The Tax on Financial Operations (IOF), is a levy imposed on individuals and legal entities for various financial transactions conducted within Brazil. 

The IOF rate varies depending on the specific transaction, and its payment is mandatory. Despite its widespread application, many individuals still harbor uncertainties regarding this tax:

How does the IOF work for international purchases? What is the formula for calculating the IOF tax? How does this tax impact investments and financial operations?

To shed light on these common queries, let’s delve into the intricacies of the IOF, exploring its functionalities and associated costs. Join us as we look at the details of this tax and its impact on your financial activities.

What is IOF in Brazil?

The Tax on Financial Operations (IOF) is a Brazilian tax levied on certain financial transactions, such as loans, foreign exchange operations, insurance, and securities transactions. It is also charged on some credit card transactions and international money transfers. The IOF rate varies depending on the type of transaction, and it is also one of the revenue sources for the federal government.

When is the IOF charged?

The IOF is charged for a period of up to 30 days when there is a credit operation. It is also levied whenever an individual makes a transaction to buy or sell a public security or carries out a credit operation. Such as foreign exchange, loans and insurance, for a period of less than 30 days. Therefore, it applies when you transfer value to a bank, company or other individual.

Operations Subject to IOF in Brazil

It is important to note that the IOF is levied on all international transfers and the majority of domestic financial operations. 

• Foreign exchange transactions: Buying or selling foreign currency, making international payments, using an international debit or credit card, and withdrawing foreign currency from an ATM.
• Loans: Taking out a loan, renewing a loan, or paying interest on a loan.
• Insurance: Paying insurance premiums, receiving insurance benefits, or canceling an insurance policy.
• Securities transactions: Buying or selling stocks, bonds, or other securities.
• Credit card transactions: Some credit card transactions, such as foreign purchases and cash advances, are subject to IOF.
• International money transfers: Sending or receiving money from abroad.

What are the rates of IOF in Brazil?

The IOF rate varies depending on the type of transaction. For example:

• Foreign exchange transactions: The IOF rate for buying foreign currency is 1.1%, and the rate for selling foreign currency is 0.38%.
• Loans: The IOF rate for loans is 0.38%, plus an additional 0.0041% per day if the borrower is a legal entity.
• Insurance: The IOF rate for insurance premiums is 0.6%, and the rate for insurance benefits is 0.38%.
• Securities transactions: The IOF rate for securities transactions varies from 0% to 1.5% per day, depending on the type of investment.
• Credit card transactions: The IOF rate for credit card transactions is 4.38%.
• International money transfers: The IOF rate for sending money from Brazil abroad is 1.1%, and the rate for receiving money from abroad to Brazil is 0.38%.

IOF rates for 2024

The IOF rate is not uniform and depends on the specific financial transaction, such as:

• For investments, the scale is fixed at 0.38%, with an increase of 0.0082% per day for individuals and 0.0041% for companies;
• For international purchases, the tax rate is 4.38% on the value of purchases in Brazilian reais (BRL);
• For international transfers of the same ownership and the acquisition of coins in cash, is 1.1%.
• On foreign remittances of different ownership, is 0.38%.
• For insurance, the IOF rate can go up to 25%

Therefore, to determine how much you will pay, you first need to know which financial operation you will be carrying out. Then analyze the time of the transaction, if the regressive table is used. This applies to redemptions from fixed-income investments and long-term funds.

To find out more about a regressive table and the rules that apply to your business, please contact Europartner. 

You should also read:  FAQ about accounting and tax for International Companies in Brazil

How is the IOF calculated?

To calculate the IOF, you need to take the value of the transaction and multiply it by the tax rate. For loans and financing, for example, the rate is 0.38% + 0.0082% per day. For international credit card purchases, it is 4.38%. Currency exchange, 1.1%.

For a loan of R$20,000 that will be paid back in one year, the calculation would be: 

20.000 x 0,38% = R$ 76

The next step is to multiply the daily amortization:

20.000 x 365 x 0,0082% = R$ 598,60

So, for a loan of R$20,000, the IOF payable would be R$674.60.

Example for an international purchase
For an international purchase of R$150, made by credit card, the IOF charged would be R$6.57 in 2024:

150 x 4,38% = R$ 6,57

The changes in IOF for 2024 and the next years

For those making international purchases, the IOF 2024 charged on credit card transactions has fallen to 4.38 %. This is the first step towards making transactions cheaper. The tax will be systematically reduced by 1% per year on foreign exchange transactions to zero by 2028. It will cease to exist for international purchases and the acquisition of foreign currency. The reason for abolishing the IOF is to meet the requirements for adherence to the Code of Capital Liberalization from Organization for Economic Cooperation and Development’s (OECD). The initiative was made official in the Federal Official Gazette of 29 July 2022.

As a result, the rate goes from 6.38% in 2022 to:

• 5.38% in 2023;
• 4.38% in 2024;
• 3.38% in 2025;
• 2.38% in 2026;
• 1.38% in 2027;
• 0% on 2 January 2028.

You should also read: Taxes in Brazil for foreigners: what are the incentives?

How to find out how much IOF will be paid?

To find out how much IOF you are paying, simply check your bank account or credit card statement. The amount usually shows the acronym “IOF” alongside the tax amount. I

The IOF is added to the value of your current account is the value of the credit card bill. The tax is levied whenever you use your overdraft limit or make purchases abroad. How to minimize the charges of IOF in Brazil

There are a few ways to avoid or minimize IOF charges:

• Use a debit card instead of a credit card for international purchases.
• Pay your international credit card bill in full each month to avoid interest charges.
• Send or receive money through a bank or money transfer service that offers a lower IOF rate.
• Invest in securities that are exempt from IOF.

By understanding the IOF rates for foreign exchange transactions and their applicability, you can make informed financial decisions when managing your international finances.

Finally, it is also important to consider the IOF charges associated with different transaction types and to explore potential cost-saving strategies to maximize your financial benefits. 

Remember to consult with Europartner, your qualified tax advisor, for specific guidance and assistance with your business in Brazil.