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, having passed in the Chamber of Deputies, is expected to gain approval from President Luiz Inácio Lula da Silva, whose administration initiated the income tax rule modifications.
Taxing Overseas Cryptocurrency Earnings
According to the proposed legislation, any Brazilian earning more than $1,200 or 6,000 Brazilian reals from exchanges based 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 Brazilian reals in revenue by 2024 through these tax measures. Despite the government’s intentions, Senator Rogério Marinho has expressed opposition, attributing the tax to poor fiscal management.
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The move toward taxing cryptocurrencies in Brazil is part of a wider trend of regulatory tightening. In September, Roberto Campos Neto, the governor of the Banco Central do 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), a trend that has been ongoing 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 regulatory landscape for digital assets in the country. 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.
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