IOF - FOREIGN LOANS

BRAZILIAN GOVERNMENT INCREASES THE TERM OF LOANS SUBJECT TO IOF/EXCHANGE AT A 6 % RATE


On March 01, 2012, Brazilian federal government published the Decree nº 7,683, that extends the minimum average term from 720 days to 1080 days (3 years), for purposes of applying the 6% IOF/Exchange rate due on the inflow of funds in connection with foreign loan transactions, either contracted directly or by the issuance of bonds in the international markets.

Such increase of the term, which applies to exchange transactions contracted as from March 01, 2012 aims to restrain the excessive upward pressure on the Brazilian currency in view of the inflow of foreign funds into Brazil.

The exchange transaction related to the outflow of funds intended to liquidate this type of loan remains subject to the IOF/Exchange at the zero rate.

Foreign exchange transactions for inflow and outflow of resources related to foreign loans with a minimum average term superior to 1080 days also remain subject to IOF/Exchange at a zero rate.
In view of Decree nº 7,683, Brazilian Central Bank issued Circular No. 3,580, according to which, as of March 02, 2012, export prepayment agreements may be contracted with a maximum term of 360 days. In case such term is not observed, the exporter may convert the amount related to the prepayment in a direct investment or in a foreign loan. In the hypothesis of a loan, IOF/Exchange may be due at a 6% rate, depending on the minimum average term of the agreement.

Additionally, Circular No. 3,580 established that export prepayment agreements may be only contracted with the foreign importer. Before such rule, such transactions could be also agreed with any legal entity located abroad, including financial institutions.