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Cryptocurrencies are not yet regulated in Brazil.  Financial authorities in Brazil have issued statements regarding the risks posed by this type of currency and its lack of guarantee by the monetary authorities, and has advised that companies that trade in virtual currencies are not regulated, supervised, or licensed to operate by the central bank. 

Recently, the Brazilian Securities and Exchange Commission issued statements saying, among other things, that cryptocurrencies could not be classified as financial assets and could not directly be acquired by investment funds, but indirect investments in cryptoassets abroad could be acquired provided that such assets were regulated in that foreign market. 

For taxation purposes, gains obtained from the disposal of virtual currencies must be declared to the Brazilian Internal Revenue Service and taxes paid accordingly.

I. Approach to Assets Created Through Blockchain

A. Policy Statement No. 25,306 of February 19, 2014

On February 19, 2014, the Brazilian Central Bank (Banco Central do Brasil, BACEN) issued Policy Statement No. 25,306 on the risks related to the acquisition of so-called “virtual currencies” or “encrypted currencies” and transactions carried out with these currencies.[1]  The purpose of the statement was, inter alia, to clarify that virtual currencies should not be confused with electronic money (moeda eletrônica) as defined in Law No. 12,865 of October 9, 2013, and its regulations.[2]

“Electronic money” is defined in article 6(VI) of Law No. 12,865 as a resource stored in a device or electronic system that allows the final user to make payment transactions in the national currency (Brazilian Real).[3]  The statement explained that, in contrast, virtual currencies are denominated in a different unit of account from the currencies issued by sovereign governments and are not stored in a device or electronic system in national currency.[4] 

According to the statement,

• the usage of virtual currencies and whether regulations applicable to financial and payments systems apply to them have been the theme of international debate and public announcements by monetary authorities and other public institutions, with few concrete conclusions thus far;
• virtual currencies are not issued or guaranteed by a monetary authority;
• these virtual assets are not regulated or supervised by the monetary authorities of any country;
• there is no government mechanism that guarantees the value in official currency of those instruments known as virtual currencies; and
• BACEN is monitoring the evolution of the usage of these instruments, as well as the related discussions in international forums—especially regarding their nature, ownership, and functioning—in order to possibly adopt measures within its sphere of legal competency, if necessary.[5]

B. Financial Regulation and Consumer Protection

On September 18, 2018, the Administrative Council for Economic Defense (Conselho Administrativo de Defesa Econômica, CADE), Brazil’s antitrust regulator, started an investigation into the country’s financial institutions for allegedly abusing market power to undermine the performance of cryptocurrency brokers.[6]

The probe was initiated at the request of the Brazilian Blockchain and Cryptocurrency Association (Associação Brasileira de Criptomoedas e Blockchain, ABCB) to analyze the performance of major national banks in relation to the brokerage firms following several complaints that the banks undermine the economic order by closing accounts without explanation.[7]

According to CADE’s superintendent, banks may be “imposing restrictions or even prohibiting . . . the access of crypto-currency brokerages to the financial system, which, in fact, can cause losses to brokers.”[8]

In response to CADE’s investigation, banks reported that the accounts were closed because of lack of basic customer data required by anti-money laundering legislation.[9]

C. Anti-Money Laundering Law

1. Law No. 9,613 of March 3, 1998

Article 1 of Law No. 9,613 of March 3, 1998, provides that to hide or conceal the nature, origin, location, disposition, movement or ownership of property, rights or values arising, directly or indirectly, from a criminal offense is punished with imprisonment from three to ten years and a fine.[10]

Apparently, articles 9, 10, and 11 of Law No. 9,613 were used by the defendants in CADE’s investigation.  Article 9 determines that natural persons and companies (pessoas jurídicas) are subject to the obligations referred to in articles 10 and 11 of the Law if they engage in

I - the acquisition, intermediation and application of financial resources of third parties, in national or foreign currency;

II - the purchase and sale of foreign currency or gold as a financial asset or foreign exchange instrument;

III - the custody, issuance, distribution, liquidation, negotiation, intermediation or administration of securities.[11]

Article 10 of Law No. 9,613 establishes that the persons and companies referred to in article 9 must:

I - identify their clients and maintain updated records, in accordance with instructions issued by the competent authorities;

II - keep a record of all transactions in national or foreign currency, securities (títulos e valores mobiliários, títulos de crédito), metals, or any asset that can be converted into cash, that exceeds the limit set by the competent authority and in accordance with instructions issued by them;

III - adopt policies, procedures and internal controls, compatible with their size and volume of operations, enabling them to comply with the provisions of articles 10 and 11 of Law No. 9,613, as disciplined by the competent bodies;

