IOF Increase in Brazil: what has changed in international financial transactions as of May 23, 2025
On May 22, 2025, the Brazilian government published Presidential Decree n. 12.466, followed by Presidential Decree n. 12.467 the next day, implementing significant changes to the taxation of international financial transactions by increasing the IOF (Tax on Financial Transactions) rates. The new rules directly affect individuals who make purchases abroad, acquire foreign currency, or transfer funds outside the country.
Below, we explain in detail what has changed and how these modifications impact Brazilians.
1.IOF Incidence on Foreign Exchange Transaction
→ Purchase of Foreign Currency in Cash
One of the most significant changes was the increase in the IOF rate on the purchase of foreign currency in cash. This operation saw a sharp rise of approximately 218% in the tax burden.
• Before: 1.1%
• Now (as of May 23, 2025): 3.5%
→ International Purchases with Credit, Debit, or Prepaid Cards
The tax rates for purchases made with credit, debit, or prepaid cards abroad were also changed. Although there was an expectation of a gradual reduction in the tax until 2028, aligned with Brazil’s commitment to the OECD, the government once again increased the rate:
• Before: 3.38% (in effect since January 2025, following a reduction from 4.38%)
• Now (as of May 23, 2025): 3.5%
Although the increase is only 0.12 percentage point, it signals a reversal in the tax relief policy that had been implemented in recent years.
→ Transfer of Funds Abroad (Wire Transfers / Exchange Remittances)
International remittances also experienced an increase in the tax burden. The unified 3.5% rate affected transactions made both to accounts held by the same individual and to third parties.
o Transfers to own accounts:
· Before: 1.1%
· Now: 3.5%
o Transfers to third parties:
· Before: 0.38%
· Now: 3.5%
This change significantly increases the cost of common transactions made by Brazilians who have children studying abroad or who need to send money to relatives, pay bills, etc.
Comparative Table – Changes in IOF-Foreign exchange tax rates
2. Investments Abroad by Brazilian Investment Funds
Initially, the government had announced that Brazilian investment funds would be subject to a 3.5% IOF on contributions made abroad. The measure was poorly received by the market and triggered strong backlash. In response to the negative reaction, the government reversed its decision and maintained the exemption for this category.
• Current situation: Exemption maintained
3. IOF on Insurance (VGBL)
Another controversial change was the introduction of IOF taxation on contributions to life insurance plans with survival coverage, which directly impacts VGBL (Vida Gerador de Benefício Livre) private pension products.
The new rule establishes that:
• Monthly contributions exceeding R$ 50,000.00 will be subject to a 5% IOF rate.
This measure may discourage large contributions to private pension plans, potentially affecting estate and succession planning strategies that rely on VGBL as a financial instrument.
4. IOF on Credit Transactions
Presidential Decree n. 12,466/2025 increased the IOF applicable to certain credit transactions. Among the main targets are:
• Advance payments to suppliers
• Forfait and buyer’s risk (structured supplier financing operations)
These operations are now treated as credit transactions for the purposes of IOF taxation. However, there is legal controversy surrounding this classification by Presidential Decree, since the Brazilian Constitution and the National Tax Code require that taxable events be defined by law. As such, the legality of this increase may be subject to judicial challenge, particularly with regard to the principle of tax legality.
Conclusion
The new rates have been in effect since May 23, 2025, except for “forfait” and “buyer’s risk” operations, which became taxable as of June 1, 2025.
Presidential Decrees n. 12,466 and n. 12,467 of 2025 have significantly increased the cost of various international financial transactions, directly impacting Brazilian consumers and families. By immediately and substantially raising the rates, especially on transactions that directly affect individual taxpayers, such as remittances, overseas purchases, and private pension plans, the government reignites the debate on the limits of normative power exercised by Presidential Decree.
Although the IOF tax grants some flexibility to the Executive Branch through regulatory acts, this prerogative should not override the constitutional principles of annuality and tax law prior notice (anteriority), particularly when it involves the creation of new taxable events or artificial equivalences of transactions not foreseen by law.