Cryptoactive: Taxation of virtual currencies for individuals in Brazil

The crypto market (virtual currencies) in Brazil and worldwide has shown significant growth in recent years. One would not expect anything different in a world increasingly filled with electronic tools that transform the virtual environment into something tangible.

According to the RFB, in 2017, the number of registered account holders exceeded exchange clients at Bovespa.

Given this situation, the volume of adopters of virtual currencies searching for guidance on tax treatment in Brazil with respect to this system of financial transactions has increased.

The Normative Instruction 1,888, published by the Federal Revenue, in May 2019, establishing and ruling the obligation, as of August this year, to provide information related to operations carried out with crypto derivatives. The measure is applied to companies, individuals and brokers.

See also: Filing the information on crypto operations begins in August/2019

The standard requires reporting of transactions, but does not deal with the gains’ taxation form. “The environment is still cloudy for taxpayers, as there is no analysis on the limits for taxation of operations, or on the possibility of compensation for losses, for example,” says Augusto Andrade, manager of Individual’s Department at Domingues e Pinho Contadores.

Concepts

The Normative Instruction 1888/2019 establishes the following concepts:

Cryptoactive: the digital representation of value under its own unit of account, whose price may be expressed in sovereign local or foreign currency, electronically traded using encryption and distributed registration technologies, which may be used as a means of investment, values transfer instrument or access to services, which is not a legal tender; and;legal. Crypto Exchange: The legal entity, even if not financial entity, that offers services related to transactions made with cryptoactives, including intermediation, negotiation or custody, and that can accept any means of payment, including other crypto.

How the individual should provide the information

Individuals must have the Digital Certificate (e-CPF) to be able to provide information through the Federal Revenue's Client Service Virtual Center (e-CAC).

Obligation for individuals

The individual resident or domiciled in Brazil is required to provide the information when performing transactions with exchange domiciled abroad or in cases in which he or she directly performs transactions (without the intermediation of an exchange).

The information shall be provided whenever the monthly value of operations, alone or jointly, exceeds BRL 30.000,00.

What should be reported

Date and type of transaction, holders of the transaction, used cryptoactives, amount traded, transaction value and service fees charged Brazilian Reais, if any.

Deadlines

The information shall be monthly reported to the RFB by the last business day of the month following the one in which the operations were performed.

Penalties

An individual who fails to report the required information, or who omits information or reports inaccurate, incomplete or incorrect information, will be subject to the payment of penalties established by the normative instruction.

For providing after deadline:

BRL 100.00, per month or fraction.

For providing inaccurate, incomplete or incorrect information or omission of information:

1.5% of the value of the transaction referred to in the omitted, inaccurate, incorrect or incomplete information.

Taxation

“And while not otherwise stated, credit operations are subject to taxation in Brazil in the form of capital gains, with progressive tax rates of 15% to 22.5%,” says Augusto Andrade.

In line with this understanding, when the set of crypto sale transactions performed in the month is less than BRL 35,000.00, any gains will be exempt from taxation.

The expert points out that the tax exemption limit should not be confused with the obligation to submit information through e-CAC.

“Our guidance to clients is to maintain tight control of their crypto operations, as this helps in providing monthly information to tax authorities,” warns Andrade.

Expert help for assuring the taxpayer's peace of mind

Domingues e Pinho Contadores assists clients in providing monthly information to the tax authorities and calculates the taxes on any capital gains realized in order to avoid penalties for not meeting the obligation to provide information (within the established legal limits) and/or for the non-payment of taxes due.

The Individuals Department at DPC has structured and trained team for analysis of operations and verification of the results quickly and accurately, giving the client a service that guarantees the tranquility of being in line with its obligations to the tax authorities.