Finance Minister announces withdrawal of IOF increase for transfers!

Finance Minister announces withdrawal of IOF increase for transfers!

The Brazilian government has announced a revision of the financial transaction tax (IOF) to avoid speculation about an inhibition of investments. Finance Minister Fernando Haddad commented on this in São Paulo, clarifying that the withdrawal concerns the increase in the tax rate for transfers to accounts of Brazilian taxpayers abroad from 1.1% to 3.5%. This measure received widespread attention as it specifically aims to maintain the stability of the investment climate in Brazil. The withdrawal of the increase was decided on Thursday evening and a corresponding decree appeared in the Official Gazette the following Friday.

Haddad emphasized that the revision was necessary due to the rapid impact of the original measure. The second change would have increased remittances related to Brazilian fund investments abroad from a zero rate to 3.5%. With the new decree, the zero rate for these transfers is now reintroduced, which sends positive signals for investors. This is in line with the government's objectives to minimize financial burdens and encourage foreign investment.

Regulation and application of the IOF

The IOF is regulated by Article 153, Section V of the Brazilian Federal Constitution and serves to obtain financial resources and regulate market situations. According to the information from CBBL Regulation No. 6,306/2007 applies in five different cases, including exchange rate operations, insurance transactions and loans. The IOF applies when transferring or making available currencies in cash or documents, although the tax rate when processing the exchange cannot exceed 25%.

In addition, a gradual reduction in IOF rates for exchange rate operations is planned since March 15, 2022. This particularly affects registered foreign loans with terms of up to 180 days, whose tax rate has been reduced from 6% to 0%. This reduction is effective immediately and demonstrates the Brazilian government's efforts to optimize the tax environment for international transactions. The new regulation also includes plans to gradually reduce taxes on foreign exchange operations for international credit and debit cards.

Future adjustments to the IOF

The rates for purchasing foreign currency through traveler's checks and loading international prepaid cards are reduced as follows:

• 5,38 % ab dem 02.01.2023
• 4,38 % ab dem 02.01.2024
• 3,38 % ab dem 02.01.2025
• 2,38 % ab dem 02.01.2026
• 1,38 % ab dem 02.01.2027
• 0 % ab dem 02.01.2028

In addition, the current tax rate of 0.38% on exchange rate operations will also be reduced to 0% from January 2nd, 2029. The IOF's continuous adjustments reflect the Brazilian government's efforts to create an attractive environment for investments while promoting economic stability.