The IOF (Tax on Financial Transactions) in Brazil has once again become a key issue in 2025, following a series of decrees, reversals, and legal disputes that have shifted—then restored—its rates.
Charged on transactions such as currency exchange, credit, insurance, and investments, the IOF has a direct impact on businesses. Recently, the back-and-forth in legislation has left those travelling, investing, or seeking loans uncertain.
In this article, you’ll learn what IOF is, how it works, what changes were planned, what has actually changed since the decree increasing rates was revoked, and what is still being debated in the Federal Supreme Court (STF).
What you need to know about the IOF
IOF in Brazil is a federal tax applied to financial transactions, including:
- Loans and financing
- Currency exchange (buying foreign currency, international cards)
- Insurance transactions
- Investments, especially short-term investments
- Private pensions (like VGBL)
Beyond its revenue-generating role, IOF also has a regulatory function: the government can adjust its rates to control capital flow, stimulate or restrict credit, and help balance public finances.
What’s behind the IOF changes in 2025?
In May 2025, the federal government issued Decree 12,499, which raised IOF rates on various transactions. The measure aimed to strengthen revenue and offset projected budget losses, particularly from exemptions granted in other areas.
However, in late June, the National Congress overturned the decree through Legislative Decree 176/2025. As a result, rates returned to their levels before May 22, causing an estimated R$12 billion loss in federal revenue for 2025, according to the Federal Revenue Service.
In response, the government took action. In early July, President Lula brought the case to the Supreme Federal Court (STF) through a Declaratory Action of Constitutionality (ADC 96), seeking an injunction to reinstate the decree. The argument is that setting IOF rates is a prerogative of the Executive Branch, and Congress’s interference violates the principle of the separation of powers.
As of now, no final decision has been made. A conciliation hearing took place on July 15, involving the Attorney General’s Office, the Ministry of Finance, lawmakers, and political parties. However, no agreement was reached, and all parties decided to wait for a judicial decision from the rapporteur, Minister Alexandre de Moraes.
What happens to the main transactions?
With the overturning of the presidential decree, the IOF rates in Brazil have returned to the following levels:
Currency Exchange Transactions
Before the decree:
A unified rate of 3.5% was applied to most foreign exchange transactions, including:
- International credit and debit cards
- Purchase of foreign currency in cash
- Prepaid cards and travel cheques
- Short-term external loans
After the revocation:
- 1.1% for cash currency purchases
- 3.38% for other transactions involving credit, debit, and prepaid cards
- 0.38% for unspecified transactions, charged once
- 1.1% for remittances abroad and loans with terms shorter than one year
Important:
Transactions such as imports/exports, return of foreign investments, and dividend remittances were unaffected.
Business Credit
With the decree:
- IOF was increased to 3.38% per annum on general business credit operations
- Businesses under the Simples Nacional tax regime would pay up to 1.95% per annum
- Operations such “drawn risk” would incur IOF
- Investments in Credit Rights Investment Funds (FIDCs) would pay 0.38% IOF
Current situation (after the revocation):
- The IOF ceiling for businesses has returned to 1.88% per annum
- Simples Nacional businesses now pay a maximum of 0.88% per annum
- Drawn risk is once again exempt
- Primary FIDC share purchases are now exempt again
International business:
International companies operating in Brazil will benefit from the return to the lower IOF rate on business credit, which helps reduce financing costs and improves cash flow management.
Specifically, cross-border transactions involving short-term loans, foreign currency exchanges, and external credit lines will now be subject to a 1.88% IOF rate, which is more favourable compared to the previous higher rates.
While the IOF rate for trade transactions, such as imports and exports, remains unaffected, foreign businesses should stay alert to upcoming tax reforms that could impact capital inflows, remittances, and interest rates on loans with foreign affiliates.
It’s essential for international companies to closely monitor any legislative changes, as these could influence their overall cost of capital and profitability in Brazil.