IV - register and keep their registers up-to-date at the regulatory or supervisory body and, failing that, at the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras,  COAF), in the form and conditions established by them;

V - respond to requests made by COAF at the periodicity, form and conditions established by it, and must preserve, under the terms of the law, the confidentiality of the information provided.[12]

In the event that the client is a legal entity, the identification referred to in article 10(I) must cover the individuals authorized to represent it, as well as their owners.[13]

Article 11 determines that the persons and companies referred to in article 9 must

I - pay special attention to operations which, according to instructions issued by the competent authorities, may constitute serious indications of the crimes provided for in Law No. 9,613 or related to them;

II - notify the COAF, avoiding to give notice of such act to any person, including the one to whom the information refers to, within twenty four hours, the proposal or realization:

a) of all transactions referred to in article 10(II) (above), accompanied by the identification referred to in article 10(I) (above); and

b) operations referred to in article 11(I) (above);

III - notify the regulatory or supervisory body of their activity or, in their absence, to the COAF, at the periodicity, form and conditions established by them, the non-occurrence of proposals, transactions or operations that may be communicated under the terms of article 11(II) (above).[14]

The competent authorities, in the instructions referred to in article 11(I) must prepare a list of operations that, due to their characteristics, with respect to the parties involved, values, form of performance, instruments used, or lack of economic or legal grounds, can configure the hypothesis provided for therein.[15]

2. Bill of Law No. 2,303 of 2015  

A Bill of Law that would have amended Law No. 12,865 of October 9, 2013, which provides for payment arrangements and payment institutions that are part of the Brazilian Payment System, and Law No. 9,613 of March 3, 1998, which provides for crimes of money laundering or concealment of assets and the prevention of the use of the financial system for illicit activities, was introduced in the Brazilian Chamber of Deputies in 2015.[16] 

The Bill would have provided for the inclusion of virtual currencies and air mileage programs in the definition of “payment arrangements” under the supervision of the BACEN, and would have required individuals and companies engaged in investment businesses to closely monitor deals involving virtual currencies and air mileage programs for the crimes of money laundering or concealment of assets.[17]

Law No. 12,865 currently defines “payment arrangement” as a set of rules and procedures that regulate the rendering of a particular service to the public that is accepted by more than one recipient, through direct access by end users, payers, and recipients.[18] 

The Bill did not move forward and lapsed on January 31, 2019.[19]

D. Taxation

1. Personal Income Tax

A booklet prepared by the Brazilian Secretariat of Federal Revenue (Secretaria da Receita Federal do Brasil, RFB)[20] containing questions and answers regarding personal income tax for 2018 includes information on how to declare virtual currencies on a person’s income tax return and the appropriate taxation.[21]

The document states that virtual currencies must be declared. It explains that virtual currencies (bitcoins, for example), although not considered as currency under the current regulatory framework, should be declared in the Assets and Rights Tab as “other assets,” since they can be treated as a financial asset. The acquisition value of the assets must be stated.  As this type of “currency” does not have official quotation, since there is no organ responsible for controlling its issue, there is no legal rule for the conversion of amounts for tax purposes.  However, the taxpayer must keep documentation proving the authenticity of these values.[22]

Another question asks whether gains obtained from the alienation of virtual currency are taxed.  The answer provided indicates that where the gains obtained from the sale of virtual currencies (bitcoins, for example) in one month is more than R$35,000.00 (approx.US$9,256.00), these are taxed as capital gains, with progressive rates applying, and income tax must be paid before the last business day of the month following the month of the transaction. The taxpayer must keep documentation proving the authenticity of the transactions.[23]

2. Public Consultation

On October 30, 2018, the RFB issued a public consultation document seeking comments on the draft of a Normative Instruction regarding transactions performed with cryptoassets.[24]

The document proposes requiring that cryptoasset exchanges (companies that negotiate and/or enable the purchase and sale of cryptoassets) provide information of interest to the RFB regarding transactions involving cryptoassets, in addition to providing for the declaration by individuals and legal entities when using exchanges abroad or not using exchanges for transactions involving cryptoassets.[25]

The significant increase in recent years in the cryptoassets market in the country and the fact that the number of crypto exchange clients has already exceeded the number of users registered at the Brazilian stock exchange based in Sao Paulo, are mentioned as reasons for such a measure.[26]

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II. Custodianship of Cryptocurrencies by Financial Institutions

