Brazil Eliminates The IOF On Foreign Investments On Shares And Private Securities

As of December 1, 2011 the Brazilian government decided to attract and foster the return of foreign investors to the Brazilian market by reducing to zero the applicable rate of the Tax on Financial Transactions (IOF) levied on foreign investments in shares and private securities. The IOF is a regulatory tax and the rates are decreased or increased by the Brazilian government whenever the authorities decide to foster or reduce the inflow of foreign currency funds into the country.

According to the announcement made the Minister of Finance, Guido Mantega, the following measures have been adopted to encourage the entry of foreign capital in Brazil with a profile of long-term investment in: (i) stocks (both in primary offerings and in the secondary market), venture capital and cancellation of receipts of shares of Brazilian companies traded abroad, such as Depositary Receipts (DRs), the IOF rate is decreased from 2% to zero; and (ii) in private securities lasting more than four years, the IOF tax rate is decreased from 6% to zero.

This reduction has been approved by means of Federal Decree No. 7632, of December 1, 2011, which amends article 15-A of Federal Decree No. 6306, of December 14, 2007 (the IOF Regulation), as follows:

"Art. 15-A ........

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XII - the settlement of exchange transactions by foreign investors to inflow of funds in the country, including through simultaneous operations, for application in the financial and capital markets, excluding the operations referred to in items XIII, XIV, XV, XVII, XVIII and XXIII of the main section: six percent;

XIII - the settlement of exchange transactions by foreign investors, as of December 1, 2011, concerning transfers of funds from abroad for use in the country in variable income (equities) on the stock exchanges or futures and commodities exchanges in the form regulated by the Brazilian Monetary Council (Conselho Monetário Nacional – CMN), except for derivative transactions that result in predetermined income: zero;

XIV - the settlement of exchange transactions by foreign investors, as of December 1, 2011, for the entry of resources into the country to acquire shares in a public offering registered or exempt from registration with the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM), or to subscribe shares, provided that in both cases the issuing companies are registered for trading of shares on stock exchanges: zero;

XV - the settlement of exchange...