Strating January 1, 2024, Brazil will introduce a flat 15% tax on crypto profits and up to 6,000 Brazilian reais ($1,200), will be exempt from taxation.
In a significant move, President Luis Inácio Lula da Silva of Brazil has signed into law a measure that imposes taxes on crypto assets held abroad by Brazilian citizens. The law, signed on December 12, was officially published in the Diário Oficial da União (Official Diary of the Union) on the following day. The taxation law shall come into enforcement starting January 1, 2024.
The legislation not only targets cryptocurrencies but extends to encompass profits and dividends derived by Brazilian taxpayers from various sources abroad, including investment funds, platforms, real estate, and trusts. The Brazilian government aims to generate approximately 20 billion reals ($4 billion) in new taxes in the year 2024.
To incentivize early compliance, those initiating tax payments in 2023 will receive an advantage: an 8% levy on all income earned until 2023, payable in installments, with the first installment scheduled for December. Subsequently, starting in 2024, Brazil will have a fixed tax rate of 15%. Earnings from overseas, up to 6,000 Brazilian reals ($1,200), will be exempt from taxation.
João Carlos Almada, who serves as the controller at Transfero, a stablecoin issuer based in Brazil, clarified that the taxation of digital asset income is a familiar concept in the country. Nevertheless, he highlighted certain aspects of the law that may benefit from further clarification. Almada added:
“Some points in the text need improvement, for example, compensation for losses in the period, something similar to the tax rules for stock assets. I believe that with regulation evolving in the country, we will go through new discussions on this topic, aiming to provide even greater transparency to the market, thus generating more credibility.”
Crypto Taxation on the Rise
Brazil joins other nations scrutinizing the overseas crypto holdings of its citizens. In November, the Spanish Tax Administration Agency reminded its citizens of their obligation to declare crypto assets stored abroad. Notably, this obligation is applicable only to individuals with balance sheets exceeding the equivalent of 50,000 euros (approximately $55,000) in digital assets.
The United States is also working on rules for clear crypto taxation. Earlier this year, the Biden administration introduced significant proposals regarding the tax treatment of cryptocurrencies in the federal budget. These changes have the potential to significantly impact crypto investors, imposing an additional tax burden on them.
Presently, US crypto investors employ the “Tax-loss harvesting strategy”, enabling them to sell their digital assets at a loss and promptly repurchase the same crypto the following day. This strategy allows investors to record losses and carry them forward to mitigate their tax liabilities.
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