The Cryptocurrency Industry in Brazil
Since 2015, Brazilian senators have been developing a comprehensive bill to regulate crypto at the state level. After all the necessary amendments are worked out, the bill should be approved by the National Congress and signed by the President of Brazil, which is expected in the second half of 2022.
Let’s review the main provisions of the bill regulating cryptocurrencies in Brazil, as well as the opportunities and perspectives the country offers to businesses and individuals.
Law on Cryptocurrency Regulation in Brazil
A comprehensive law on the regulation of cryptocurrencies in Brazil has been developed by local deputies since 2015. Senator Flávio Arns’ bill, PL 3.825/2019, already approved by the Brazilian Senate’s Economic Affairs Committee on February 22, 2022, was used as the basis for drafting the main provisions.
As of October 2022, the bill to regulate cryptocurrencies in Brazil is still pending approval by the National Congress, as amendments are currently being worked on. According to the paper’s text, the bill’s main provisions include the following:
- creating a state regulator to approve basic rules for crypto-assets;
- defining basic market principles for digital assets;
- the establishment of ground rules by the state regulator to prevent fraudulent crypto transactions in accordance with international standards, including a fine or imprisonment of four to eight years for fraudulent use of cryptocurrency assets.
The Central Bank, the Federal Revenue, or a specially created government body could act as a regulator of the cryptocurrency industry in Brazil. The drafters of the main bill note that there is no talk of legalizing Bitcoin as a full-fledged means of payment at this stage of consideration of the document. The law only prescribes specific mechanisms for crypto regulation.
Notably, in June 2022, Deputy Paulo Martins suggested using cryptocurrencies to pay for goods and services, as well as to pay debts and confiscate them from debtors, as an addition to the main text of the law. These additions are still in the early stages of consideration.
Cryptocurrency for Legal Entities
Under the text of the bill on digital asset regulation, the term “virtual service provider” will be applied to crypto companies. Legal entities would be able to operate legally and be accountable to the Council for Financial Activities Control. This would primarily apply to suspicious crypto transactions that could be conducted for terrorist financing and money laundering purposes.
The Securities and Exchange Commission of Brazil will presumably supervise the execution of initial public offering operations of tokens. If the bill is passed, legal entities will be criminally liable for non-compliance with the law’s main provisions.
Besides, the bill provides companies with a tax exemption for purchasing hardware and software necessary to conduct transactions with crypto-assets until 2029. The main condition is that the company must eliminate 100% of its carbon emissions into the environment. The capital gains tax rate for virtual digital assets in Brazil is 15%.
This friendly environment has already attracted cryptocurrency businesses to the country. CEO of Binance, Changpeng Zhao, after a meeting with the mayor of Rio de Janeiro on March 26, 2022, announced the opening of an office in the city. Plus, in early October, Binance opened two more offices in São Paulo and Rio de Janeiro. Moreover, the city administration of Rio de Janeiro launched the Municipal Committee for Crypto Investments. The agency will evaluate the risks and returns of potential investments in the digital asset ecosystem.
Cryptocurrency for Individuals
Brazil’s Federal Reserve policy states that citizens who exchange cryptocurrencies in the amount exceeding $7,250 per month are required to pay income tax. The rule works even in the case of exchanging cryptocurrencies for other cryptocurrencies. In the case of transactions with digital assets for a smaller amount, there’s no need to pay income tax.
Due to the high load on the energy system in Brazil, the authorities encourage renewable energy sources: solar panels, wind turbines, etc. So, if the bill on crypto regulation is adopted, miners who mine digital assets using renewable energy sources will be exempt from paying any kind of taxes.
However, Senator Irajá Abreu, one of the initiators and developers of the main bill on crypto-asset regulation in Brazil, said that once the law is adopted, the current trend will certainly lead to the wider use of cryptocurrencies in the daily life of citizens. This refers to retail sales, utilities, taxes, and other household payments. According to a CoinsPaid study, two-thirds of Brazilians are already willing to use crypto regularly.
Crypto adoption in everyday payments is already gradually taking place. For example, according to an October 11, 2022 decree from Rio de Janeiro City Hall, taxpayers will be allowed to use crypto-assets and virtual service providers to pay property tax on purchases within the city in 2023. Reportedly, the companies will provide services to make crypto payments and convert digital payments into the local currency, the Brazilian real. Over time, officials plan to add the ability to pay with crypto and other types of taxes, as well as expand the number of crypto-assets to make these types of payments.
There are plans to hold public hearings on the NFT sector’s development. The official website of Rio de Janeiro’s City Hall published a proposal to issue non-fungible tokens depicting the city’s landmarks.
As of October 2022, crypto is still not a full-fledged means of payment in Brazil, however, it’s seen as a commodity, like oil or coffee. Nevertheless, Brazilian officials are actively working to finalize a comprehensive law to regulate digital assets, which would greatly expand opportunities for the cryptocurrency industry in the country. With over 12,000 companies already reporting cryptocurrency assets on their balance sheets to the Federal Revenue, passing the law is a highly expected move by the government.