Private Pension (VGBL)
With the decree:
- Exemption for monthly contributions of up to R$25,000 (R$300,000 per year) until 2025, and up to R$50,000 per month starting in 2026
- Above this limit, a 5% IOF rate applied
Current status:
Contributions of any amount are now subject to a zero rate. Fintechs, Betting, and Tax Incentives.
Although the IOF decree has been suspended, the government has issued a Provisional Measure (MP) to increase other taxes:
- The contribution from betting (online gambling) will rise from 12% to 18% if the MP is approved;
- The fintech rate could increase from 9% to 15%;
- Changes to Income Tax for the wealthiest individuals will come into effect in 2026, including:
- Removal of exemptions for LCI, LCA, CRI, CRA, and debentures;
- Increase in the tax rate on Interest on Own Capital (JCP) from 15% to 20%.
These measures face resistance in Congress and are not yet confirmed. The MP remains valid for up to four months.
Cryptocurrencies and IOF on stablecoins
In addition to the ongoing discussions around fintechs and betting, the government is also considering applying IOF to cryptocurrency transactions in Brazil, particularly those involving stablecoins—digital currencies backed by stable assets like the US dollar.
According to a Folha de S.Paulo report, the Ministry of Finance plans to propose, through a new Provisional Measure, a fixed Income Tax rate of 17.5% on cryptocurrency gains. Currently, this tax ranges from 15% to 22.5%, depending on the profit. This change aims to simplify and standardise the taxation of digital assets.
As for the IOF on stablecoins, its implementation will depend on approval from the Central Bank, which is currently conducting a public consultation on the foreign exchange market. The tax would apply to transactions with foreign exchange-like characteristics, such as converting fiat currency to stablecoins and vice versa, aligning more closely with traditional currency exchange transactions.
Although the proposal hasn’t been officially confirmed, it was presented internally by Minister Fernando Haddad during a meeting with National Congress leaders, according to the newspaper. The government’s goal is to increase revenue, broaden the tax base, and modernise the fiscal regulation of the cryptocurrency market in Brazil.
What is the impact of IOF on businesses and consumers?
The decisions surrounding IOF in Brazil directly affect both consumers and businesses. For instance:
- Travellers heading abroad will pay less tax when purchasing foreign currency in cash and when using their cards.
- Businesses, especially those under the Simples Nacional tax regime, will benefit from more accessible credit terms once again.
- Investors in private pension plans, such as VGBL, will be exempt from IOF, no matter the contribution amount.
- Banks and investment funds will also benefit from exemptions on certain transactions.
However, the ongoing instability in the rules and the legal deadlock create tax uncertainty, complicating long-term financial planning and affecting the overall business environment in the country.
What lies ahead for IOF in Brazil?
With the Supreme Federal Court (STF) involved and no agreement between the branches of government, the future of IOF in Brazil remains uncertain. The decision by Minister Alexandre de Moraes will be crucial in determining whether the presidential decree will be reinstated or if Congress’s decision will stand.
Furthermore, the outcome could set a precedent for future conflicts between the Executive and Legislative branches over tax authority. In the meantime, consumers and businesses should stay informed and keep an eye on any new Provisional Measures (MPs) and decrees.
IOF in Brazil: A key factor for fiscal stability and market confidence
In Brazil, the IOF has become more than just a tax on financial transactions. In 2025, it has turned into a key fiscal management tool, a source of revenue, and a point of contention between the branches of government.
The attempt to increase IOF rates revealed the deep divisions between Congress and the government’s efforts to raise taxes. Economic players and private companies feel that Brazil’s tax burden remains unstable, and the lack of agreement between the Executive and Legislative branches could have a direct impact on investment decisions, business expansion, and operations in digital markets.
The dispute is now in the hands of the STF (Supreme Federal Court). In the meantime, companies and investors, including those in the cryptocurrency sector, are carefully monitoring developments, trying to anticipate the next moves in Brazil’s evolving tax landscape.
The post IOF in Brazil: 2025 shifts and what they mean for businesses appeared first on Sherlock Communications.
