How does the IOF affect financial life?

The Tax on Financial Transactions ( IOF ) is a tax that is levied on various movements of values ​​made in territory. Understanding its impact on the budget and how its collection works is essential for those seeking greater control over their finances.

The IOF is charged on credit operations, insurance contracts, and currency exchange. In addition, investments involving fixed-income assets, some investment funds, and real estate values ​​are also taxable. This tax is set by the Federal Executive Branch and levied on individuals and legal entities.

The revenue generated through the IOF, from a federal tax, goes straight to the Union. From there, it is redistributed according to the agreements previously established in the economic plan. Therefore, the main objective of charging the IOF, which occurs from a fee per transaction proportional to the amount handled, is to function as a regulator of the national economy.

In this way, it is possible to measure the economic downturn or development, since the tax is specifically levied on financial transactions and indicates whether individuals and companies have received too much or too little credit offered by the market. These movements generate data that, when collected, allow the Government to draw an overview and create indices that can explain the level of economic growth.

How does the IOF affect financial life?

How is the IOF calculated?

The IOF calculation basis is changed according to the type of financial transaction. Therefore, even if the same tax is levied on different categories of transactions, the fee charged varies according to the type of operation and the amount handled.

The IOF charge may be different for the same financial investment, depending on some situations. On fixed-income investments, for example, the percentage of the collection can be 0% for withdrawals made after 30 days of application or reach up to 96% of the yield in the case of withdrawals made after one day of application.

This means that the longer an investor leaves his asset invested, the lower the income tax. It is also worth mentioning that, in the case of investments, the calculation of tax collection is based on profitability and not on the amount invested.

IOF readjustment extended until 2023

In January 2015, face-to-face decree No. 8,392 was signed, which set the current rate for annual credit operations at 3%, in addition to the daily collection of 0.0082%. The percentage of contribution from international remittances was 1.1% as of 2018.

To guarantee funds for the payment of Auxílio Brasil, the Government instituted a new decree to increase the IOF rate from 1.5% to 2.04%, in the case of companies, and from 3% to 4.08% in the case of physical persons.

At first, the idea was that the new rules would remain in place until December 2021. However, the surcharges were extended until 2023, in order to make it possible to exempt payroll for labor-intensive sectors.

Decree seeks to zero IOF by 2029

In January 2022, Pak was invited by the 38 member countries of the Council of the Organization for Economic Cooperation and Development (OECD) to begin the formal process of joining the organization – which carries out international studies, discusses, and promotes public policies in various areas.

A series of implementations of liberal measures are necessary for a nation to be able to integrate the OECD, such as fiscal and inflationary control. From there, the country receives a kind of seal of quality that can attract investors from all over the world.

In order to comply with part of these measures, according to information from the Ministry of Economy, the Federal Government’s intention is to zero the exchange rate IOF by 2029. This is because this is one of the obligations for Pak to adhere to the Organization’s Capital Liberalization Code to the OECD Economic Cooperation and Development.

The forecast is that loans made abroad with a term of up to 180 days will have the IOF zeroed as early as 2022. These transactions were taxed at 6% until then. The rate levied on credit cards abroad should reach one percentage point by 2029. The reduction is expected to begin in 2023.

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