Crypto taxes in Brazil are in the middle of a controversy right now due to a new tax reform that many think is unconstitutional and outright illegal. But to understand what went wrong, first, we must understand the basics.
In Brazil, crypto gains are taxed under capital gain taxes, while income received in crypto is taxed under ordinary income taxes.
Most people will agree that the tax laws in Brazil are pretty straightforward and in line with global standards. But as we get into the nuances, you’ll see it’s not all that simple after all.
Nonetheless, in this guide, you’ll learn how crypto is taxed in Brazil, how to calculate and possibly reduce your taxes and most importantly, how to report your crypto taxes.
How Does Receita Federal View Cryptocurrency?
The Brazilian government, much like most other countries, hasn’t clarified its stance on cryptocurrency. But we do know that Receita Federal treats crypto as moveable goods for tax purposes.
How is Crypto Taxed in Brazil?
Unfortunately, Receita Federal has left many questions related to crypto taxes in Brazil unanswered. Nonetheless, most crypto transactions can be split into two categories based on their tax consequences – capital gain taxes and income taxes.
Capital Gain Tax
According to the Brazilian tax law, whenever you dispose of your crypto assets and realize a gain in Brazilian Real, the fiat currency of Brazil, you’ll be liable to capital gain taxes. Remember this bit, as it’ll be a critical piece when we discuss the next tax reform.
Your gains will only be taxed if the monthly transaction volume exceeds R$35,000 (on the month of profit).
So, for example, if you sell your 5 BTC and realize a profit of R$5000, but your monthly transaction value didn’t exceed R$35,000, you’ll be exempted from paying capital gain taxes.
Take the same example, but this time your monthly transaction value did exceed R$35,000. Now, you must pay capital gain tax rates on R$5000.
The capital gain tax rates range from 15% to 22.5% based on your total gains. You can also offset losses but can not reduce your taxable income by more than 30%.
Income received in crypto is treated the same way as income received in any other currency for tax purposes, whether it’s BRL, USD or BTC. This also includes mining rewards from crypto mining.
Any form of revenue or income received in crypto is taxed under income tax rates, which range from 7.5% and 27.5%, depending on your salary bracket.
To clarify, this doesn’t mean that Receita Federal views cryptocurrency as a legal tender. Instead, it’s only treated as such when appropriate.
Remember that you’ll pay capital gain taxes again when you sell your crypto (received as income) in the future.
Recently, on May 24th, 2022, Receita Federal made an announcement, stating that like-kind crypto transactions are now also taxable. Like-kind transactions refer to exchanging one crypto for another.
For example, suppose you bought 9 ETH in July for R$7000. But in August, you exchanged those 9 ETH for 3 BTC, and Bitcoin is trading for R$3000 (3 BTC x R$3000 = R$9000).
According to the new tax laws, you must pay capital gain tax rates on your realized gain of R$2000 (R$9000 – R$7000).
However, as many people pointed out, the foundational tax law of the country states that you’ll only be liable for taxes when you realize a gain in Brazilian fiat currency. And in a crypto-to-crypto exchange, you don’t incur any gains in fiat currency.
For more details on this matter, read this.
As of now, no one really knows if the new tax laws are being enforced or not. We highly suggest you consult a local tax professional to know the active status of like-kind exchanges.
How to Calculate Crypto Taxes in Brazil
Calculating crypto taxes in Brazil is not that difficult. Just subtract the cost basis or acquisition cost from the selling price to calculate the capital gain.
Cost Basis – Selling Price = Capital Gain
Calculating the cost basis, however, is not that simple. In Brazil, you can calculate your cost basis using the Average Cost Basis (ACB) or First-in-First-out (FIFO) method.
Average Cost Basis – To calculate using the average cost basis method, just divide the total acquisition cost of all your crypto that you own by the number of units of that cryptocurrency.
So, for example, if you own 7 BTC and their total acquisition cost is $14000, the cost basis for 1 BTC will be $2000 ($14000/7). Pretty basic.
First-in-First-out (FIFO) – The FIFO method is even simpler. This method suggests that the acquisition cost of your crypto is its cost basis.
