IOF Tax on Real Estate Securities Could Raise Financing Costs for Commercial Properties and New Projects
The possibility of extending Brazil’s financial transactions tax, known as IOF, to securities used to finance real estate could raise funding costs and weigh on new investment. For the office, retail, logistics and shopping mall sectors, the concern centers on project financing and transactions that convert real estate receivables into funding for companies.
The debate involves real estate credit bills (LCIs), agribusiness credit bills (LCAs), real estate receivables certificates (CRIs), agribusiness receivables certificates (CRAs) and, depending on the proposal’s scope, tax-incentivized infrastructure bonds. In real estate, attention is focused on LCIs and CRIs, which channel investor capital into the sector through two routes: bank funding and securitization.
According to information gathered by REsource, the government has not formalized a measure or specified a tax rate, an effective date or how outstanding securities would be treated. “In my view, the market should treat this as a real possibility, not a decision that has already been made,” says Heitor Cesar Ribeiro, a tax partner at Gaia Silva Gaede Advogados.
The main risk is a reduction in investors’ net returns. To sustain demand for the securities, issuers could need to offer higher yields, increasing the cost of funding for real estate.
“This will affect returns on these securities, making them less attractive to investors,” says José Romeu Amaral, founding partner of Romeu Amaral Advogados and head of its corporate, M&A and capital markets practices. In his assessment, the impact would directly affect the sectors that rely on these instruments for financing.
For office, retail, logistics and shopping mall
properties, exposure would depend on each company’s or project’s financing
structure. Transactions funded through CRIs could face higher rates on new
financing or refinancing if they fall within the tax’s scope.
An illustrative scenario shows how sensitive real estate projects can be to
borrowing costs. For a R$100 million financing, for example, each
1-percentage-point increase in the interest rate would add R$1 million in
annual interest expense, assuming the outstanding principal remains unchanged.
If the rate rose from 12% to 13% a year, annual interest expense would increase
from R$12 million to R$13 million, an 8.3% rise.
For an office development, logistics park or shopping mall, that additional expense would reduce cash available after interest payments, all else being equal. The example illustrates how higher borrowing rates could weigh on a project’s budget [see graphic].
Gabriel Uarian, chief analyst at Cultura Capital, says higher issuance costs could constrain developers’ access to capital, with implications for margins, construction schedules and project launches. Companies with fewer financing alternatives would face greater risk.
Ribeiro, of Gaia Silva Gaede, also distinguishes between CRI offerings aimed at individual investors and those targeting institutional investors. In transactions that rely on retail demand, issuers would likely offset part of the reduction in investor returns by offering higher yields. Midsize developers would be among the most exposed, he says.
CRIs and Real Estate Funds Require Separate Analysis
Including CRIs would extend the measure’s reach beyond bank lending. For commercial real estate, that raises questions about the cost of transactions backed by real estate receivables, including those tied to income-producing properties.
Uarian, of Cultura Capital, points to potential effects on Brazilian real estate investment funds, known as FIIs, that invest in these debt securities. Without a formal rule, however, it is not possible to say that CRIs held by FIIs would be directly taxed. Any potential tax on fund transactions must be distinguished from changes in market yields and borrowers’ financial conditions.
Funds that own physical properties, meanwhile, could face indirect effects. According to Uarian, higher borrowing costs and potentially weaker demand for properties could transmit the impact, with the extent depending on the sector and each portfolio’s exposure.
Concerns over LCIs also come as real estate financing becomes more dependent on alternatives to savings-account deposits. According to the Brazilian Association of Real Estate Developers (Abrainc), LCIs and real estate covered bonds, known as LIGs, grew from 21% to 58% of funding sources for middle-class housing finance over five years.
In a scenario assuming a 5% IOF tax on LCIs and LIGs, the association estimates that mortgage rates would rise by 0.7 percentage point. The calculation applies to residential financing and should not be extrapolated to offices, industrial properties or malls, but it illustrates the cost pass-through mechanism described by the experts. The 5% rate is an assumption used by the association, not an announced tax rate.
Transition Rules and Scope Will Determine the Impact
The use of IOF also raises concerns about predictability. Ribeiro explains that its rates can be changed by executive decree, within statutory limits, without the waiting periods that generally require certain tax changes to take effect in the following calendar year and at least 90 days after publication. The levy would add a tax cost without necessarily eliminating the income tax exemption for individual investors.
The debate follows an attempt to tax investments benefiting from tax incentives under Provisional Measure 1,303, which expired in 2025 after being removed from the Chamber of Deputies’ voting agenda.
The Brazilian Association of Publicly Held Companies (Abrasca) opposes the possibility of reviving the tax through IOF and warns of consequences for long-term investment decisions.
“Anyone making an investment decision today needs to know how much tax they will pay in the years ahead,” Abrasca Executive President Heitor Cesar Ribeiro said in a statement.
For real estate, key factors will include whether outstanding securities are grandfathered, the length of any transition period and which transactions fall within the rules. A tax limited to credit bills would have a more concentrated effect on bank funding; including receivables certificates would broaden the impact on capital markets.
Ribeiro advocates clear rules and time to adapt. For commercial property companies and investors, the central question will be how much any change would raise the cost of financing, refinancing and developing properties, particularly those that depend on recurring fundraising.
Government Denies Specific Proposal but Acknowledges Broader Discussions
On Thursday, October 29, National Treasury Secretary Daniel Leal said the government was not discussing a specific measure and had no formal proposal to apply IOF to LCIs and LCAs.
According to the government’s statement, the treatment of tax-exempt securities is part of the economic team’s ongoing discussions as it seeks more consistent treatment of financial products and fewer market distortions.
