How to declare Bitcoin and other cryptocurrencies in the 2019 income tax. - Vinícius Tersi Advocacia
Bitcoin IR

How to declare Bitcoin and other cryptocurrencies in the 2019 income tax.

In early May 2019, the Federal Revenue Service (RFB – Receita Federal) published Normative Instruction RFB no. 1.888 / 2019, which deals with the issue of declaring transactions involving crypto, a term that covers bitcoins and other “virtual currencies” or “cryptocurrencies”.
We will show in this text how the RFB treats cryptocurrencies today and how to inform them in the individual income tax return (DIRPF – Declaração de Imposto de Renda de Pessoa Física). We will also describe why the RFB created this new tax obligation and what should be reported. This is a topic that individuals who already trade bitcoins or other cryptography should pay attention, especially if they live abroad.

What are bitcoins

Bitcoin is a virtual currency, or cryptocurrency, used as an instrument for carrying out electronic transactions. The main difference between bitcoin and other electronic payment instruments is the use of blockchain technology, which allows you to issue and trade the currency without the need for intermediaries. An encrypted electronic record is automatically distributed on the computer network, with information on all transactions carried out. Each new transaction is only accepted after a validation process, with the consensus of most participants in the network, which minimizes the possibility of tampering with the records. 

For a more in-depth analysis, we recommend the CVM’s text regarding bitcoin and blockchain technology available on the Investor Portal.

Publicly released in 2009, bitcoin and blockchain technology have become immensely popular, leading to the emergence of other competing virtual currencies and other virtual or crypto assets. This popularity attracted the interest in the acquisition of virtual currencies and other cryptography as an instrument of speculation with the appreciation of these assets or even for raising capital for new ventures.

Bitcoins in the view of the Central Bank and the RFB

Thanks to the decentralization of records, virtual currencies exist without the need for monetary authority. This has required a position from the monetary authorities of each country, as virtual currencies are increasingly used. In this sense, the position disclosed by the Central Bank on its website is quite enlightening and explains to some extent why RFB issued RFB Normative Instruction no. 1.888 / 2019.

For the Central Bank of Brazil, the value of virtual currencies (or “cryptographic currencies”) stems from confidence in its rules of operation and in the participants chain. The use of virtual currencies, such as bitcoin, to make payments or as an investment is the result of an agreement between the parties to each transaction, which runs the capital loss risk, price variation and fraud.

For this reason, the Central Bank does not recognize virtual currencies as official currencies, as reais or as electronic currencies (funds in reais maintained in electronic form for making payments). The consequence of this is that transactions with virtual currencies, such as bitcoins, are not treated as international transfers, subject to exchange market control and supervised by the Central Bank. In other words, the Central Bank does not consider itself responsible for the transactions supervision carried out with bitcoins and other virtual currencies, and recognizes that there is currently no specific legislation or regulation on the subject in Brazil.

From the RBF point of view, contained in the Explanatory Memorandum of Public Consultation RFB no. 06/2018, which gave rise to the Normative Instruction on the subject, the growing volume of transactions with virtual currencies is pointed out. In Brazil, even in 2017, the number of exchange customers (companies specialized in negotiating or enabling the purchase and bitcoins sale and other virtual currencies) exceeded the number of users of the São Paulo Stock Exchange, and it is estimated that the volume of bitcoin traded jumped from R $ 44.8 million in 2014 to R $ 8.3 billion in 2017, with the expectation of an increasing growth in the volume of transactions. Thus, RFB believed it was necessary to create control mechanisms to inspect the payment of income tax on these transactions.

The RFB also argued that, because of the anonymity in the transactions, cryptography is used in operations of evasion, corruption and money laundering, which would need to be combated. The Explanatory Memorandum also mentioned that other jurisdictions have already established regulations to oversee the operations of exchanges, such as Australia, South Korea and the European Commission, in addition to the states of New York and Texas, in the United States.

For these reasons, the RFB justified the creation of a new  transactions declaration in bitcoins and other cryptocurrencies with the aim of verifying tax compliance and combating money laundering and corruption, in addition to increasing “the perception of risk in relation to intentional taxpayers of tax evasion ”, which was done by means of Normative Instruction RFB nº. 1.888 / 2019.

