Brazil: Brazil Increases Again The IOF Rate

Last Updated: 22 October 2010
Article by Walter Stuber

The tax on credit and exchange transactions, insurance and securities (Imposto sobre Operações de Crédito, Câmbio e Seguro, ou relativas a Títulos ou Valores Mobiliários - IOF) in Brazil is assessed on the amount of bank loans and similar transactions, on the amount of foreign currency purchased or sold, on insurance premiums and the price of securities purchased or sold. The applicable tax rate may vary from zero to 25% and depends on the kind of the operation. The IOF is a regulatory tax and the rates are decreased or increased by the Brazilian government whenever the authorities decide to foster or reduce the inflow of foreign currency funds into the country.

Interest rates in Brazil are higher than those practiced in the international market and this difference represents an opportunity of making additional gains that attracts foreign investors. Therefore, the IOF rate affects the effective cost and reduces the profitability of the transaction.

At this moment the Brazilian government wants to reduce the entry of foreign currency funds for short term investments, which is considered speculative capital, and it is not desired by the country. The Brazilian Finance Minister, Guido Mantega, claims that "international currency war" had broken out and he argues that the increase of the IOF rate is an important measure to defend the value of the Brazilian currency (Real) in this war.

In this month of October of 2010, the Brazilian government increased twice the IOF rate levied on exchange transactions related to the inflow of funds for foreign capital investments in the Brazilian market, comprising investments in fixed income instruments, such as debentures and other private debt instruments (títulos de dívida privada), and investment funds, including multimarket funds (fundos multimercado), stock funds (fundos de ações) and private equity funds (fundos de investimento em participações - FIPs). Prior to October 5, 2010, the liquidation of such exchange transactions was subject to the IOF at the rate of 2%.

The first increase was made by means of Decree No. 7,323, of October 4, 2010, which came into force on the following day (October 5), when it was published in the Official Gazette of the Union (Diário Oficial da União - DOU). As a result, the transaction the rate has been increased from 2% to 4%.

Immediately after, this increase was deemed to be insufficient and few days later, as of October 19, 2010, by means of Decree No. 7,330, of October 18, 2010 (published in the DOU of October 19, 2010), the applicable rate was increased again from 4% to 6%. At the same time, the IOF rate on exchange transactions for foreign capital investments related to the constitution of margins of guarantee (either initial or additional) required by the stock, commodities and futures exchanges was increased from 0.38% to 6%.

The IOF rate on foreign capital investments in the Brazilian capital market, comprising variable income instruments, such as securities traded on the stock exchange or assets traded on the commodities and futures exchange, in the form regulated by the Brazilian Monetary Council (Conselho Monetário Nacional - CMN), remains unchanged and continues to be 2%. Transactions with derivatives which result in predetermined income are considered fixed income and are taxed at the rate of 6%.

Currently, there is no IOF on exchange transactions related to the outflow of funds (remittances abroad) related to foreign capital investments in the Brazilian financial and capital markets, because the applicable rate is zero.

To eliminate "creative solutions" aimed to avoid the 6% IOF rate and close loopholes, the CMN Resolution No. 3,914, of October 20, 2010, expressly prohibits the financial institutions and other entities authorized to operate by the Central Bank of Brazil (Banco Central do Brasil - Bacen) to lease, exchange or lend instruments, securities or other financial assets to non-resident investors with the purpose to enable those investors to perform transactions in the derivatives market, without paying the IOF. As an exception, transactions contracted before October 21, 2010 (date of publication of CMN Resolution 3,914 in the DOU) may be maintained up to their maturity date, or, in case undetermined term transactions, up to December 31, 2010, will not be subject to IOF, but such transactions cannot be postponed nor renewed.

Furthermore, for the same reasoning, CMN Resolution No. 3,915, also of October 20, 2010, establishes that any domestic migrations of funds in Brazilian currency (Real) made by non-resident investors destined to the constitution of margins of guarantee required by the stock, commodities or future exchanges, are subject to simultaneous exchange transactions, pursuant to the provisions of CMN Resolution No. 3,912, of October 7, 2010, and consequently, are subject to the 6% IOF rate.

On October 6, 2010, in an extraordinary meeting, the Board of Bacen authorized to double the term of exchange transactions for future liquidation that the Secretariat of the National Treasury has to purchase foreign currency (United States Dollars) in the market in order to pay the External Federal Public Debt, increasing the number of days from 750 days (two years) to 1,500 days (four years). These purchases comprise interbank, arbitrage and financial transactions and the matter is regulated by Bacen Circular No. 3,507, of October 6, 2010. This is another measure to control the depreciation of the United States Dollar.

The Brazilian government is determined to avoid the overvaluation of the Real and eventually might have some success in achieving this purpose, depending on the effective result of the aggregate measures taken so far. According to the analysts, however, it is very likely that the Brazilian currency, in the same line of the vast majority of currencies of other emerging countries, continues to be affected by the global movement of the weakening of the United States Dollar. The most promising flows for the next year, in the case of Brazil, are those of direct foreign investments and foreign capital investments in securities traded on the stock exchange, which will not be affected by such measures. The attempt to contain the overvaluation of the national currency is not a exclusivity of Brazil and follows several other intervening measures announced by many countries during the last weeks, such as Japan, Korea and Taiwan, which tried to deal with the constant depreciation of the United States Dollar vis-à-vis their national currencies.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Walter Stuber
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions