Three little letters and one tax: understand once and for all what IOF is and find out what has changed with the most recent measures taken by the government.
The Tax on Financial Transactions is something you have probably already come across on some invoice or at least heard about. Now is the time to understand everything about the subject and not carry out any more transactions, without knowing who is paying for it.
In this post we will talk about:
- What is IOF?
- What financial transactions are subject to tax?
- When it is accounted for on the credit card
- How much does IOF cost?
- What has changed in taxes with the COVID-19 pandemic
Let's go together?
What is IOF?
The Financial Transactions Tax was created by the government with the aim of regulating the national economy. Therefore, this tax is not determined by banks or card operators as many people think.
It was created back in 1988 and it is worth mentioning that this tax is paid by both individuals and legal entities (yes, companies also pay IOF on their financial transactions!).
Which financial transactions have IOF?
There are many financial transactions that involve this charge, mainly those linked to:
→ Exchange: buy or sell currencies from other countries;
→ Insurance: This includes life, car and property insurance in general.
→ Real estate titles
→ Credit
Emphasizing the last item on our list, when we talk about operations related to credit, we have to think about modalities such as:
- Personal loan - Here you should always keep an eye on the Total Effective Cost (CET) value as it indicates all the charges for credit operations, such as fees, interest rates and the IOF itself.
- Overdraft: in addition to the high interest rates, which we discussed in this article, using an overdraft also means paying IOF.
- Credit card: as it is the biggest cause of debt for individuals in Brazil, we thought it was fair to create a topic just about the cases in which IOF is applied!
See below:
When is IOF accounted for on the credit card?
Taxes will not be charged every time your credit card is used. There are specific situations in which this applies, such as:
- International purchases: and here it is worth remembering that you do not need to be traveling for this! Purchases made online on foreign websites are more than enough to be charged. Purchases made with a credit card within Brazil, in reais, are not subject to IOF.
- Installment the card bill or just make the minimum payment, is to put a part of the amount on the following month's bill, in the financial world this is known as entering the revolving credit. In these cases, in addition to the most aggressive interest rates on the market, you will also pay IOF.
- Delays when paying the invoice also apply.
How much does IOF cost?
The amount of tax you will pay depends on the financial transaction carried out.
Here we will give some examples of percentages on some of the main operations:
%International purchases by card: 6,38% of IOF on the value of purchases made abroad with a credit or prepaid card (which, just like on a cell phone, you add credit to before using it).
%Buying and selling foreign currency: the exchange rate we mentioned at the beginning of this text has a rate of 1.1%.
%Special or revolving check: In both cases, the percentage charged is the same: 0.38% on the amount that is overdue plus 0.0082% per day that the amount is overdue.
Remember that we are only talking about the IOF! In addition to all this, there are still interest charges, so these debts must be paid off as soon as possible.
In either case, the accumulated daily IOF cannot exceed 3% – regardless of the number of days the debt has been ongoing.
%Loan: 0.38% on the loan amount, plus a daily percentage of 0.0082%, calculated according to the total expected repayment term.
What has changed in the IOF with the COVID-19 pandemic?
In addition to the measures already taken by the government, such as the release of emergency aid, new FGTS withdrawals and IR extension, the reduction to zero of the IOF charge.
In principle, this measure will be valid until June 2020, but it can be extended if the government deems it necessary.
What changes in practice?
If you already have loans in progress, they should weigh less on your monthly budget, since future installments will come without the added tax amount. The same goes for contracts made during this period.
It is worth remembering that evaluating your financial planning is essential before carrying out a financial transaction, even with the reduction of IOF.
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