Brazil’s move towards cryptocurrency regulation took a step closer this month as the government in Brasilia agreed and published ‘instruction 1888’.
The instruction passes new rules that come into force on August 1, meaning that individuals, legal entities and brokerage firms that carry out operations with crypto will have to inform the treasury of every detail of their transactions.
The main goals of this regulation are to combat tax evasion and avoid crimes such as money laundering.
Until the legislation becomes active, Brazil’s cryptocurrency market is in a strange state of limbo. It has been a great market – and one with potential for being greater still with millions of dollars being negotiated, but the lack of control over these operations is a real concern.
The 1888 “Normative Instruction” is really important to regulate the market and it delivers some definitions for the true concept of encryption exchange.
The instruction describes it as being “legal, even non-financial, that provides services relating to operations performed with cryptoactive, including inter-mediation, trading or custody, and which may accept any means of payment, including other crypto”.
It also brings to the fore the very concept of ‘cryptoactive’ which is described as “the digital representation of value denominated in its own unit of account, whose price can be expressed in local or foreign sovereign currency, transacted electronically with the use of encryption and technologies of distributed registries, that can be used as a form of investment, an instrument for the transfer of securities or access to services, and which is not legal tender”.
With this information, investors can make decisions, safe in the knowledge that the market has rules protecting them from companies with malicious intentions.
Brokerage firms are defined as ‘exchanges’ by the new rules, and these institutions will have more rigid obligations such as including the control of its users, for example.
In addition, brokerage firms (or exchanges) that negotiate virtual currencies located in Brazil have an obligation to inform Brazilian Revenue of all operations performed, regardless of their value.
On the other hand, the transactions carried out by Brazilian people and Brazilian companies in exchanges abroad, or outside the brokerage firms’ environment, will have to be reported by the customers themselves, whenever the monthly amount traded exceeds R$ 30,000 (thirty thousand reais).
Among the information requested by the government body are the dates of the operations, the type of operations, the owners of the operations, the encryption used in each operation, the number of encrypted transactions, the value of the operation in reais and the value of the service fees charged for the execution of the transaction, in reais. The Brazilian treasury also wants to know the address of the sender’s virtual wallet and the receipt of the cryptocurrencies.
The information will have to be provided up to the last working day of the month following the operation with cryptoactive. The exchanges will also have to report by the end of January of each year the balances of fiduciary (cash) and cryptoactive currencies of each of its users as of December 31 of the preceding year, as well as the acquisition cost of each of the cryptocurrencies, if declared by the user.
These rules seem to be aimed at controlling the gains earned by users in transactions with cryptoactive, which, according to the position adopted by Brazilian Revenue are taxable by income tax.
The fines for the delay in presenting the information vary from R$ 100 each month for Brazilian people to R$ 1,500 a month for companies. Already if the information provided is incorrect, the value can reach 3% of the value of the operation for companies and 1.5% for people.
With the information above, it is probable that Brazilian Revenue will soon impose the obligations of Normative Instruction 1888 to all kind of operations or investments involving encryption, because of the meaning adopted in the legislation.
On the other hand, this is the first step to regulate this sector of the economy by generating investor confidence and increasing the flow of investments by serious companies in the Brazilian cryptocurrency market.