Brazil has been very active in the cryptocurrency scene for a long time now. In fact, not only does Brazil rank among the top 5 in the list of countries with the most cryptocurrency holders, but it is also seventh on the list of countries with the highest number of crypto-exchanges.
However, the Brazilian government has lately been constantly revising its cryptocurrency regulations as it intends to implement rules and regulations in response to the increasing interest in cryptocurrencies across the country.
The latest development from the country relates to new tax regulations, with two major Brazilian cryptocurrency exchanges on the verge of shutting down as one of the country’s leading commercial banks has refused to abide by an agreement that would have prevented the closure of cryptocurrency exchange accounts.
The bank in question, ‘Banco Bradesco,’ fears that digital assets might pose serious money laundering risks and it reportedly refused to abide by any demands from the Brazilian Association of Cryptocurrencies and Blockchain [ABCB] regarding account closures for crypto-exchanges. In fact, some sources have revealed that many other commercial banks are planning to shut down accounts belonging to crypto-exchanges.
Digital asset brokers in Brazil are thus willing to give up as they are failing to comply with new reporting requirements under which they face fines, as well as the stricter rules introduced in the EU by the bloc’s Fifth Anti-Money Laundering Directive (AMLD5). In fact, several crypto-startups have already closed down or relocated to other jurisdictions in order to preserve their business models and keep their customer base.
Main reasons for the shutdown
It is noted that exchanges are struggling with compliance costs and diminishing returns. Acesso Bitcoin, one of the affected exchanges, noted that with the current situation created by the new regulations, there is a significant decrease in traded volume. The firm’s Co-founder, Pedro Nunes, had stated that the “market had cooled off for smaller exchanges.”
Latoex is another cryptocurrency exchange that’s shutting down due to difficulties in meeting the tax authority’s new requirements. The closure was confirmed by the company’s chief executive officer last week. The asset manager is now looking to sell its assets to other companies and return the remaining funds to its clients.
Tax regulations around cryptocurrency in Brazil
Right now, there are two bills currently under discussion before the Parliament. The first bill intends to include cryptocurrencies in the definition of “payment schemes” and this is defined as the set of rules and procedures that govern the provision of certain payment services to the public. The inclusion of cryptocurrencies in the definition of payment schemes would make it subject to the regulation and oversight of the country’s central bank.
The second bill aims at defining cryptocurrencies, clarifying that they are not securities, while allowing cryptocurrencies to be freely issued, transferred, and used.
However, both bills are still in their initial phases of discussion. Federal tax authorities have stated that cryptocurrencies must be declared in income tax returns as “other assets.” Furthermore, individuals are obliged to pay income tax on any capital gains obtained with the disposition of cryptocurrencies, provided that the total value of cryptocurrencies is disposed of during any given month exceeding BRL 35,000. Further, tax rates vary from 15% to 22.5% as well.