Brazilian Congress Plans Higher Cryptocurrency Taxes

The Brazilian Congress is debating a major tax reform bill to simplify and modernize the tax code

Brazil is one of Latin America's largest and most influential countries, with a population of over 200 million and a GDP of about US$1.8 trillion. The country has a vibrant and diverse culture, a rich natural heritage, and a dynamic economy. However, Brazil faces many challenges, including social inequality, corruption, environmental degradation, and fiscal instability.

Brazil is trying to reform its tax system, which many experts and citizens consider complex, inefficient, and unfair. According to the World Bank, Brazil ranks 184th out of 190 countries for ease of paying taxes, with an average of 1,501 hours per year on tax compliance. Moreover, Brazil has one of the highest tax burdens in the world, with an average tax-to-GDP ratio of 33.1% in 2019.

In this context, the Brazilian Congress is debating a major tax reform bill to simplify and modernize the country's tax code. The bill proposes to unify several federal taxes into a single value-added tax (VAT), reduce the corporate income tax rate, and create a new tax on dividends. However, the bill also contains some controversial provisions that could affect the cryptocurrency sector in Brazil.

According to local reports, a congressional committee has approved amendments to the bill to raise taxes on cryptocurrencies held overseas. The amendments would recognize cryptocurrencies as "financial assets" for tax purposes in foreign investments and subject them to the same tax rules as traditional assets. This means that Brazilians who own cryptocurrencies in foreign exchanges would have to pay taxes on their gains from price fluctuations and exchange rate differences.

The proposed tax rates for foreign income are as follows:

Up to 6,000 Brazilian reais (~$1,200): exempt

Between 6,000 and 50,000 reais (~$10,000): 15%

Above 50,000 reais: 22.5%

The amendments also stipulate that Brazilians who own cryptocurrencies in domestic exchanges would not be affected by the new rules, as they already pay taxes on their crypto transactions according to the current legislation. The legislation requires crypto investors to report their transactions to the Federal Revenue Service (RFB) monthly and pay a 15% capital gains tax on profits above 35,000 reais (~$7,000) annually.

The rationale behind the amendments is to promote equal tax treatment between crypto and traditional assets and to prevent tax evasion and money laundering through cryptocurrencies. However, some critics argue that the amendments could have negative consequences for the crypto sector in Brazil, such as discouraging innovation, reducing competitiveness, and driving investors away from the country.

According to legal experts, the amendments could make foreign exchanges less attractive for Brazilian crypto investors, especially those with high profits or large portfolios. On the other hand, domestic exchanges could benefit from the amendments, as they would offer lower tax rates and more legal certainty for their customers. Moreover, the amendments could incentivize foreign exchanges to establish physical offices in Brazil or partner with local entities to avoid higher taxes.

The amendments are still subject to approval by the full Congress and the president before becoming law. The vote is expected to take place on August 28th. If approved, the amendments would take effect in January 2024. The crypto community in Brazil is closely following the developments and hoping for a favorable outcome that balances taxation and innovation.