Brazil is set to implement new income tax rules that could significantly impact cryptocurrency holders. The new tax, which ranges up to 15%, will apply to income generated from cryptocurrencies held on exchanges outside the country.
The Federal Senate of Brazil approved legislation on November 29, 2023, which has already passed in the Chamber of Deputies. This impending change is part of a broader effort to regulate and tax income derived from cryptocurrencies, reflecting a global trend as governments grapple with the challenges posed by the growing influence of digital assets.
The proposed bill introduces a tax ranging up to 15% on income generated from cryptocurrencies held on exchanges outside the country. This means that any Brazilian citizen earning more than 6,000 Brazilian reals (approximately $1,200) on international exchanges would be subject to this tax.
The effective date for this new regulation is set for January 1, 2024. The primary objective is to bring funds held on international exchanges in line with the taxation of domestic funds, emphasizing equal treatment for financial transactions, regardless of their origin.
Funds accessed by their owners after the effective date will be subject to taxation. However, earnings on funds accessed before December 31, 2023, will be taxed at a reduced rate of 8%.
This transitional period aims to balance the implementation of the new tax rules while considering previously acquired cryptocurrency holdings. The impact extends beyond individual holders to include “exclusive funds,” which refers to investment funds with a single shareholder and foreign companies participating in the Brazilian financial market.
The government anticipates a significant financial boost from this tax initiative, projecting to generate 20.3 billion Brazilian reals (approximately $4 billion) in revenue in 2024. Despite the government’s optimism, not all members of the legislative body are in favor of this move.
Senator Rogério Marinho voiced his opposition, expressing concern that the government is resorting to creating a tax due to perceived shortcomings in financial management.
This dissent within the government highlights the complexity of navigating cryptocurrency taxation and regulation, with differing opinions on the necessity and effectiveness of such measures.
The decision to implement these tax rules came after the governor of Banco Central do Brazil, Roberto Campos Neto, announced plans in September 2023 to tighten regulations on cryptocurrencies.
The motivation behind this regulatory tightening was the significant surge in cryptocurrency popularity in the country, accompanied by suspicions of crypto assets being used for tax evasion.
In June 2023, the Brazilian central bank was granted jurisdiction over virtual asset service providers, reflecting a proactive stance in regulating this evolving financial landscape.
Additionally, crypto-based securities fall under the purview of the Comissão de Valores Mobiliários, Brazil’s equivalent of the United States Securities and Exchange Commission.
Brazil’s approach underscores the need for a comprehensive framework as governments worldwide grapple with the challenges of regulating cryptocurrencies.
The proposed bill introduces a phased approach for taxing funds earned before the implementation date, with a reduced rate of 8%. The government expects to generate $4 billion in revenue from this tax initiative in 2024.
However, not all members of the legislative body support this move, as some express concern over the government’s financial management.
The decision to impose this tax follows the governor of the central bank’s announcement to tighten regulations on cryptocurrencies, reflecting the complex and dynamic nature of the cryptocurrency industry.
