Change in the IOF rate for the purchase of foreign currency

The Brazilian government published on May 2, 2016, Decree No. 8.731, which increases the tax rate on financial transactions (“IOF”) from 0,38% to 1,10% on the purchase of foreign currency in cash settled from May 3, 2016.

Furthermore, among other changes, the aforementioned decree establishes the following changes:

1) the IOF rate on simultaneous exchange transactions relating to the conversion of investments by foreign direct investors (long-term) into investments in shares traded on the stock exchange was changed to zero.

2) the IOF rate on exchange transactions related to the entry into Brazil of export revenues from certain services indicated in the aforementioned Decree was changed to zero.

3) clarifications on the incidence of IOF in relation to advance payments of loan agreements entered into between the parties prior to the regulation of the aforementioned tax.

The IOF is applied, among other operations, in exchange transactions and is used by the Brazilian government as an instrument to stimulate or inhibit the flow of foreign currency in Brazil and, consequently, manage the fluctuation of the Brazilian currency against foreign currencies.

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