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New Brazil Bill Seeks to Modify Crypto Taxes

Brazil is gearing up for a significant shift in its approach to taxing cryptocurrencies. A fresh bill drafted by the Ministry of Finance is set to alter the taxation landscape for individual crypto investors. It aims to reclassify cryptocurrencies, subjecting them to taxation akin to capital instrument shares, considering their fluctuating exchange rates.

Under the forthcoming measure slated for presentation to the National Congress, cryptocurrency investors would be required to pay 15% of their earnings from cryptocurrency transactions as tax.

Currently, gains from cryptocurrencies are taxed as assets, with capital gains tax levied based on transaction volumes. This tax starts at 15% for transactions below 5 million reais ($990,000). For transactions exceeding 30 million reais (approximately $6 million), the tax rate increases to 22.5%, with scaled-down percentages for volumes falling in between.

The new taxation framework would encompass both non-fungible tokens (NFTs) and cryptocurrencies that investors trade on platforms which are registered and which conduct transactions surpassing 35,000 reais (around $7,000) every month. This threshold exceeds the minimum requirement for stocks, currently standing at 20,000 reais (approximately $4,000).

The primary objective behind the new measure is to foster fairness and precision in tax policies. It entails formalizing more rigorous criteria for identifying tax havens, including jurisdictions that maintain confidentiality regarding the ownership and shareholder information of foreign corporations operating in Brazil. This, in turn, will eliminate loopholes conducive to tax evasion. Brazilian law defines tax havens as countries taxing income at rates lower than 20%.

However, it remains uncertain whether the new measure will revise the old taxation thresholds, potentially exempting cryptocurrency investors from taxes on small cryptocurrency trades. The implementation of these legislative changes is slated for 2025, pending Congressional approval of the bill, which has been under development for more than a year.

This new tax system aligns with Brazil’s intensified scrutiny of the cryptocurrency sector. In February, Brazil’s cryptocurrency tax authority uncovered irregularities in more than 25,000 crypto tax declarations, employing a blend of artificial intelligence and traditional techniques for detection. Moreover, the measure forms part of the government’s broader initiative to restructure income taxes, initiated last year with the enactment of new regulations governing offshore and closed-end funds. The regulations created distinctions according to offshore entity ownership and residency.

A comprehensive bill overhauling income tax regulations for both individuals and corporations is anticipated to be presented to Congress at a later stage.

The tax policy changes in Brazil are likely to be of interest to crypto companies such as Riot Blockchain Inc. (NASDAQ: RIOT) since those new taxes could be the precursor of similar policies in other jurisdictions.

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