New Income Tax Rules in Brazil: What You Need to Know
Brazil has approved new income tax rules that may require Brazilians to pay up to a 15% tax on income from cryptocurrencies held on foreign exchanges. This bill, which has already passed in the Chamber of Deputies, is expected to be approved by President Luiz Inácio Lula da Silva.
Effective January 1, 2024
Starting from January 1, 2024, the tax will apply to any Brazilian earning over $1,200 (6,000 Brazilian reals) on foreign exchanges. This aligns their tax rate with funds held domestically. However, funds earned before this date will incur a tax rate of 8% for earnings accessed before December 31.
Who is Affected?
Note that this tax rule applies specifically to crypto profits derived from trading on foreign exchanges. It does not apply to expats living in Brazil without residency status.
Taxation for Offshore Companies and Trusts
If you are a tax resident in Brazil and own an offshore company or trust, taxes are only applicable when the entity distributes profits to you. Any funds retained abroad remain exempt from taxation. However, if you are a tax resident in Brazil and own an offshore company or trust, you will be subject to individual taxes on any profits attributed to you, regardless of whether they are distributed.
Impact on Exclusive Funds and Foreign Companies
The new legislation also affects “exclusive funds,” which refers to investment funds with a single shareholder, as well as foreign companies operating in the Brazilian financial market. The government aims to generate $4 billion (20.3 billion Brazilian reals) in revenue in 2024 through these measures. However, Senator Rogério Marinho expressed his dissenting opinion on the bill, stating that the government is creating a tax because it is a poor manager.
Initiating Regulatory Measures
In September, Roberto Campos Neto, the governor of Banco Central do Brasil, announced plans to enhance cryptocurrency regulations in response to the growing popularity of crypto in the country. He expressed concerns about the potential use of crypto for tax evasion. Additionally, the Brazilian central bank gained authority over virtual asset service providers in June, while crypto-based securities are overseen by the Comissão de Valores Mobiliários.
Hot Take: New Tax Rules Impact Brazilian Crypto Traders
Brazil’s new income tax rules have significant implications for Brazilian crypto traders. The introduction of a 15% tax on income from cryptocurrencies held on foreign exchanges starting from January 1, 2024, will align the tax rate with funds held domestically. It is important for traders to understand these new regulations and ensure compliance to avoid any penalties or legal issues. The government aims to generate substantial revenue through these measures and enhance oversight of the cryptocurrency market. This move highlights Brazil’s commitment to regulating and taxing cryptocurrencies as they become increasingly popular within the country.
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