On 22 May 2025, the Federal Government published Decree 12.466/2025, introducing changes that significantly increase tax rates applicable to credit transactions (IOF-credit) as well as many foreign exchange transactions (IOF-FX). The changes also roll back previous attempts to effectively remove IOF-FX by 2 January 2029. Most of the changes will produce effects immediately from 23 May 2025.

Almost immediately afterward, the Government issued Decree 12.467/2025 on 23 May 2025, revoking one of the changes contemplated by Decree 12.466/2025 involving the application of investment funds abroad and also reversing the effects of changes for companies making funds available abroad for investment purposes.

Background

Taxation of financial operations (IOF, following the Portuguese text), currently regulated by Decree 6.306/2007, includes a tax on credit, foreign exchange, insurance and securities/financial assets. Unlike changes to many taxes and contributions in Brazil, changes to the Decree may be introduced with immediate effect.

Historically, IOF has been used to encourage (or discourage) certain financial behaviors. For example, at the beginning of the COVID-19 pandemic, IOF-credit was temporarily reduced to promote the availability of loans. In relation to the IOF-FX, tax was historically used as a means of currency control, with short-term loans being subject to high rates of IOF-FX and longer-term loans being subject to a reduced rate of 0%. The minimum payment term required to obtain the beneficial treatment varied substantially in the past, eventually stabilizing at 180 days.

As one of a number of efforts to align Brazil with the guidelines of the Organisation for Economic Co-operation and Development (OECD), the previous Government introduced changes in 2022 that provided for a gradual reduction of IOF-FX, eventually resulting in a general rate of 0% from 2 January 2029.

The latest changes were included in the current Government's announcement of a 31.3 billion Brazilian real (BRL31.3b) budget freeze as part of measures to control spending, reduce the public deficit and meet fiscal targets.

Summary of the changes

The key changes can be summarized as follows:

The amendments also removed provisions introduced in 2022 by the previous Government that provided for a gradual reduction of IOF-FX over various types of foreign-exchange transactions, eventually resulting in a general rate of 0% from 2 January 2029.

The legislation also includes operations involving advance payments to suppliers and other financing to suppliers (forfait or risco sacado) should be considered a credit operation for the purposes of the IOF-credit rules. This inclusion should produce effects from 1 June 2025.

Finally, the changes also included an IOF of 5% for certain types of pension plans on monthly contributions exceeding BRL50k as well as changes affecting micro-individual companies and certain cooperatives.

Implications

The changes have very broad impact.

In relation to the changes to IOF-credit, financial institutions and companies receiving and granting credit, including operations involving advance payments and other financing to suppliers should consider how the changes may impact their current and future operations.

Similarly, although not all cross-border transactions have been impacted, the general rates for outbound transactions have been increased and significant rate increases will apply to certain items. As such, it will be important for companies performing cross-border transactions to carefully consider whether their operations will be impacted.