Purchase of foreign currency in kind
Federal Decree 8,731, published on the Official Gazette on May 2nd, 2016, introduced the following main changes to the IOF/FX legislation:
(i) Purchase of foreign currency in kind – From May 3rd onwards, IOF/FX should be levied at 1,10% rate on foreign exchange transactions regarding the purchase of foreign currency in kind in Brazil. Previously to such change, the applicable IOF/FX rate was 0,38%;
(ii) Conversion of foreign direct investment into investment in stocks traded – The said Decree also established an express provision to say that FX transactions for the inflow of funds into Brazil, even in case of two simultaneous and cashless exchange transactions, implemented for the conversion of a foreign direct investment to investment in stocks / shares traded on the Stock Exchange should be subject to IOF/FX at 0%; and
(iii) Foreign loans and applicable rates and penalties – In case of foreign loans (debt funding), the current rule determines that IOF/FX should be due either at (a) 6% in case the weighted average maturity of the loan is lower than 6 (six) months; or (b) 0% in case the maturity of the loan is greater than 6 (six) months. In case the loan is initially granted for a maturity greater than 6 (six) months, but it is liquidated before such term, IOF/FX should be due at 6% plus penalties (i.e., fine and interest). In this context and considering that the IOF/FX legislation has changed throughout the latest years (and that different rates and maturity terms have been applicable), Decree 8,731 defined some new and relevant changes that may impact the anticipated liquidation of the foreign loans. Thus, transactions involving the anticipated liquidation and/or capitalization of foreign loans should be analyzed on a case-by-case basis so that the potential IOF/FX impacts are properly assessed.
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