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Tax changes for Currency Exchange and Transactions involving Bonds and Securities


The Tax on Financial Transactions (IOF) is a Brazilian umbrella-type tax comprising different tax modalities, each levied on a specific type of financial transaction carried out in Brazil. Recent modifications to these taxes raises uncertainties for multinational companies and non-Brazilian investors. Taxand Brazil investigate the affects of these changes in their latest newsletter.

These IOF tax modalities include the Tax on Currency Exchange Agreements (IOF/Exchange) and the Tax on Transactions Involving Bonds and Securities (IOF/Bonds and Securities).

Although these different IOF tax modalities exist, there are certain characteristics which are common to IOF taxes. The recent modifications related to the IOF/Exchange and to the IOF/Bonds and Securities covered in the attached newsletter are:

  • Common characteristics to IOF taxes
  • Changes in IOF/Exchange
  • Changes in IOF/Bonds and Securities Tax

Taxand's Take

The IOF legislation is flexible, allowing frequent changes by the Brazilian government. These changes are normally made within a very short term and without prior notice to taxpayers. All of this raises uncertainties to multinational companies and non-Brazilian investors in general, that always face the risk that the IOF legislation will be significantly modified, possibly after a decision to invest in Brazil has already been made.

Foreign direct investments made by non-Brazilian entities in Brazilian companies, under the terms of Law No. 4,131/62, are not regarded as investments in the Brazilian financial and capital markets and, therefore, are not affected by the recent changes in the IOF/Exchange and IOF/Bonds and Securities.

On the other hand, acquisitions of portfolio investments in Brazilian companies, made under the terms of CMN Resolution No. 2,689/00, are now subject to the IOF/Exchange at 2% on the respective inflow of funds.

In turn, if a non-Brazilian investor chooses to invest in shares traded in Brazil by means of acquiring depositary receipts traded outside Brazil, the IOF/Bonds and Securities at the rate of 1.5% could apply. This 1.5% tax should only apply to newly formed depositary receipts. Accordingly, the trading of already existing depositary receipts, in the secondary market, should not be affected by this change.

Your Taxand contact for further queries is:
Alexandre Tadeu Seguim
T. +55 (11) 2179 5234

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Taxand's Take Author