What are “virtual currencies” and how to report them in the DIRPF

The RFB seems to have expressed itself only once regarding bitcoins before the publication of the Normative Instruction. In the guidelines for completing DIRPF 2019, mention is made of virtual currencies and bitcoins in Questions 447 and 607. Based on the content of the responses, we can summarize the RFB concept as:

  • virtual currencies (including bitcoins) are assets or rights that can be equated with financial assets;
  • being goods or rights, the virtual currencies must be informed in the DIRPF assets and rights form as “other goods” (that is, with code 99);
  • virtual currencies must be informed by their acquisition cost;
  • the sale of virtual currencies must be subject to taxation as a capital gain, at progressive rates of 15% to 22.5%, depending on the value of the gain obtained;
  • personal income tax (IRPF – Imposto de Renda de Pessoa Física) must be paid by the last business day of the month following the sale of the virtual currency;
  • the IRPF exemption is applicable if the sale value of the virtual currencies is equal to or less than R $ 35,000.00 (thirty five thousand reais) per month;
  • in the absence of an official quotation to determine the value of virtual currencies, both the acquisition cost and the capital gain must be proven with suitable and suitable documentation.

Although fundamentally correct, the guidance above clarifies very little, as we will see below in a specific topic.

To determine the tax due, it is certain that the taxpayer must download the Capital Gains Calculation Program (GCAP 2019) on the RFB website to post the information that will later be exported to the DIRPF during the delivery period (March and April 2020). 

This free program also allows you to issue DARF tax payment slips, although it is more recommended to use the Sicalc Program or SicalcWeb for this, as both allow you to issue barcode slips for online payment and automatically calculate the fine and interest for delay in collection.

What Normative Instruction no. 1.888 / 2019

According to the Normative Instruction, a new declaration was created to the RFB, only to inform operations made with crypto. The declaration must be filled out within the e-CAC (RFB Virtual Service Center), and the use of a digital certificate is necessary whenever the general rules of e-CAC require it.

The exchange that carries out the transaction with crypto or the individual or legal entity resident in Brazil is obliged to comply with the obligation, as shown in the table below:

Person required to declare:

  • the cryptocurrency exchange domiciled for tax purposes in Brazil
  • the individual or legal person residing or domiciled in Brazil

Operations to declare:

  • in the case of the crypto exchange domiciled for tax purposes in Brazil, the operations carried out by the exchange itself
  • in the case of an individual or legal entity residing or domiciled in Brazil, transactions carried out on exchanges domiciled abroad; and those not made in exchange.

In the latter case, the individual or legal entity residing or domiciled in Brazil should only make the declaration if the monthly value of the transactions, alone or jointly, exceeds R $ 30,000.00 (thirty thousand reais)

Failure to deliver the declaration, submitting it late or with inaccurate, incomplete or incorrect information subject the person responsible to a fine, the amount of which depends on the conduct and the legal qualification of those who are obliged to deliver it. The fines are provided for in art. 10 of the Normative Instruction. For example, the smallest fine foreseen for individuals is R$ 100 per month or fraction of a month, in case of late filing, while the same fine for a legal entity opting for real profit would be R$ 1,500 per month or fraction of a month.

Without prejudice to the fine, the RFB may formalize communication to the Federal Public Prosecutor’s Office if it finds evidence of crimes of money laundering (Law No. 9.613 / 1998, art. 1), in the event of failure to provide the information or its performance with inaccuracies or omissions.

What the RFB wants to be informed

According to the proposed new declaration, the person required to deliver it must present the following information about each of the operations carried out with bitcoins and other cryptography:

  • operation date;
  • type of transaction (purchase and sale, exchange, donation, transfer to exchange, withdrawal from the exchange, temporary assignment “rent”, payment in kind and other transactions);
  • operation holders;
  • cryptography used in the operation;
  • quantity of crypto traded, in units;
  • transaction value, in reais, excluding service fees charged for the execution of the operation;
  • service fees value charged for the execution of the operation, in reais, when applicable; and
  • the exchange identification, if the transaction is carried out through an exchange domiciled abroad.

In addition to the information above, submitted to the RFB on a monthly basis, the crypto exchange domiciled in Brazil for tax purposes must submit annually, based on December 31 of the previous year, the following additional information regarding each user of its services:

  • the balance of fiat currencies, in reais;
  • the balance of each type of crypto, in units of the respective crypto; and
  • the cost, in reais, of obtaining each type of cryptography, declared by the user of its services, if there is any.

Such additional information must be submitted by the exchange as part of the December monthly statement.

What RFB lacks to clarify about bitcoins and other crypto

Let’s admit, as an example, a very simple sequence of transactions made by an individual, which correspond to what we have already seen in our professional practice. A specific individual performs the following operations (fictitious values):

