Decree reduces tax on foreign exchange transactions

​On March 16, 2022, the Brazilian government issued Decree No. 10,997/2022, reducing the tax on financial transactions (IOF). The decree aims to control Brazilian financial markets by stimulating or discouraging certain activities, such as currency inflow and outflow.

Among other changes affecting local markets, the decree sets the following tax rates for foreign investments in Brazil:

• The immediate elimination of IOF levied on foreign exchange transactions (previously 6%) to stimulate the inflow of funds to Brazil via foreign short-term loans registered with the Brazilian Central Bank, either via direct loans or through issuing securities in the international market; and
• Full exemption from IOF for other transactions by January 2029 – currently at 0.38%. Although postponed until 2029, this tax decrease will benefit many foreign investors’ transactions, as well as encourage capital investments in Brazilian companies and disposal of company interest in Brazil by foreign investors through direct investment and payment for the import of services.

According to Brazil’s Ministry of Economy, the gradual tax decrease fulfills the Federal Government’s commitment to zeroing this tax.

The IOF tax exemption aims to align the local tax framework with OECD guidelines. This initiative has taken place around the same time as other important changes in foreign exchange legislation, which occurred at the end of 2021. The primary goal of these changes is to make the Brazilian economy better suited to the international market, with more streamlined movements of capital and less bureaucracy in foreign exchange transactions.

For further information about this topic, please contact Mattos Filho’s Tax practice area.