FINTECH: Brazil's Congress moves towards imposing higher cryptocurrency taxes

As reported by local sources, amendments to a bill that identifies cryptocurrency as financial assets for tax purposes in overseas investments have been approved by a congressional committee. Moreover, the profits from the fluctuations in cryptocurrency asset prices against the country’s fiat currency are taxed by the draft bill, while also including foreign exchange rate oscillation. According to officials, the amendment seeks to equalise tax treatment, as Brazilian shareholders investing in Brazil pay more taxes than those who invest abroad. Foreign earnings up to USD 1,200 will be non-taxable under the new legislation, while earnings between USD 1,200 and USD 10,000 are subjected to a 15% tax rate, and the ones above this threshold undergo taxes of 22.5%.

As per the legislation, the adjustments are only applicable to cryptocurrency exchanges without offices in Brazil. Through the added regulations, local exchanges could be a less costly option for some investors, especially for those with earnings above the top tax bracket. Moreover, the law could increase cryptocurrency exchange activity at a national level, while also drawing foreign investors to establish offices in Brazil.

Some of the global cryptocurrency exchanges that operate in Brazil include Binance, Coinbase, Bitso, and Crypto.com, along with local participants such as Mercado Bitcoin and Foxbit.

The National Congress of Brazil will vote on the bill on 28 August and, if approved, it will take effect in January 2024. 

As per Statista’s report, the revenue in the cryptocurrency market is expected to increase at an annual growth rate of 16.25%, resulting in a forecasted total amount of USD 970 million by 2027. By the same period, the number of users is anticipated to reach 54 million, while the user penetration is expected to reach 24.6%, compared to 17.4% in 2023.

Considering the growth of the cryptocurrency market, Brazil’s officials have imposed several new regulations, including a decree from June 2023 which clarifies the roles of the country’s central bank and securities regulator in cryptocurrencies. The rules were established based on a law imposed in December 2022, which determines a crime of fraud involving virtual currencies, with a penalty of four to six years in jail plus a fine. A virtual service provider licence, which must be requested by digital asset companies, as well as exchanges and trading intermediaries, has also been included, as digital assets that are considered securities must be supervised by the Brazilian Securities and Exchange Commission.

Back in February 2022, Brazil legislators laid the basis to regulate the cryptocurrency market, passing a bill that provides guidelines for virtual assets. Through the implementation of cryptocurrency regulations, Brazil would also be part of other countries in the region setting procedures for overseeing the developing asset class.

Latin America has seen overall growth in the penetration of cryptocurrencies in recent years, mostly due to high inflation levels, political instability, and the lack of availability of traditional banking services.