Brazil’s Cryptocurrency Tax Overhaul: Overseas Holdings Face Scrutiny

6 views 4:03 am 0 Comments November 30, 2023

Brazilians may soon face taxes of up to 15% on earnings from cryptocurrencies held on international exchanges. This is following the approval of fresh income tax regulations by the Brazilian Senate. The legislation was passed in the Chamber of Deputies and is expected to gain support from President Luiz Inácio Lula da Silva, whose administration initiated the modifications of the income tax rule.

Taxing Overseas Cryptocurrency Earnings

According to the proposed legislation, any Brazilian earning more than $1,200 or 6,000 Brazilian reals from exchanges outside Brazil would be subject to this tax, effective Jan. 1, 2024. This aligns the taxation rate for funds held abroad with those held domestically. Funds earned before this date will be taxed upon the owner’s access. This is along with the earnings on funds accessed before Dec. 31, which incur an 8% tax rate.

Implications for Exclusive Funds and Foreign Companies

The impact of the legislation extends beyond individual cryptocurrency holders to encompass “exclusive funds.” It refers to investment funds with a single shareholder and foreign companies active in the Brazilian financial market. The government aims to generate $4 billion or 20.3 billion in Brazilian revenue through these tax measures by 2024. Despite the government’s intentions, Senator Rogério Marinho has expressed opposition, attributing the tax to poor fiscal management.

The move toward taxing cryptocurrencies in Brazil is part of a broader trend of regulatory tightening. In September, Roberto Campos Neto, the governor of Banco Central in Brazil, announced plans to enhance cryptocurrency regulations. He cites concerns about potential tax evasion through the use of digital assets. In June, the Brazilian central bank was granted authority over virtual asset service providers. This indicated an increasing regulatory focus on the crypto space.

Growing Popularity of Spot Bitcoin ETFs in Brazil

While the regulatory environment for cryptocurrency evolves, Brazil is experiencing substantial demand for spot Bitcoin exchange-traded funds (ETFs), an ongoing trend for over two years. As of Nov. 21, these ETFs collectively manage $96.8 million in assets. Hashdex’s Nasdaq Bitcoin Reference Price FDI (BITH11) leads the market with $57.8 million in AUM, capturing approximately 60% of the market share. This strong demand for crypto-related financial instruments suggests a rising interest in digital assets among Brazilian investors.

Brazil’s decision to tax income from cryptocurrencies held abroad signals a significant change in the country’s regulatory landscape for digital assets. While the government aims to increase revenue through these measures, opposition from some quarters underscores the contentious nature of cryptocurrency taxation. As Brazil navigates this evolving regulatory landscape, the concurrent surge of spot bitcoin ETFs highlights the growing acceptance and interest in crypto-related investment products among Brazilian investors.