Brazilian IRS now requires Brazilians to pay tax even on crypto-to-crypto trades

The Federal Revenue of Brazil (RFB) declared again that Brazilian investors in the crypto asset market must pay income tax even on transactions that involve trading cryptocurrencies among themselves, i.e. exchanging for example, Bitcoin for Ethereum.

The statement was published in the Official Diary of the Union this Tuesday, 24, as a result of a consultation with the regulator. At the end of last year the IRS had already issued an opinion, also from a consultation, in which it claimed that trading between cryptocurrency pairs is taxable even if there is no conversion to the Real.

Although the IRS does not specify what can be understood as “Profit” in the case of exchanging one cryptocurrency for another. they highlight that:

“the capital gain calculated on the sale of cryptocurrencies, when one is directly used in the acquisition of another, even if the acquisition cryptocurrency is not previously converted into reais or another fiat currency, is taxed by the individual’s income tax”.

However, it should be noted that not all crypto investors need to declare their trades to the IRS, as the regulator establishes that they must only pay income tax to investors who trade more than BRL 35,000 in cryptocurrencies.

“Capital gains earned on the sale of cryptocurrencies are exempt from income tax if the total value of the sales in a month, of all kinds of cryptoassets or virtual currencies, regardless of their name, is equal to or less than BRL 35,000, 00 (thirty-five thousand reais)”, declares the Revenue.

Federal Deputy Kim Kataguiri (Podemos-SP) has already declared that it considers the proposal to be illegal from the IRS and asked the National Congress decree immediate suspension of determination.

According to the Deputy, the regulation on the calculation and payment of the IRPF establishes that there will only be capital gain in exchanges when there is the involvement of currency (arts. 134 and 136 of Decree 9,580 and 2018), which is not the case for operations with crypto-assets.

“In the exchange between crypto-assets, there is no exchange involving currency; one crypto-asset is exchanged for another, therefore, there is no equity increase”, declares the Deputy.

In addition, the parliamentarian argues that pursuant to art. 110 of the Tax Code, the tax law cannot change the definition of private law institutes and therefore the Internal Revenue Service does not have the power to change an understanding of the Tax Code.

“If the Union wants to tax the exchange of crypto assets, legal innovation will be necessary – and, even in this case, doubts may be raised about the constitutionality of the new law. What we have is a completely illegal interpretation made by the tax authorities, which clearly exceeds the power to regulate’, declares Kim Kataguiri

Bitcoin and Cryptocurrencies in Income Tax

In conversation with Cointelegraph, Thayse Mariane, accountant at Lioness, a platform for the declaration and anticipation of the Income Tax refund, explains who should declare their cryptocurrencies to Leão and how this Federal Revenue procedure works.

According to Thayse, firstly, it is necessary to clarify that taxation on cryptocurrencies occurs only in the case of capital gain, that is, when an individual records a profit from the sale of cryptocurrencies whose total sales value in a month, of all types of cryptoassets or coins – no matter the name – is equal to or greater than R$ 35 thousand.

Anyone who falls into this situation and will need to declare the Income Tax should also know that the rate for cryptocurrencies follows the following rule for the rate on capital gain:

The calculation of this capital gain must be done through the program GCAP from the Federal Revenue, using the “Code 4600”.

On this platform, the taxpayer will automatically calculate the rate and, subsequently, will be able to issue the DARF (Federal Revenue Collection Document), which is a kind of slip to pay the Income Tax due for the informed month “DARF must be paid by the last day of the month following the sale.

“Remembering that, if you do not achieve sales of more than R$ 35 thousand per month with a profit, you do not need to fill out the GCAP or issue the DARF for payment, as you will be exempt”, explains Thayse.

There is no value limit stipulated by the Federal Revenue that obliges the taxpayer to declare the cryptocurrencies operated in the Income Tax, but it is recommended that, in doubt, all negotiations carried out with them are declared. Therefore, if an individual operates crypto-assets, he is recommended to file an annual income tax return to include them in the tax deduction.

“Even because, there will only be taxation if it exceeds R$ 35 thousand monthly with profits”, recalls Thayse.

It is also important to know that for those who have operated on any exchange from abroad, with monthly sales exceeding R$ 30 thousand, it is mandatory to present an accessory declaration of the operation, which must be prepared monthly by the National Collection System, through the e-CAC portal.

How to declare cryptos on Income Tax

In the annual declaration of cryptocurrencies, all cryptoassets traded in the year to be declared and their respective information must be informed, whether values ​​that generated taxation that has already been paid by DARF or exempt values.

“The taxpayer will not pay Income Tax again, he just needs to inform all the amounts operated in the year to the Federal Revenue”, informs Thayse. For each of these data there is a different form in the Lion program. In the “Assets and Rights” tab you will find five different codes for crypto assets:

• “Code 81”: for Bitcoin declaration only;
• “Code 82”: to declare altcoins, i.e. any cryptocurrency except Bitcoin, such as Litecoin, XRP, Ethereum, etc;
• “Code 83”: for stablecoinscryptocurrencies paired in some stable asset or basket of assets;
• “Code 88”: for NFTs, which are not actually cryptocurrencies, but tokens non-fungible, that is, they cannot be exchanged or traded for another equal, as with cryptocurrencies and money itself, but which also need to be declared;
• “Code 89”: other crypto assets that are not considered currencies, but payment tokensclassified as security tokens or utility tokens.

After selecting the code that best fits your statement, the taxpayer must go to “Discrimination” and inform details of the operations, such as, for example, which cryptocurrency was purchased, the amount, the date of purchase and the name and CNPJ of the brokerage firm. in which the transaction took place.

“If you bought from another individual, inform their name and CPF”, guides Thayse.

It is also necessary to declare where these crypto assets are kept: if they are in a company or exchange it is important to mention the name and CNPJ, or if they are in a digital wallet, inform the model used – always filling in all the information regarding the transactions.

In “Situation”, the taxpayer must enter the total amount used to purchase the aforementioned cryptoassets – never the updated quote. Anyone who did not have cryptocurrencies in any of the requested years must leave the field blank.

If the purchase took place in foreign currency, it is important to convert first to US dollars and then to reais. The capital gain must be informed in the “Income Subject to Exclusive/Definitive Taxation” form. There, the taxpayer will find a field to automatically import all information that has already been filled in GCAP.

Finally, to complete the declaration process, the taxpayer must complete the “Exempt and Non-Taxable Income” form for sales of cryptocurrencies that did not exceed the limit of BRL 35,000 monthly, as they were exempt from taxation.