Government's New Source of Revenue! Brazilian Congress Proposes Imposing Higher Taxes on Cryptocurrency Investment Returns

Cointelegraph reported that Brazil is pushing for an amendment to a cryptocurrency tax bill aimed at ensuring fair tax treatment for both overseas and domestic investors in crypto investments, as well as increasing government tax revenue. The proposed tax rates are expected to range from 15% to 22.5%. The bill has already passed a preliminary vote in the local parliament and is set to come into effect as early as next year after thorough discussions by authorities.

Brazil to Expand and Enhance Cryptocurrency Tax Regulations

According to local media, due to the current tax breaks on overseas cryptocurrency investments, the Brazilian government is in the process of amending cryptocurrency tax laws to promote equal treatment. The key points include:

Cryptocurrencies Classified as Financial Assets

The amendment will classify cryptocurrencies as part of "financial assets," meaning that when investing overseas, cryptocurrencies will be subject to regulations on par with other financial assets.

Expansion of Tax Collection Scope

The law states that not only profits from cryptocurrency price fluctuations will be taxed, but also gains resulting from foreign exchange rate fluctuations will be included in the tax collection scope. This will ensure that all forms of investment gains are subject to the same tax regulations.

Different Incomes, Different Tax Rates

Under the new law, income from overseas investments will be taxed at different rates based on the amount. Investors with income up to 6,000 Brazilian reais (approximately $1,200 USD) will be exempt from taxes. Those with income between 6,000 and 50,000 Brazilian reais (approximately $10,000 USD) will be taxed at 15%, while those with income above 50,000 Brazilian reais will face a tax rate of 22.5%.

Transition Mechanism

The law also stipulates that exchanges and investors will have at least six months for a transition period to adjust, allowing them enough time to adapt to these changes. Cryptocurrency exchanges currently operating in the country include Binance, Coinbase, and Crypto.com, among others.

Currently, the bill has been approved in Congress and will be voted on at the end of August for implementation, with the expected effective date in January 2024.

What Changes Can Be Expected?

Firstly, if the amendment is passed, it will subject the cryptocurrency assets held overseas by Brazilians to the same regulations and constraints as traditional assets in the future; meaning they will be treated equally in terms of investor protection and tax collection.

Furthermore, the law will also apply to overseas exchanges without offices in Brazil, requiring all cryptocurrency service providers involved in Brazilian business in the future to register and establish offices.

It is foreseeable that the new regulations may make local exchanges a new choice for some investors due to lower costs. Overseas exchanges will need to comply with the law to strengthen investor protection.

Prior to this, the country's cryptocurrency development has been progressing rapidly, with the central bank recently renaming its central bank digital currency CBDC, formerly known as "digital real," to "Drex," and planning to introduce a tokenization system that can accelerate corporate financing.