance plans with survival coverage, when the total monthly contributions – across all plans, even for different insured parties – exceed BRL 50,000. If the total contributions to all of a policyholder’s plans in a month are BRL 50,000 or less, the contributions remain exempt from IOF.

The decree expands the responsibility for collecting IOF/Insurance to include open-ended private pension entities or institutions they appoint to collect premiums, and, in cases where the insurer or entity cannot collect and remit the tax due to lack of information about contributions to plans with other institutions, the responsibility shifts to the policyholder.

4. Revocations and effective dates: As of May 23, 2025, Article 15-C of Decree No. 6,306/2007, which provided for various reductions in FX transaction rates introduced by Decree No. 10,997/2022, has been revoked.

All other changes take effect today, May 23, 2025, except for the rules regarding payment advances to suppliers, which will become effective on June 1, 2025.

For more information on this topic, please contact Mattos Filho’s Tax practice area.