The Brazilian Government published a Decree on 2nd May 2016 (Decree No. 8,731) that increases the rates of Tax on Financial Transactions (“IOF”) applicable to the purchase of foreign paper currency from 0.38% to 1.10%, as from 3rd May 2016.
Furthermore, Decree No. 8,731 provides for the following additional changes, among others:
1) the IOF levied on symbolic foreign exchange transactions related to the conversion of foreign investors’ direct investment (long term equity) into investments in shares traded on the stock exchange has been adjusted to zero;
2) the IOF levied on foreign exchange transactions related to the entry of funds, in Brazil, arising out of exportation of certain services indicated in the Decree has been adjusted to zero;
3) clarifications on the incidence of IOF in relation to early repayments of foreign loan agreements entered into by parties under prior IOF regulations.
IOF is imposed, among other transactions, on foreign exchange transactions and is considered a tool used by the Brazilian government to stimulate or inhibit the flow of foreign currency in Brazil and, consequently, to manage the fluctuation of the Brazilian Reais against foreign currencies.