By means of Decree No. 7683, of February 29, 2012 (Decree 7683/2012), published in the Official Gazette of the Union of March 1st, 2012, the Brazilian Federal Government decided to increase from two to three years the term of the foreign currency loans which are subject to the tax on exchange transactions (IOF) at the rate of 6%. From now on, the IOF which is assessed on the entry of funds into the country or through symbolic exchange transactions is applicable to any foreign currency loans contracted as from March 1st, 2012 with an average minimum maturity term of three years1 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 loans2.

This measure aims to avoid the inflow of foreign currency in Brazil with the further appreciation of the Brazilian Real in relation to the United States Dollar3 and reduce the exposure of Brazilian borrowers (banks and companies) to assume foreign currency indebtedness by raising funds abroad.

For transactions exceeding the three year-period, there is no such taxation, because the applicable IOF rate is zero. However, if and when a transaction originally contracted for more than three year-period is prepaid, partially or totally, without complying the average minimum maturity term of three 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 Bacen4.

Decree 7683/2012 also clarifies that in the case of settlement of exchange transactions contracted by foreign investor, including through simultaneous operations, regarding the transfer of funds originated from other countries to be invested in Brazil in Brazilian Depositary Receipts – BDR, in the form regulated by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM), the applicable IOF rate is zero5.

Also in order to prevent the excessive flow of foreign capital to Brazil and minimize the trajectory of appreciation of the Brazilian Real, on the same date (March 1, 2012), the Board of Bacen issued Circular No. 3580 (Bacen Circular 3580/2012), amending the rules applied to 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). This measure provides that the PA must have a maximum term of 360 days and that the origin of the resources is exclusively the importer (the foreign buyer of the Brazilian goods or services)6.

According to the Bacen Circular 3580/2012, 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.


1 This change was introduced by Decree 7683/2012 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.

2 For IOF purposes, in the event of bond issues with total or partial acceleration maturity clause in favor of the creditor (put option) or the debtor (call option), the term of the transaction will counted as from the first date for the put or call option, as the case may be.

3 In the week of March 26, 2012, US$ 1.00 was quoted below R$ 1.70.

4 This provision is contained in paragraph 2 of article 15-A of the IOF Regulation, as amended by Decree 7683/2012.

5 According to item XXIV of article 15-A of the IOF Regulation introduced by Decree 7683/2012.

6 The measure was prompted by the strong growth of this type of operations in January and February of 2012, when the PAs volume grew 46% as compared to the same period in 2011, while the exports did not advance at the same pace.

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