Brazil targets crypto investors with new tax proposal

A new bill introduced by the Brazilian administration imposes a 22.5% rate on residents of tax havens, with crypto investments being embraced by it, as reported by local news outlet Folha de São Paulo. Brazilian Finance Minister Fernando Haddad announced the legislation, which seeks to address tax evasion by closing loopholes that benefit those residing in tax havens.

The proposed changes, which are expected to be neutral in terms of revenue impact, will not alter existing tax rates but will clarify the definition of tax havens and ensure transparency.

The bill, set to take effect in 2025 if passed by Congress, maintains the 15% tax rate on foreign investments. These jurisdictions are characterized by low or no income tax and a lack of transparency.

The reform will also regulate the taxation of crypto assets, applying a rate of up to 22.5% to align with financial investment rules. Additionally, the government plans to simplify tax calculations for stock market investors and close loopholes in investment fund taxation.

First tax aimed at crypto in Brazil

In 2019, the Brazilian IRS introduced the ‘Normative Instruction 1888′, which creates rules for crypto investors to report their trading activity on foreign exchanges. However, it didn’t create new tax laws, with the capital gains tax of 15% being applied to investors.

This new bill could create the first crypto-focused tax in Brazil, known for its regulators’ positive stance towards crypto. The Brazilian Central Bank is preparing to launch the test phase of Drex, its blockchain infrastructure built to streamline the country’s financial markets. Differently from other central bank digital currencies (CBDC) project, the Drex is heavily inclined towards tokenization of real-world assets.

Moreover, the Brazilian Securities and Exchange Commission also fosters RWA tokenization growth, as well as the presence of crypto in multi-market funds traded in the country.

As a result, Brazil is the seventh largest country in crypto adoption, according to Chainalysis’ “The 2023 Geography of Cryptocurrency Report.” Yet, this new taxation pressure might put some weight over investors shoulders.

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