(Reuters) January 3, 2011 – Brazil’s government reduced taxes on foreign investments in private equity funds and some stock investments in a bid to increase long-term financing in the country.

The government cut to 2 percent from 6 percent the so-called IOF tax on foreign exchange transactions by overseas investors into private equity funds, or FIPs, and venture capital funds, according to a published decree.

The change also affects currency transactions by overseas investors shifting funds from some types of foreign direct investment into stocks, the decree said. Investors bringing money into the country’s stock market after canceling depositary receipts abroad will also pay a tax of 2 percent, down from 6 percent.

The government had raised the IOF tax on some investments twice in October, initially doubling it to 4 percent then hiking it further to 6 percent, to curb foreign exchange inflows that had been blamed for sparking a surge in the national currency, the real BRBY.

By Elzio Barreto

For more information on the effects of the IOF tax, read “What is the IOF/FX? How can it impact foreign investments in Brazil?”