Crypto assets: aspects about the legal framework, taxation and reporting requirements

Act that came into force in June outlined the rules for transactions with digital assets amid the burgeoning market in Brazil, bringing greater regulatory certainty

On June 20, 2023, the Brazilian Legal Framework for Crypto Assets entered into force. Law No 14,478/2022 goes into effect at a time when the country has seen a boom in the number of individuals and companies investing in digital assets.

A survey carried out by the Federal Revenue Service has shown that over 1.9 million individual taxpayers and 65,634 companies registered virtual currency transactions last April in Brazil, the highest numbers ever reported by the agency. The amounts transacted totaled BRL 19.6 billion, the highest figures recorded in nearly two years, a 60% increase compared to the same month last year.

In view of this scenario, the statute turns out to be an important instrument that outlines the rules governing the responsibilities of crypto operators and sets out the standards for regulating, protecting and safeguarding the consumers’ best interests in transactions with virtual assets, putting measures in place to curb financial crimes. 

To further consolidate the law’s efforts, the Government published Decree No 11,563/2023 on June 14, appointing the Central Bank of Brazil as the authority responsible for regulating the country’s crypto market and for licensing and overseeing exchanges that provide crypto services.

Crypto assets: what are they?

Crypto assets are virtual assets stored in a digital format that are encrypted to ensure greater security and are distinguished by their lack of physical form. Transactions can take place between individuals or companies without the involvement of a financial institution.

Among crypto assets, we find cryptocurrencies, such as Bitcoin, but this classification also encompasses other products, such as tokens, which represent custody contracts for certain assets, and stablecoins, which are digital currencies pegged to other assets, such as gold and the U.S dollar.

Taxation on crypto and reporting requirements

It should be noted that, as far back as 2019, way before the legal framework was approved, RFB Normative Ruling No. 1,888 had already set out the rules related to the mandatory provision of information on crypto transactions.

Transaction reporting

Individuals and companies are required to provide information whenever:

• transactions are carried out through exchanges located overseas; or
• transactions are not carried out through a crypto exchange.

The data must be supplied to the tax authorities whenever the total amount transacted exceeds BRL 30,000 for that month.

Such information must be submitted to the Federal Revenue Service on a monthly basis by the last business day of the assessment month following that in which the crypto transactions took place.

Crypto exchanges headquartered in Brazil for tax purposes are also required to provide information regarding each of their clients. This information pertains to transactions carried out in the previous calendar year and must be supplied on an annual basis by the last business day of January.

Taxation

In Brazil, individuals and legal entities that record capital gains from crypto trading are subject to taxation.

According to the Federal Revenue Service, earnings from the sale of crypto assets, with a total traded value for the month exceeding BRL 35,000, are taxed as capital gains, under a progressive tax system. Income tax must be paid by the last business day of the month following the transaction.

Penalties

Failure to meet the deadline warrants a fine amounting to BRL 1,500 for companies and BRL 100 for individuals, which is calculated per month or fraction thereof.

Companies may also be subject to a fine equivalent to 3% of the transaction value if they fail to report or if they provide inaccurate, incomplete, or incorrect information. For individuals, this percentage is 1.5% of the value of the transaction that resulted in default.

Compliance Support

DPC supports individuals in dealing with crypto-related tax issues. We assist them in providing information to the Federal Revenue Service, calculating and filing their income tax returns and capital gain reports, while assessing the corresponding impacts on their Annual Tax Returns. You can count on our services: dpc@dpc.com.br.