The Federal Revenue has launched a guide to questions and answers under Law No. 14,754 of 2023, which deals with the taxation of income earned by individuals abroad through financial investments, offshore companies and trusts.
In the document, the RFB answers 51 questions about the new law. In this article, we will focus on the key issues affecting investors in the cryptocurrency market.
Virtual assets
Virtual assets were mentioned by the RFB in question number 18:
“Will all virtual assets be considered financial investments abroad?”
RFB response:
“No. Law No. 14,754 of 2023 refers to the Regulation of the Special Secretariat of the Federal Tax Administration of Brazil, the Rules for Classifying Virtual Assets as Financial Investments Abroad.”
(Law No. 14,754 of 2023, art. 3, § 3)
Therefore, we still have to wait for the regulations that will define the criteria for classifying virtual assets as financial investments abroad. It is worth mentioning that, although not mentioned in the document, the issue of digital wallets, according to § 3 of art. 3rd of the new law will also be incorporated into the Federal Revenue regulations.
In our next article we will answer the most important questions regarding virtual assets and digital wallets in law 14.754. If you invest in the crypto market, you cannot lose.
Timing of taxation and exchange rate fluctuations
The RFB also commented on the timing of taxation and when the tax will be paid, which is currently monthly.
According to the IRS, income from financial investments abroad will continue to be taxed when the event triggering the income tax occurs and on a cash basis basis. However, instead of taxing income monthly, the taxpayer will tax such income annually in the Annual Adjustment Return (DAA).
In other words, the income earned in 2024 goes into the DAA delivered in 2025, where the income is added up and inserted into a specific income form for the capital invested abroad.
As for the exchange rate fluctuations of financial investments, in line with what we have communicated in previous articles, they will be taxed at the time of redemption, liquidation or, in the case of investments in crypto assets, upon sale. In this way, the difference between the amount received and the acquisition costs will be considered as the income from the financial investment, as is the case now.
Compensation for losses and taxes
The RFB also provided some clarifications regarding compensation for losses resulting from the new law. In the same vein as what we’ve been talking about, losses on financial investments can be offset against gains from other financial investments abroad, and this offset can take place within the base year, in the DAA.
Another point addressed by the RFB was the compensation of taxes paid abroad, which is already allowed by current legislation, as long as it is in accordance with the provisions of an international agreement signed with the country of origin of income. The new law allows taxpayers to continue to offset taxes paid abroad, if they have an agreement to do so.
Update of assets abroad
Finally, the IRS has clarified some points regarding updating assets abroad. Law No. 14,754 allowed the taxpayer to, optionally, adjust the value of his assets and rights to the market value on 12/31/2023, paying a rate of 8% on the difference.
According to the RFB, the deadline to become a member is 31/05/2024, with tax payments also due on this date. To do this, the taxpayer must complete a specific declaration made available by the IRS itself to formalize the option.
The RFB also emphasized that only assets declared in the DAA for the year 2022 and delivered before 5/31/2023 will be updated. Therefore, this option is not used to regularize undeclared assets. If you need to regularize, you must file or correct previous returns and pay the tax according to the old rules.
By Ana Paula Rabello and Gabriel Rother Candido.
Source: Live Coins
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.
