Foreign Exchange Accounting

A Quick Glance at the Tax Considerations on Foreign Exchange Transactions in Brazil

Taxation in Brazil varies from other countries, particularly in regard to the many auxiliary obligations required under Brazilian Tax Laws and Regulations. The Brazilian Government recently announced new amendments to taxes on financial transaction regulations, which includes reduction of tax on foreign exchange transactions (Impostosobre Operacoes Financeiras – IOF) related to the inflow of resources within Brazil from 2 percent to zero. The rates are effective as of December 2, 2011.

The following transactions attract zero tax within Brazil:

• Investment in the stock exchange or futures and commodities exchange markets (with the exception of derivative transactions entailing pre-fixed earnings);

• Acquisition of publicly offered shares or subscription of shares, provided that the issuing companies are registered with the stock Exchange Market for negotiation of shares;

• Acquisition of Private Equity Fund quotas or funds that invest in their quotas, incorporated as per the Securities Exchange Commission rules;

• Liquidation of simultaneous exchange transactions undertaken to bring funds into Brazil for investment in shares that are negotiated within the stock exchange market by way of cancelation of depositary receipts;

• Liquidation of simultaneous exchange transactions for the inflow of funds into Brazil as a result of transfer from the direct investment regime to the portfolio investment regime;

• Acquisition of bonds issued as per Articles 1 and 3 of Law 12,431 (which relates to bonds acquired as of January 1 2011, object of a public offer, issued by non-financial legal entities which are resident outside Brazil –with exception of residents of tax havens) or quotas of investment funds where upto 85% of the portfolio is comprised of debentures issued by legal entities specifically incorporated to implement infrastructure, research and other innovative development projects.

……

Credit transactions involving individual borrowers, including transactions related to concession of lines of credit and financed acquisition of non-residential real estate are subject to decreased IOF tax rates of 0.0062% per day (previously 0.0082%). This is effective as of December 3, 2011. The IOF tax rate of 6 % will be applicable to any other foreign exchange transactions that are not listed above, including simultaneous exchange transactions carried out for the inflow of funds within Brazil for the investment into the financial and capital markets.

Take the help of an expert

One of the most important issues an entrepreneur must consider in its business plan for opening a company in Brazil is Tax Compliance. In any
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instead of risking long and expensive wrangling at a later on, it is always best to ensure that reliable legal, financial and fiscal advice is taken in the initial stage. Understand how to avoid the pitfalls in a new country, and gain a significant business advantage with the help a professional. A business consultant can offer dedicated and high-quality expertise in all aspects of your business like regulatory filings, compliance,
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