Corporate Loans Tax in Brazil Raised, Again

March 30, 2011 Taxation in Brazil

Brazilian Reals / ReaisTo address the problem of tax revenues floating overseas, the government of Brazil is once again increasing the tax rate on corporate loans and banks’ debt-selling abroad.

In an effort to lower the exchange rate of the national currency, on March 29th the President of Brazil Dilma Rousseff announced a decree instating a tax rate increase on international borrowing by Brazilian banks and companies. Active immediately, the decree mandated that overseas loans issued by corporate bodies in Brazil be subjected to a 6 percent tax. The current rate, introduced for the same goal in November 2010, is 5.38 percent. As part of the updated protection measures, the new level will apply to loans issued for periods of less than one year, compared to the current timeframe of only 90 days. Commenting on the changes, Nathan Blanche, partner at Tendencias Consultoria Integrada in Sao Paulo, said, “..it’s a prudential measure that will inhibit operations in the short and medium term, not in the long term.”

The decree is the latest step in the “currency war” faced by the government of Brazil, during which Brazil’s real rose by 39 percent against the US dollar since the end of 2008. As a result of the inflated exchange rate, the government of Brazil is receiving significantly lowered tax revenues and the national interest is higher than in neighboring countries.

Photo by BenjaminThompson