Brazilian Federal Government reduces IOF tax rates

On March 15, 2022, Decree No. 10,997/22 was published in the Brazilian Official Gazette, reducing the rates of Financial Tax (IOF) levied on foreign exchange transactions.

The alterations brought by Decree 10,997/22 can be summarized as follows:

  • the 6% rate applicable to foreign exchange transactions for the inflow of funds into Brazil for short-term loans (terms of less than 180 days) is reduced to zero for settlements as of March 19, 2022;
  • the 6.38% rate on foreign exchange transactions regarding credit and debit card transactions, as well as for the acquisition of foreign currency in traveler’s checks and international prepaid cards, is reduced by 1% every year starting January 02, 2023, until reaching 1.38% in 2027 and zero in 2028;
  • the 1.1% tax rate levied on acquisitions of foreign currency in cash and on remittances abroad for the constitution of cash equivalents is reduced to zero as of January 2, 2028;
  • the general rate of 0.38%, applicable to other foreign exchange transactions, would be reduced to zero as of 2029.

In accordance with Decree 10,997/22, then, the IOF/Exchange  would be totally reduced to zero as of January 02, 2029.

It is important to note that the minimum average term of 180 days for foreign loan transactions already carried out must be respected, for the settlement, prepayment, or change in the loan´s conditions, otherwise the IOF/Exchange at 6% rate, plus fine and interest will be due.

Finally, it is worth highlighting that the IOF rates may be changed again at any time by means of a new Decree from the Executive Branch.

Demarest’s Tax team is available for any additional clarifications that may be necessary.