Brasília – This Monday (12) the Brazilian government published a decree in the Official Gazette extending from three to five years the 6% Tax on Financial Operations (IOF) levied on foreign exchange transactions made from the 12th onward, for funds entering the country (foreign loans). On the 1st of the month, the government had already raised the period for the tax on foreign loans from two to three years.
In practice, that means the money will have to remain in Brazil for longer in order to avoid taxation. In case the foreign loan operation is settled prior to the five-year period, it will be taxed by 6%.
According to the decree, the measure applies to “settlements of foreign exchange transactions made on and after March 12th, 2012, entry of funds into the country, including those involving simultaneous operations, foreign loans subject to registration at the Central Bank, loans made through direct contracts or bond issues abroad with maturity below 1,800 days".
Last year, the government of Brazil had announced that the tax would be levied on these operations for borrowing funds abroad, when executed by banks and companies. Initially, it was established that loans for less than 360 days would pay IOF. Later, the span was extended to 720 days (two years). At the time, the government’s idea was not only to contain the appreciation of the Brazilian real, but also the excessive offer of credit in the Brazilian economy.
Excessive appreciation of the real affects exports as the country’s products become more expensive abroad, making it harder to sell in foreign markets which, due to the crisis, have often devaluated their currencies. On the other hand, it also affects the domestic industry, which finds it harder to compete with foreign products, cheaper and cheaper due to the depreciation of the dollar.
Finance minster Guido Mantega said last week that the government would not be passive to appreciation of the Brazilian real as against the dollar. After the government announced the measure, on Monday, the US currency appreciated. The exchange rate climbed to R$ 1.82 to each dollar, the highest since January 9th, when the US currency ended the day at R$ 1.83.
*With information from the ANBA newsroom. Translated by Gabriel Pomerancblum and Mark Ament
