Taxation

The main parameters in force covering tax treatment were enacted by the Internal Revenue Service Secretariat, Instruction 025/2001 and Instruction 487/2004. Recently provisional Measure 206/2004 and 209/2004 from the Brazilian Government established some modifications on the tax rates. Moreover Constitutional Amendment 37, enacted in July 2002, exempted portfolio investments in equity of the CPMF Tax (the Banking Tax). Since February 2006, this exemption has been expanded to include public offerings (either initial or secondary) of BOVESPA-listed companies.

The tax treatment for investors from any country that does not tax income or where tax rates are lower than 20% is different. In this case, the rules are the same applicable for residents or those with domicile in Brazil and summarized in the following table.

Equity Market Taxes

Operation/Event	Non-Resident Investors Income Tax	Non-Resident Investors from Low-Tax Jurisdictions
Capital Gains*	Exempt	15%
Distributed profits and dividends	Exempt	Exempt
Interest on stockholders' equity	15%*	15%
Applications in equity funds, swap operations and operations conducted in markets with future settlement, other than the exchanges	10%	15%

Corporate Fixed Income Market Taxes

Non-resident investors pay 15% on earnings from the Corporate Fixed Income market. However, non-resident investors paying as domestic investors are subject to declining rates over time, as showed below:

• 15% on earnings, for positions held for more than 720 days;
• 17.5% on earnings, for positions held for more than 360 days and less than 720 days;
• 20% on earnings, for positions held for more than 180 days and less than 360 days;
• 22.5% on earnings, for positions held for less than 180 days.

Financial Transactions Tax (IOF)

Foreign investment is subject to the IOF charge at the time funds are brought into Brazil. Currently, tax rate is zero for portfolio investments.

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