Personal Income Tax and Cryptocurrencies, how to declare?

By Evelin Nascimento


With just over a month to go before deadline and delivery, the IRS has published that more than 8 million have already submitted their 2020 income tax returns.

According to data from the Federal Revenue Service, in 2019 more than 700 thousand taxpayers went throungh the process called “fine mesh”, which results from inconsistencies and/ or pending information provided by the taxpayer.

When filling out the Annual Declarantion, it is very common to have doubts about how to declare certain assets and income. In this matter, we will address a topic that still generates many doubts and questions fron taxpayers, such as cryptocurrencies.

Although there is no item with a specific denomination on the property sheet, the IRS has already ruled that cryptocurrencies should be declared to the Tax Authorities, therefore, taxpayers should be aware of this requirement.

Where should cryptocurrencies be declared?

Cryptocurrencies or bitcoins are considered assets, therefore, they must be declared in the “Goods and rights” tab using the code 99 – Other goods and rights.

It is important to note that the assets must be declared at the acquisition value and not at the current market value.

Taxpayers who made several acquisitions during 2019, must consider the acquisition value, in each transation.

We also emphasize the importance of mentioning in the “descrimination” field the maximum detail about the referred assets, such as: number of cryptocurrencies, name of the broker and the quotation on the day of acquisition.

As it is a relatively recent Asset, many taxpayer may, due to lack of knowledge, have omitted this asset in the declaration delivered in the 2018 calendar year. In this case, we always advise taxpayers to proceed with the rectification of the declaration delivered in the previous year.

How are earnings from sales transactions declared?

The taxpayer who had a cryptocurrency sale transaction and who made a profit, needs to detail the tax authorities, as well as, pay the tax on the earned capital gain.

With regard to this topic, for profits exceeding R$ 35 thousand per month, it is necessary that these amounts be calculated and declared through the Capital Gains Determination Program, until the last day of the month following the effective date transaction.

When filling out the individual’s IR Income Tax statement, it is important the information included in the Capital Gains Determination Program into the program generation the declaration on the “Capital Gains” tab.

If the profit calculated is below R$ 35 thousand per month, they are free for taxation, but not free, from the provision of the information in the declaration.

How does Capital Gain taxation on Individuals work?

The capital gain perceived by a individual, as a result of the sale of assets and rights of any nature, is subject to the incidence of income tax, with the following rates:

  • 15% (fifteen percent) on the portion of the gains that does not exceed R$ 5.000.000,00 (five million);
  • 17,5% (seventeen integers and five tenths percents) on the portion of the gains that exceeds R$ 5.000.000,00 (five million) and does not exceed R$ 10.000.000,00 (ten million);
  • 20% (twenty percent) on the portion of earnings that exceeds R$ 10.000.000,00 (ten million) and does not exceed R$ 30.000.000,00 (thirty million); and
  • 22,5% (twenty-two integers and five tenths percent) on the portion of the gains that exceed R$ 30.000.000,00 (thirty million).

I did not declare the capital gain monthly, what should I do?

Taxpayer who did not submit a declaration of Capital Gain in the month following the sale, as required by law, have a period of up to 5 years to regularize the situation – in this case they will have to pay the fine and interest on the problable tax due.

If it is has not been delivered, it ir recommended that taxpayers transmit the Capital Gains Determination Program before the submission of the individual Income Tax

return, in order to reduce the applicable fines and penalties, as in the case of the Tax Authorities opening na analysis process in “fine mesh “, penalties may be increased.

Finally, our recommendation is that taxpayer keep all relevant documentation for a minimum period of 5 years, considering that the operation must be proven, with suitable and suitable documentation.

Still doubts? Our specialists from HLB Brasil are on hand to support you.

Evelin Nascimento is Tax Manager at HLB Brasil.

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