Purchases of iPhone and other items abroad will have zero IOF (but not now)

The Minister of Economy, Paulo Guedes, promised to zero the IOF (Tax on Financial Operations) of products such as iPhones, PC gamer components and other devices that are usually expensive in the national market. Fee is required for international credit, debit or prepaid card purchases. The news came after Brazil was invited to join the OECD (Organization for Economic Development Cooperation).

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The formal invitation to start negotiations on joining the OECD was received by the government on Tuesday (25). But Paulo Guedes got ahead of the bloc's request. The minister commented at a press conference, in front of the Planalto Palace, that he committed to zeroing the IOF in a letter sent last week to the organization.

Bolsonaro's minister said that the reform of the exchange law, passed by Congress in 2021, was the OECD's latest requirement for the country to join the bloc, along with the suspension of the tax on currency conversion. Guedes said:

“Once the foreign exchange law is approved, I can commit to reducing IOF taxation and we did so. I sent a letter last week. We have already sent our commitment to sign the gradual and designed removal of IOFs on international flows”

However, Poder360 states that the OECD, as a matter of course, does not impose which taxes must be reduced by countries that receive the invitation to become members. Each country must take its own steps to align its policies with the organization's principles.

IOF is applied on international purchases and transactions

The IOF is applied to four types of operation in Brazil:

• 6% rate on operations involving the receipt or remittance of foreign funds with a stay of up to 180 days
• Fee of 6.38% on international purchases and transactions abroad with credit, debit and prepaid cards;
• 1.1% fee on purchases of foreign currency or operations for bank accounts abroad;
• And a rate of 0.38 on “other foreign exchange transactions”;

Brazil intends to gradually zero the four IOF rates by 2029, generating a tax waiver of R$7 billion for the government, scheduled for the next 7 years. Guedes explained that the tax reduction should not generate tax waivers at the moment.

“We are withdrawing the IOF within a comfortable period for the Brazilian government and that will not impact the issue of tax waiver at this time”, assured Erivaldo Gomes, secretary of Economic Affairs at the Ministry of Economy. The ministry hopes that the amount collected through international transactions will “compensate for the withdrawal” of the tax.

IOF on international purchases will be zeroed by 2028

According to the federal government's plan, the 6% rate on foreign investment operations should be zeroed in 2022.

In turn, the IOF tax rates on international card transactions and purchases of foreign currency or bank transactions – both of which are more consumer-oriented activities – are expected to reach 0% by 2028.

It is worth remembering that, recently, the federal government changed the 50% tariff exemption limit on products brought from abroad. Now, the Brazilian can bring purchases of up to US$ 999 without being taxed by the agents of the Federal Revenue.

Lowering the IOF would open up even more options for users taking advantage of international deals from stores like Amazon, AliExpress and Shopee. The measure also reduces the price of subscriptions to platforms based outside of Brazil, such as LinkedIn, or Twitch subscriptions.

The last IOF rate to be zeroed by the Ministry of Economy will be the one linked to “other exchange operations 0.38%, which should only end in 2029.

Government may create new tax in place of IOF

According to Erivaldo Gomes, the proposal to eliminate the IOF tax is intended to eliminate the so-called “multiple exchange rates”, which favor one financial transaction over another. According to the executive of the Ministry of Economy, this fiscal practice is condemned by the IMF (International Monetary Fund) and by the OECD itself.

However, Paulo Guedes's portfolio is considering creating a new tax on international transactions in the future, as long as it is “linear” and “non-discriminatory”. “The IMF's understanding is that this exchange tax could be a maximum of 2% so that it is not considered an impediment to international transactions,” commented Gomes.

Purchases of iPhone and other items abroad will have zero IOF (but not now)