The Brazilian Government decided to dismantle the capital constraint measures adopted previously to prevent the appreciation of the local currency (Real) to facilitate the raising of foreign credits by Brazilian companies, through foreign currency loans and export financing transactions that imply in the anticipation of funds to the Brazilian exporter by way of advance the export receipt, also known as Advance Payment (Pagamento Antecipado – PA). The new rules are outlined below.

I. Only foreign currency loans up to 360 days are subject to the Brazilian IOF

The term of the foreign currency loans which are subject to the Brazilian Tax on Exchange Transactions (Imposto sobre Operações de Crédito, Câmbio e Seguro, ou relativas a Títulos ou Valores Mobiliários - IOF) at the rate of 6% was reduced from 2 years (720 days) to one year (360 days). The IOF is a regulatory tax and the rates can be decreased or increased by the Executive Branch from zero to 25% (ceiling) whenever the authorities decide to foster or reduce the inflow of foreign currency funds into the country, in accordance with the monetary and exchange policy goals adopted by the Brazilian government.

This measure was announced by means of Decree No. 7853, of December 4, 2012 (Decree 7853/2012), published in the Official Gazette of the Union of December 5, 2012 and comprises all form of loans which are subject to registration with the Central Bank of Brazil (Banco Central do Brasil - Bacen), including not only direct loans (either banking or intercompany loans) but also bond issues in the international market, and symbolic exchange transaction for the renewal, renegotiation or transfer of existing loans.

Therefore, the IOF which is assessed on the entry of funds into Brazil or through symbolic exchange transactions is now applicable to any foreign currency loans contracted as from December 5, 2012 with an average minimum maturity term of 360 days1.

From now on, only for transactions exceeding the 360 day-period, there is no such taxation, because the applicable IOF rate is zero. However, if and when a transaction originally contracted for more than 360 day-period is prepaid, partially or totally, without complying the average minimum maturity term of two years, then the 6% IOF rate will apply, plus interest in arrears and a fine, which may vary from 5% to 100% of the total amount of the transaction, and a penalty of up to R$ 100 thousand to be imposed by Bacen.

II. The maximum term of the Advance Payment Transactions has been increased from 360 days to five years

On December 4, 2012, the Board of Bacen issued Circular No. 3617 (Bacen Circular 3617/2012), reverted a measure adopted in March 1, 2012, which strongly affected the Brazilian companies which export good and services and could only finance their transactions through the PA up to a maximum term of 360 days and limited only to obtaining credit from the importer (the foreign buyer of the Brazilian goods or services), excluding all the other players. The PA is an important source of financing for export transactions.

Bacen Circular 3617/2012 amended the rules applied to the PA. From now on the PA must have a maximum term of 1800 days (five years), instead of 360 days (one year) and that the origin of the resources is now the importer or any other legal entity abroad, including foreign financial institutions.

Transactions exceeding 360 days are deemed to be long term transactions for the purpose of Bacen Circular 3617/2012 and can be linked to exports of the borrower of the financing, its parent company, its subsidiaries or companies that are controlled by its parent company.

The other applicable rules remain the same. According to the Bacen Circular 3617/2012, the payment of interest on the PA must fulfill the following conditions: (a) the count of time limit for payment of interest and principal shall be less than the drawdown date or the date of entry of the funds into Brazil; (b) interest shall be accrued on the outstanding balance; (c) the interest rate is freely agreed by the parties, unless any legal limitation is imposed on the transaction; (d) the beneficiary of the interest is the one who made the advance payment of export; (e) alternatively, the amount due as interest can be settled by the embarkation of the goods abroad.

For values sent to Brazil as PA, within up to 360 days one of the following situations shall occur: (i) the shipment of goods or the provision of the service; or (ii) the conversion by the Brazilian exporter, with the prior written consent of the foreign payer, in direct investment (equity) or loan currency, registered with Bacen pursuant to Law No. 4131, of September 3, 1962, as amended by Law No. 4390, of August 29, 1964, and relevant regulation.

In order to be registered with Bacen, the PA transactions must have a maturity term exceeding 360 days but limited to a maximum of 1800 days in relation to the date of shipment of the goods or of rendering of the service and it is also necessary to have the effective entry of the funds into Brazil.


1. This change was introduced by Decree 7853/2012 which contains the new wording for item XXII of article 15-A of the IOF Regulation approved by Decree No. 6306, of December 14, 2007.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.