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Withholding Tax Reduced from 25% to 6%

Published on 03/10/2016 - Updated on 09/11/2019

Since January a resolution has been expected to be approved by the Brazilian government on the reduction of the withholding tax (IRRF) on remittances abroad. Initially, the ruling was expected to be published before Carnival, but as people say in Brazil, “the year only starts after Carnival”. Hence, on February 23 the Joint Committee approved unanimously the advisory opinion of the senator Romero Jucá (PMDB-RR) for the provisional measure 713/2016 that includes the long-awaited reduction. Finally, the new ruling was made official by its publication on March 02, 2016 by the Diário Oficial da União.

On December 31, 2015 the temporary exemption of withholding tax (IRRF) on remittances abroad for touristic services and personal expenses, as set out in article 60 for the law 12.249/2010, expired. Therefore, the withholding tax on these transactions came to be 25%.

In this scenario, travel agencies had to add this 25% to their pricing for travel packages. As end customers who directly buy travel services abroad by using their international credit card are subject to only 6,38% of IOF tax, tour operators and travel agencies are the main beneficiaries of the reduction to 6%. That is why the representatives of the tour operators and travel agencies agreed with the Ministries of Finance and Tourism to fix the withholding tax rate at 6%. It is worth to point out that besides the withholding tax, these remittances are also subject to 0,38% IOF tax, which equates the 6,38% IOF tax paid by the consumers when purchasing with their credit card.

Despite that agreement, on January 26, the Brazilian Federal Revenue Service released a normative instruction establishing the tax rate at 25% for such cases. However, remittances designated for educational and scientific purposes and for personal health expenses continue being exempt from withholding tax.

That’s why it was so important that the provisional measure 713/2016 was finally sanctioned by Brazil’s president, Dilma Rousseff, and published on March 02, 2016 by the Diário Oficial da União. The new ruling establishes the reduction of withholding tax for remittances designated for touristic services to 6% for travel operators and agencies and confirms the general exemption for educational and scientific purposes and for personal health expenses.