In May, the Federal Government published a decree raising several rates of the Tax on Financial Operations (IOF) linked to foreign exchange. The change is part of a fiscal package aimed at increasing tax revenue and offsetting the growth in public spending, and has already provoked a strong reaction in the market and in Congress.
What has actually changed
- International credit cards: the tax rate on foreign spending rose from 3.38% to 3.50%.
- International transfers (individuals or companies): jumped from 1.10% to 3.50%.
- Foreign investments: the government backed down from the 3.50% proposal; it remains at 1.10%.
- Loans and financing: the rate increased from 0% to 3.5% for the inflow of funds from foreign loans and financing (over USD 1 million), whether contracted directly or via issuance of bonds in the international market, with a minimum average term of up to 364 days, subject to registration with the Central Bank of Brazil.
The fiscal package also included a new IOF levy on monthly contributions above R$ 50,000 to private pension plans (VGBL). After criticism from the financial sector, the government postponed the measure’s effective date from June 4 to June 25.
Why is the measure a cause for concern?
The increase interrupts the schedule that provided for the gradual elimination of the foreign exchange IOF by 2028, a commitment made to bring Brazil into line with the rules of the Organization for Economic Cooperation and Development (OECD). In addition, it comes at a time of a rising dollar and more expensive credit, increasing, for example, the cost of travel, international transfers, import financing, and offshore asset allocation.
Next steps
Finance Minister Fernando Haddad announced on the evening of June 3 that he had already presented a new proposal for the IOF to Senate President Davi Alcolumbre and Chamber of Deputies President Hugo Motta. However, the measure has not yet been disclosed to the public and is only expected to be officially presented next week, after being discussed with congressional leaders. In the meantime, the higher IOF rates remain in effect, keeping pressure on the market and taxpayers.
How Pryor can help
Pryor Global offers specialized foreign exchange consulting for companies, focusing on security, agility, and optimization of operations. With extensive experience in the sector, it provides guidance on the best foreign exchange strategies, reducing risks and ensuring compliance with current regulations.
If you have any questions, contact our foreign exchange team. We will continue to provide updates whenever there is news from Congress or new guidelines from the Central Bank.
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