But what if you buy 1 BTC in July for $3000 and another in August for $4000? What would be the cost basis of 1 BTC when you sell it in the future? Alternatively, when you sell 1 BTC, how do you know if you’re selling the one bought in July or August?
Well, that’s why it’s called first-in-first-out, as it suggests that the one you bought first will be the one to go out first. So, the cost basis of that 1 BTC would be $3000.
As for income taxes, you would pay income tax rates on the fair market value of the received crypto (at the time of acquisition).
As you can imagine, manually calculating all this can turn into a nightmare, especially if you’re an active crypto investor with multiple wallets and exchange accounts. That’s why you don’t have to. You can automate this process using a free crypto tax calculator like Bitcoin.Tax Just connect all your wallets and exchanges and select the accounting method. Bitcoin.Tax will do the rest.
Crypto Taxable Events
The following are the only few taxable events in Brazil involving crypto.
If you sell crypto and realize a gain in fiat currency, you’ll be liable to capital gain taxes.
Tax consequences for swapping cryptocurrencies are not clear yet. Recent guidelines say it’s taxable under capital gain taxes, while many argue that it shouldn’t be.
We’ll update this as the story develops.
Getting Paid in Crypto
Getting paid in crypto is treated the same way as getting paid in any other currency. Hence, income received in crypto is taxed per income tax rates.
While the tax consequences for gifting crypto are unclear, receiving crypto is taxed under inheritance tax rates, which vary from state to state, ranging from 4%-8%.
Tax-Free Crypto Transactions
The following are all the crypto transactions with no tax consequences in Brazil. In other words, tax-free.
There are no clear guidelines on the tax consequences of crypto mining as of now. But based on the existing framework, it seems to be tax-free.
However, when you sell the crypto you received as mining rewards, you’ll attract capital gain taxes.
Staking or Lending Rewards
There are also no clear guidelines on the tax consequences of staking rewards and income received from other DeFi activities, such as yield farming and crypto loans. But based on the existing framework, it seems to be tax-free.
Airdrops & Hardforks
Same as crypto mining and staking rewards. No clear guidelines, but most probably tax-free.
Crypto donations are tax deductible but up to certain limits.
Buying and Holding Crypto
Buying and holding crypto doesn’t qualify as a taxable event. Therefore, it’s tax-free.
Transferring Crypto Between Wallets
Since you’re not actually disposing of your crypto for fiat currency when transferring them wallet to wallet, it’s tax-free.
How to Avoid Crypto Taxes in Brazil
Since Receita Federal is working with most cryptocurrencies in Brazil, they can easily monitor your transactions, find out if you’re not paying taxes correctly and track you down.
And if you get caught trying to avoid taxes, the consequences can be ugly, including penalties and even jail. Long story short, we suggest you don’t avoid your crypto taxes.
However, while you can’t avoid paying taxes altogether, there are legal ways to reduce your taxes.
For instance, you can donate crypto to reduce your taxable income, which in turn, will reduce your taxes. Or you can sell your non-performing crypto assets, incurring a loss that you can use to offset your gains. This is called tax-loss harvesting.
Finally, if the government takes the new tax law back, you can avoid triggering a tax event by converting your cryptocurrencies to stablecoins instead of fiat currency.
Lastly, if you feel you’re paying a lot of money in taxes, we suggest you hire a tax professional to help you devise better tax-saving strategies.
How to Report Crypto Taxes in Brazil
You don’t need to declare your crypto assets if their total value doesn’t exceed R$5000. But if they do, You must declare them on your Annual Income Tax Return (IRPF) through this online portal.
If you realize a gain and the transaction volume for that month exceeds R$35,000, you must declare it on Annual Capital Gains Statement (GCAP) through their online program.
The deadline for filing these tax returns is December 31. Even though you only need to file these returns once a year, you must pay your capital gain taxes the following month of realizing the gain. So, if you make a profit of R$5000 in August (and monthly transaction volume exceeds R$35,000), you’ll pay taxes by the end of September.
Lastly, if you’re buying, selling, or trading crypto in any exchange outside of Brazilian origin, for example, Binance, and your monthly transaction volume exceeds R$30,000, you must declare an IN 1.888 (Monthly statement of cryptocurrency operations) for that month.