The Brazil Senate approved new income tax regulations on November 29, paving the way for Brazilians to be obligated to pay up to a 15% tax on income derived from cryptocurrencies held on exchanges outside the country. This development comes as part of a broader initiative by President Luiz Inácio Lula da Silva’s administration to revamp income tax rules.
Having already secured passage in the Chamber of Deputies, the bill is anticipated to receive final approval from President Lula, given that his administration initiated the changes in the income tax rule. Effective January 1, 2024, the new regulations stipulate that any Brazilian earning more than $1,200 (6,000 Brazilian reals) on exchanges outside Brazil will be subject to the tax.
Regulatory Shifts & Rising Crypto ETF Interest
This aligns foreign-held funds with the same tax rate applicable to domestically-held funds. Notably, funds earned before this date will be taxed upon access by the owner, with earnings on funds accessed before December 31 taxed at 8%.
The scope of the bill extends beyond individual cryptocurrency holders. It also impacts “exclusive funds,” referring to investment funds with a single shareholder and foreign companies active in the Brazilian financial market. The government aims to generate $4 billion (20.3 billion Brazilian reals) in revenue from these measures in 2024. However, not everyone in the Senate favors the bill, with Senator Rogério Marinho expressing opposition.
This move follows the September announcement by Roberto Campos Neto, the Banco Central do Brazil governor, revealing plans to tighten cryptocurrency regulations in response to their surging popularity. At the time, Campos Neto expressed concerns about potential tax evasion facilitated by using cryptocurrencies.
The regulatory landscape for cryptocurrencies in Brazil has been evolving throughout the year. In June, President Lula signed government decree No. 11.563, granting the Brazilian central bank jurisdiction over virtual asset service providers. This decree established rules under a December 2022 law, providing a legal framework for cryptocurrencies in Brazil.
It empowered the Central Bank of Brazil to regulate and supervise virtual asset service providers, ensuring that token projects qualifying as securities continue to fall under the purview of the Comissão de Valores Mobiliários (CVM), Brazil’s equivalent of the United States Securities and Exchange Commission.
While navigating this regulatory shift, Brazil is concurrently witnessing a significant demand for spot Bitcoin exchange-traded funds (ETFs), a trend that has persisted for over two years. This growing interest in crypto-related financial instruments among Brazilian investors underscores the changing landscape of digital asset acceptance.
The decision to tax income from cryptocurrencies held abroad signals a landmark change in Brazil’s regulatory approach to digital assets. As the government seeks to boost revenue through these measures, the opposition from some quarters highlights the contentious nature of cryptocurrency taxation.
However, Brazil’s journey through this evolving regulatory terrain is paralleled by the increasing acceptance and interest in crypto-related investment products, exemplified by the surge in spot Bitcoin ETFs.
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