Executive summary

On 25 June 2025, the Brazilian Congress (both houses) revoked a series of presidential Decrees, reverting to the rates on several types of credit and foreign exchange operations established prior to May 22.

In recent months, the Brazilian Government has made several changes to regulations concerning the Tax of Financial Operations (IOF). Since 22 May 2025, three Decrees have been issued - the initial Decree (published 22 May) increased rates on several types of credit and foreign exchange operations. The second, issued one day later (published 23 May), rolled back some of these increases. A third Decree (published 11 June) reversed additional increases.

Background

On 22 May 2025, the Federal Government published Decree No. 12,466/2025, introducing changes that significantly increased tax rates applicable to credit transactions (IOF-credit) as well as many foreign exchange transactions (IOF-FX). These changes also rolled back previous attempts to effectively eliminate IOF-FX by 2 January 2029. Most of the changes took effect immediately on 23 May 2025.

Almost immediately afterwards, in response to a negative market reaction, the Government issued Decree No. 12,467/2025 on 23 May 2025, revoking one of the changes outlined in Decree No. 12,466/2025 that affected investments in investment funds abroad and reversing the effects of changes for companies making funds available abroad for investment purposes. (For background, see EY Global Tax Alert, Brazilian Government introduces changes to regulations dealing with taxation of financial operations, dated 27 May 2025.)

The negative reaction from both the market and Congress persisted, leading the Brazilian Government to issue Decree No. 12,499/2025 on 11 June 2025, which made additional amendments as well as reverting additional IOF increases. Among others, this decree included a new triggering event for IOF upon the acquisition of quotas of Credit Rights Investment Funds (FIDC) and reduced the IOF-FX rate on the return of foreign investment to 0%.

As an alternative to offset the revenue loss from the revoked IOF increases, on 11 June 2025, the Government also presented Provisional Measure No. 1,303/2025, which impacted Interest on Net Equity (INE), financial investments, and betting operations, among others. (See EY Global Tax Alert, Brazilian Government announces substantial tax changes affecting Interest on Net Equity, financial investments, betting operations and IOF regulations, dated 23 June, 2025.)

Current situation

On 25 June 2025, the Congress (both houses) approved a Legislative Decree proposal (PDL 214/2025) that suspends the effects of Decrees No. 12,466/2025, 12,467/2025 and 12,499/2025, asserting that IOF should not be aimed at increasing tax collection.

This extremely rare action by Congress can be considered historic, as it marks the first time in over 30 years that such an instrument has been approved by both houses, reflecting a significant divide between Congress and the Government, having occurred only twice since the Constitution was established in 1988 (in 1989 and 1992).

The Government has indicated that revoking changes in IOF would result in a loss of approximately BRL 10 billion, and they now hope to secure approval for Provisional Measure No. 1,303/2025.

Summary of changes to the IOF legislation

The table below summarizes the key changes to the IOF legislation, which should have immediate effect once the Legislative Decree is published:

Implications

A legislative decree is a normative act that is exclusively within the authority of the legislative branch and has an effect similar to that of a law. In Brazil, the legislative decree addresses matters designated as the exclusive competence of the Congress, such as suspending regulatory acts of the executive branch that exceed its regulatory authority.

Legislative decree proposals must be discussed and voted on in both houses of the Congress (the Chamber of Deputies and the Federal Senate). If approved, they are sanctioned by the President of the Federal Senate, with no involvement from the President of the Republic. Once signed, the text should be published the following day in the Gazette for the National Congress (Diário do Congresso Nacional). Therefore, there is no possibility of a veto.

The approval of PDL 214/2025 by the Brazilian Congress should bring the IOF legislation back to its original form prior to the 22 May changes. At the time of writing this has not occurred, however is expected over the coming days. Additionally, the Government indicated that it is considering challenging the constitutionality of PDL 214/2025 before the Supreme Federal Court, leaving room for further developments.

The suspension should not have retroactive effects. Therefore, careful attention is required to map transactions during this period as the changes in the IOF legislation were enacted with immediate effect and were effective from their issue date until they were revoked or suspended. Taxpayers should confirm that transactions carried out since 22 May 2025 observed the legislation applicable at the time of their implementation.