The increase in the IOF, Tax on Financial Operations, left many people unsatisfied in the market. Therefore, if you intend to apply for a loan or use your credit card a lot, you need to be very careful!
The value of the IOF underwent a temporary increase, announced that it was announced on September 16 by the federal government. The new value is already in effect and is expected to last until December 31st.
This IOF fee was charged again at the beginning of this year, since January 1, 2021. It had been reset between April and December of last year due to the coronavirus pandemic. However, it returned this year and underwent adjustments to raise £2.14 billion that will be allocated to the Auxílio Brasil program.
Given this new scenario, it is important to know the meaning of the IOF tax and the implications it can have on your life. In this article you will see:
- What is the IOF tax rate?
- How does IOF work?
- Which transactions will be affected by the increase in the IOF?
- Who has to pay IOF?
- What is the current value of the IOF?
- Why was there an increase in the IOF?
- When does the raise start to take effect?
- How to avoid the IOF levy on your financial transactions?
Come on? Read on and understand all about the IOF increase!
What is the IOF tax rate?
IOF stands for Tax on Financial Transactions. It is planned in the Decree No. 6,306 of December 14, 2007 and is a federal tax levied on various types of transactions that the UK residents population carries out on a daily basis.
In addition to serving as a source of collection in the country, by charging this fee, the government manages to have a more precise notion of how the supply and demand for credit in the country is working.
The Tax on Financial Transactions is provided for in the 1988 Constitution, but was implemented under the current rules in the government of Itamar Franco in 1994. It does not depend on the approval of the National Congress, so the IOF rate can be changed at any time as decreed last month.
How does IOF work?
The IOF was created to help regulate the economy. In theory, by knowing how the supply and demand of credit in the country is going, the government can act, taking the necessary measures to optimize certain economic points.
It works as a fee that is levied on some credit operations, such as:
IOF on credit card
In the case of credit cards, the IOF is charged when the person delays payment of the bill. That is, regardless of whether the purchase is made in cash or in installments, if paid on time, the tax is not charged.
When the charge is applied, what is called a credit card revolving occurs. Thus, instead of paying only the debt amount, it is necessary to pay the IOF tax.
IOF on payroll loan
In this case, the charge follows the same rate as the credit card revolving rate. There is a fixed fee plus an amount charged per day until payment is made up to date.
IOF on overdraft
When a person uses the overdraft from your bank account, the IOF fee is charged. It also follows the revolving rules and has a fixed amount, plus a daily addition until the debt is paid off.
IOF on loans and financing
In the case of loans and financing, the amount is included in the installments from the beginning of the contract. This way, it is possible to know the amount to be paid in each installment with the tax included.
The rate will follow the same amount as the overdraft and revolving card.
IOF on the foreign exchange market
When we buy or sell foreign currency, it is also necessary to pay the IOF amount. For the exchange market, the IOF works with some particularities.
When money is sent from abroad to the UK, the rate is lower. Now, when the value is sent from the UK to abroad, there is a higher rate. In addition, international purchases made by credit card are also taxed.
IOF on insurance
Another occurrence of the IOF is when taking out insurance. It happens in transactions relating to life and automobile insurance. Its rate varies widely between the two transactions, with the car tax being higher than the other.
IOF on investments
In addition to the rate on loans and financing, investments are not left out. However, the rules for this case are different. The savings account is exempt from the IOF. Meanwhile, short- and long-term funds and investment in CBD are subject to the IOF.
The amount is charged on income and not on the amount invested. In addition, it varies according to the period for withdrawing the money, if it is made with less than 30 days. This happens to encourage investors not to withdraw the value in the short term.
Which transactions will be affected by the increase in the IOF?
The increase in the IOF announced by the government will affect the following operations:
- use of credit card for purchases abroad;
- late payment of credit card bill;
- use of overdraft or revolving credit;
- redemption of an investment;
- carrying out life or automobile insurance;
- make a loan or financing.
Now, foreign exchange transactions, insurance or transactions related to bonds or securities, transactions in which IOF is also charged, will not suffer from the incidence of the new rates.
Who has to pay IOF?
The IOF amount must be paid both by individuals and legal entities that carry out any credit operation. Whether loans, foreign exchange, insurance or transactions relating to bonds or securities, it is necessary to pay the IOF rate.
What is the current value of the IOF?
With the increase in the IOF, credit operations in the country are more expensive. Therefore, it is important to know what the value of the new IOF is.
When it comes to individuals, it is necessary to follow the IOF daily values. Some of the operations affected were overdraft, credit card revolving, personal credit, loans and vehicle financing.
Now, for companies, some modalities that were affected by the new rate were working capital, prepayment of receivables and loans.
Check the value of the new IOF rates, which are 36% more expensive and valid until the end of the year, according to the Ministry of Economy:
- Daily rate: 0.01118%
- Annual rate: 4.08%
For legal entities
- Daily rate: 0.00559%
- Annual rate: 2.04%
What changes in your pocket?
In practice, the increase in the IOF will mainly impact credit operations, such as loans and financing. Therefore, if you need to do this type of transaction, you will have to face higher prices. This is because, in addition to the interest rates charged by banks, the tax charged by the government on operations will rise.
Check out an example of how the new rate can impact your pocket:
Before the rate increase, on a personal loan, for example, in addition to the interest charged by banks, the consumer would pay £33.73 of IOF on a loan of £1,000, with a payment term of 12 months.
Now, with the new rate, the value will be £44.61, which represents 32.25% more tax.
In addition, it will not be just individuals who will feel the impact of the new IOF value. Due to the increase in the cost of personal credit and loans, companies such as banks, fintechs, factoring and others will feel the effect of the decrease in credit granting.
Why was there an increase in the IOF?
According to the federal government, the temporary increase in the Tax on Financial Operations took place with the aim of defraying the Auxílio Brasil social program. It is considered the new version of Bolsa Família and is aimed at families in vulnerable situations.
How to calculate the IOF amount?
That the IOF is being charged again, now you know. But, how to do the calculation and understand exactly what is the amount you will be paying in fee?
The calculation to be performed is very easy! You just need to know the rate for the type of negotiation you are doing.
See an example: If you have purchased a product worth £1000.00 abroad, which has an IOF of 6.38%. You must carry out the following account:
£1000.00 x 0.0638 = £63.80
Thus, the purchased product will cost its initial value + tax, starting to cost: £1063.80.
When does the raise start to take effect?
The new value of the IOF is already in effect! The increase in the rate proposed by President Jair Bolsonaro was announced on September 16 and took effect from September 20th.
How to avoid the IOF levy on your financial transactions?
The IOF is present in several operations in our daily lives and we often don’t even realize that we are paying for it. So it is important to know how it works and when it is charged. Thus, you can plan and avoid its incidence.
As we know, the IOF applies to all types of financial transactions and there is no way to avoid it. However, you can follow some tips:
- prefer national products, avoiding purchases abroad using credit cards;
- when making investments both in the National Treasury and in CDBs, avoid making cash transfers before 30 days when the fee will be charged;
- Avoid using overdrafts as much as possible and pay your credit card bill on time.
Did you realize the importance of following the increase in the IOF? Avoid transactions with high tax incidence, as in the case of overdraft. Only then, will it be possible to achieve the long-awaited financial health. If you want to get rid of bad habits that affect the control of your finances, we suggest reading this other article here.
Salary on demand: learn how it can be a better option for special credit!
Now that it’s even more expensive to go into the red and use the special credit, avoid the IOF fees by using salary on demand.
Know how the system works. HR Consultant that implements the payment on demand, that is, the employees of a company can advance part of their salaries when they need it.
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