Introduction to IOF
The IOF tax was created to replace the CPMF tax, abolished in 2008. In this article, you will know the basic information about this federal tax and its rates levied on credit, exchange, securities and insurance transactions.
IOF is the tax levied on financial operations and assessed on different types of events, such as:
- Credit
- Foreign exchange
- Securities
- Insurance
The IOF tax was meant to be a leveling instrument of the financial market. That is because it avoids the occurrence of the so-called "sieve" financial resources, since most operations on the covers, its rate decreases (in some cases reaching zero) with increasing permanence of the resources in applications.
That is the reason why, unlike most of the Brazilian taxes, who manages the IOF's rates is the Executive Power, by decree, through the command of the Finance Ministry. The rates are always changing accordingly to the economic policies adopted by the govern, but there are obviously limits provided by law for the manipulation of the aliquots.
IOF and Credit Operations
The IOF is calculated through two different aliquots. It is up to the Minister of Finance to set the rate of IOF for credit operations, which cannot exceed 1.5% per day. The current rate levied on transactions entered into by individuals is 0.0082% per day, plus the incidence of a fixed rate of 0.38% on the sum of the debtor balances accrued daily, calculated on the last day of the month.
As for the transactions entered into by companies, the aliquots is 0.00137% per day for companies opting for the Simples Nacional in operation less than or equal to BRL 30,000.00. For the other companies, the rate is 0.00.41% per day for the other cases. Plus, the additional rate currently fixed in 0.38% levied on the sum of the debtor balances accrued daily, calculated on the last day of the month.
IOF and Foreign Exchange Transactions
The maximum rate of IOF for foreign exchange transactions is 25%. Currently, however, in the case of loans, it is reduced. See how it relates to the following situations:
-
In the settlement of exchange transactions from April 7th, 2011, for inflow of funds into the Brazil, including through simultaneous operations referring to foreign loan, subject to registration with the Central Bank of Brazil. Contracted so directly or by issuing bonds on the international market with an average minimum of up to seven hundred and twenty days: 6% rate
-
In foreign exchange operations to ensure compliance with obligations to credit card companies or commercial banks or acting as multiple credit card issuers arising from the acquisition of goods and services from abroad made by users: 6.38% rate
-
In foreign exchange transactions related to the payment of import of services: 0.38% rate
Transfer of resources from abroad to Brazil:
- Up to 90 days of commencement of employment: 5% on the amount transferred
- Over 90 days: zero rate
- Other transfers: zero rate
Transfer of funds from Brazil to other countries:
- Linked to a credit card: 2% on the amount transferred
- Other transfers, not linked to a credit card: zero rate
IOF and Insurance Operations
As in foreign exchange transactions, the maximum rate for the IOF levied on insurance operations is 25%, although the effective rate is much lower:
-
Private insurance for health care: 2% tax rate
-
Reinsurance, compulsory insurance, insurance linked to home mortgage, exports and international transport, among others: zero rate
-
Life insurance, personal and labor accident: 4%, for contracts made from September 1st, 2004 to August 31, 2005, 2% for contracts made from September 1st, 2005 to August 31th, 2006, and zero rate for contracts made from September 1st , 2006.
-
Other insurance operations: 7%
IOF and Transactions in Real Estate Titles and Securities
The maximum rate of IOF levied on those transactions is 1.5% per day. Currently, however, the effective rate is zero, except for the following operations:
-
Applications made by foreign investors in mutual funds investing in emerging companies and real estate investment funds: 1.5% per day, limited to 10%.
-
On redemption, sale or refinancing of transactions of this nature: rate of 1% per day, limited to the yield of the operation, according to the time. In redemption made after 30 days the rate is reduced to zero.
-
Redeeming units of investment funds before completion of the grace period for credit income: tax rate of 0.5% per day.
-
In transfer of shares that are admitted to trading on a stock exchange located in Brazil, with the specific purpose of ballast the issuance of depositary receipts traded abroad: 1.5% tax rate
-
Tax operations with Gold financial asset or Exchange instrument: 1% tax rate.