In another statement associated with the growing interest of individuals and companies in virtual currencies, on November 16, 2017, BACEN warned of the risks derived from storing and negotiating virtual currencies and reiterated that these currencies are neither issued nor guaranteed by any monetary authority.[27] 

The statement further explained that companies that negotiate or store virtual currencies on behalf of their owners, be they persons or companies, are neither regulated, licensed to operate, nor supervised by BACEN; there is no specific provision governing virtual currencies in the legal and regulatory frameworks associated with the National Financial System; and BACEN, in particular, neither regulates nor supervises transactions involving virtual currencies.[28]  The statement again reminded persons that virtual currencies are not to be confused with e-money, which is defined in accordance with Law No. 12,865 of October 9, 2013, and controlled by BACEN regulations approved under the guidelines of the National Monetary Council.[29]

In addition, the statement noted that carrying out international wire transfers referenced in foreign currencies through the use of virtual currencies and related instruments does not exempt companies from the obligation to comply with foreign exchange rules—especially the rule establishing that this type of transaction may only be performed by institutions authorized by BACEN to operate in the foreign exchange market.[30]

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III. Regulation of Cryptocurrencies as Financial Securities

A. CVM Statement No. 1 of January 12, 2018

On January 12, 2018, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, CVM) issued Statement No. 1 (Ofício Circular), which was addressed to officers responsible for the administration and management of investment funds regulated by CVM Instruction No. 555 of December 17, 2014, that are investing in cryptocurrencies.[31]

The Statement noted that both in Brazil and in other jurisdictions the legal and economic nature of these investment modalities has been discussed, without a conclusion having been reached on a particular conceptualization, especially in the domestic market and within its internal regulation.[32]  Based on this uncertainty, the interpretation of the CVM’s technical area is that cryptocurrencies cannot be classified as financial assets for the purposes of CVM Instruction 555/14, and for this reason their direct acquisition by regulated investment funds is not allowed.[33]

The Statement further explained that the CVM has received inquiries regarding the possibility of investment funds being set up in Brazil for the specific purpose of investing in investment funds incorporated in other jurisdictions where they are admitted and regulated that invest in cryptocurrencies, or investing in derivatives allowed to be traded in regulated environments in other jurisdictions.[34]  In this regard, the CVM emphasized that the existing discussions about investment in cryptocurrencies, both directly by funds or in other ways, are still in an initial stage.[35]

The CVM concluded that, based on its understanding of the technical area, there are still many other inherent risks associated with such investments (such as cybersecurity and privacy risks), and with the future legality of their acquisition or trade, and that considering all these variables it was not possible for the CVM to reach a conclusion regarding the possibility of the constitution and structuring of indirect investments in cryptocurrencies.  Therefore, the CVM advised managers of investment funds to await further and more conclusive guidance from the CVM on the subject in order to structure indirect investments in cryptocurrencies.[36]

B. CVM Statement No. 11 of September 19, 2018

On September 19, 2018, CVM issued Statement No. 11 (Ofício Circular), to complement CVM Statement No. 1 of January 12, 2018.[37]

Statement No. 11 says that CVM Instruction 555/14, in its articles 98 et seq., when dealing with investment abroad, authorizes indirect investment in cryptoassets by, for example, the acquisition of shares of funds and derivatives, among other assets traded in third jurisdictions, provided they are admitted and regulated in those markets. However, in the performance of the duties imposed by regulations, it is the responsibility of the managers (administradores e gestores) and independent auditors to be diligent to avoid financing, directly or indirectly, illegal transactions such as money laundering, unfair practices, fraudulent operations, or price manipulation, among other similar practices.[38]

Statement No. 11 further said that an adequate way to address these concerns is the realization of such investments through trading platforms (“exchanges”) that are subject, in the relevant jurisdiction, to the supervision of regulatory bodies with powers to restrain such illegal practices, including through the establishment of regulatory requirements.[39]

It further said that while it is recommended that investments be made through these exchanges, there is no explicit prohibition on investments that are made otherwise. However, because of their fiduciary duties, administrators and managers should ensure that the chosen structure is able to fully meet the above-mentioned legal and regulatory requirements.[40]

Moreover, Statement No. 11 said it is important for the manager to verify that a cryptoasset is not a fraud, as has frequently been seen, for example, in initial coin offers worldwide. Thus, it is important that the manager takes steps to minimize the risk of fomenting the offer of a fraudulent cryptoasset, including through verification of the relevant variables associated with the issuance, management, governance, and other characteristics of the cryptoasset.[41]

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Prepared by Eduardo Soares
Senior Foreign Law Specialist
April 2019

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Last Updated: 12/30/2020