Brazilian Central Bank Governor Roberto Campos Neto revealed in September that he had begun to notice a significant increase in cryptocurrency adoption in the country, particularly stablecoins.
At the same time, data from the Brazilian Federal Tax Service also shows that the trading volume of USDT is as high as 55 billion US dollars, almost twice the trading volume of Bitcoin during the same period. In response to this trend, the Brazilian government plans to implement stricter regulations on cryptocurrencies to prevent tax evasion and illegal activities.
Just yesterday (29th), the Brazilian Senate also passed new income tax regulations that will tax income from cryptocurrency deposited in overseas exchanges. The bill has already passed the House of Representatives and is expected to be approved by President Luiz Inácio Lula da Silva.
15% tax on overseas cryptocurrency income
Under the bill, starting from January 1, 2024, any Brazilian who earns more than $1,200 on overseas exchanges will be required to pay a tax of up to 15%.
Brazil's current tax law stipulates that if the total amount of cryptocurrency sales in a given month exceeds $7,100, then the profits derived from these sales are subject to capital gains tax, with progressive tax rates ranging from 15% to 22.5% depending on the amount of capital gains.
This means that Brazilian tax residents will be taxed at the same rate as domestic income on cryptocurrency income earned on foreign exchanges.
Transition period arrangements
The bill also contains tax arrangements for the transition period. Funds earned after January 1, 2024 that have not been withdrawn will be taxed according to the new tax laws. However, income from funds withdrawn before December 31, 2023 will be taxed at a lower rate of 8%.
The bill also affects "captive funds" (i.e. investment funds with a single shareholder) and foreign companies active in Brazil's financial markets. The government hopes to raise about $4 billion in 2024 through this move.
The impact of the bill and the weakening of tax attractiveness
Despite the progress of the bill, Senator Rogério Marinho expressed opposition, criticizing:
The government imposes taxes because it is mismanaged.
The backlash underscores the internal debate surrounding the tax initiative.
Netizen @BowTiedGlobe also posted an article explaining the main changes in Brazil’s new tax law (PL 4173/23) and clarifying some misunderstandings. He said:
Current tax law : If you are a Brazilian tax resident and own an overseas company or trust, you will only have to pay tax when it distributes profits to you. Assets retained overseas are exempt from tax.
New tax law : If you are a Brazilian tax resident and own an offshore company or trust, you must pay tax as an individual on the profits that belong to you, even if the profits are not distributed to you.
This is not a new phenomenon : in fact, all EU/OECD countries already have similar mechanisms in place through their CFC (Controlled Foreign Company) rules.
Impact on Brazil’s tax attractiveness : This would significantly reduce Brazil’s tax attractiveness, but it is not a citizenship-based tax, nor is it a tax on non-residents.
Fortunately, you are misunderstanding this
Brazil
is not taxing people regardless of residency
What changes with PL 4173/23:
CURRENTLY: Tax-deferral
If you own an offshore company or trust while being a Brazil tax resident, you only pay tax when it distributes profits to… https://t.co/iiG1YyVUr9
— BowTiedGlobe | Your Freedom Dealer (@BowTiedGlobe) November 29, 2023
It is understood that since June, the Central Bank of Brazil has gained jurisdiction over virtual asset service providers; while cryptocurrency-based securities are regulated by Brazil’s Comissão de Valores Mobiliários (equivalent to the U.S. Securities and Exchange Commission).
Various developments show that the Brazilian government is conducting stricter regulations on the cryptocurrency market and trying to increase fiscal revenue by taxing overseas cryptocurrency assets.