  • initially, the individual has R $ 100,000.00 in a bank account in Brazil and US $ 2,500.00 in a bank account abroad;
  • on day 1, he/she uses R $ 100,000.00 to purchase 10 bitcoins from an exchange located in Brazil (for simplicity, there are no fees for this transaction). Instead of keeping his/her 10 bitcoins deposited with the exchange, the person prefers to keep them in his own virtual wallet;
  • on day 2, he/she uses 2 more bitcoins to acquire 60 ethereums and US $ 2,500.00 to acquire another 30 ethereums, this time with an exchange abroad. In this way, the person now holds 8 bitcoins and 90 ethereums;
  • on day 3, the person decides to invest in an investment fund abroad specialized in “mining” bitcoins (that is, acquiring bitcoins while maintaining an advanced computational structure to operate the blockchain). The person uses 5 bitcoins to acquire a 5% stake in that fund. Thus, the person now holds 3 bitcoins, 90 ethereums and 5% participation in a foreign fund;
  • on day 4, the person decides to use his/her 90 ethereums to pay for services taken abroad. Therefore, he/she now holds 3 bitcoins and a 5% stake in the fund;
  • on day 5, the person decides to invest his 3 bitcoins in the same investment fund, receiving an additional 3% stake. The person therefore holds an 8% interest in the fund;
  • on day 6, the fund distributes income to the person, giving him/her 1 bitcoin. In the end, the person holds 8% stake in the fund plus 1 bitcoin.

Even with the guidelines of the RFB in its Questions and Answers, mentioned above, there are a number of unanswered questions, divided below into two categories:

a) Measurement difficulties

  • how to accurately represent, in reais, the value of virtual currencies, as the RFB intends? In the absence of a criterion in the document itself (for example, a contractual indication of the value in reais of the transaction in virtual currency), there is no “official quote” released by the Central Bank, so that there is only evidence of the values ​​that are being traded on exchanges every day;
  • in the absence of an express indication of value in reais, what documentation can be considered “skillful and suitable” to demonstrate the value of a virtual currency? The average of the quotes published by all exchanges in Brazil on the day, or just some? And when the transaction is carried out abroad and without the intermediation of an exchange, what can be considered as suitable information?
  • when using a virtual currency to pay a bond (day 4 of the example above), is the taxpayer making a capital gain? How to measure it? Should the taxpayer withhold income tax at source for the service taken abroad?

b) Difficulties of legal qualification

  • if the acquisition of a virtual currency is not an exchange transaction, as the Central Bank understands, which capital gain rule should be used by individuals? The capital gain resulting from the sale of assets located in Brazil (Normative Instruction SRF No. 84/2001) or the capital gain in foreign currency (Normative Instruction SRF No. 118/2000)? Does the fact that virtual currency was purchased with reais (day 1) or with US dollars (day 2) influence this analysis? What if the virtual currency was purchased with another virtual currency (day 2)?
  • In case of “regular” capital gain, would there be any situation in which it would be possible to take advantage of losses, in view of the volatility of the quotation of virtual currencies in relation to official currencies? Or can the losses not be compensated?
  • If capital gain is in foreign currency, should the capital gain be calculated in reais or in US dollars, as required by law? What criteria to use to define the correct rule?
  • In the case of receiving income in virtual currency (day 6), how should income be taxed? As a zero cost capital gain, as the RFB recommends for interest on financial investments abroad (IRPF Questions and Answers 2019, Question 603), or as income subject to the IRS’s share? In this case, again, how should the value of the income be determined, considering that, for foreign currency transactions, the legislation provides for different rules for conversion into reais?

The above doubts represent practical problems both in complying with the new declaration proposed by RFB (precisely identifying the equivalent amount in reais of an operation) and in fulfilling the obligations to complete the DIRPF and pay the due income tax.

An example of this is the issuance of the DARF tax payment form. If we should use the “normal” capital gain rule, as if bitcoins were assets located in Brazil, the tax collection code is 4600. If we happen to adopt the rule of capital gain in foreign currency, the code it is 8523 (general rule) or 8960 (if considered foreign currency held in kind, which is unlikely). The way of filling the GCAP 2019 program and the DIRPF also changes.

It seems inappropriate to require the presentation of information and to require taxpayers to comply with tax legislation without first fully clarifying how tax legislation should be obeyed.

Lack of RFB’s position on what to do with the losses

We have already mentioned above that the RFB has not clarified whether losses from operations with bitcoins and other crypto can be offset against subsequent gains. The RFB guidelines only deal with the taxation of capital gains, suggesting, without saying, that the losses cannot be compensated. This is a relevant problem for the taxpayer, mainly due to the volatility of virtual currency quotes.

The same problem applies today to financial assets abroad compared to financial assets in Brazil. The tax legislation allows, for stock exchange or over-the-counter market operations carried out in Brazil, that the individual subject only the net gain of the operations to taxation and take advantage of the losses, but it is silent for the same operations carried out abroad. In this sense, we recommend reading our text on taxation of gains and income abroad, in which the difficulties of this legislation are dealt with in more detail.

Additional difficulties for those living abroad

For individuals who live abroad, but are tax residents in Brazil and therefore affected by the new declaration, the eventual requirement for a digital certificate represents a relevant problem. The number of individuals with a digital certificate in Brazil is still relatively small, and we have no information that it can be obtained from a Brazilian consulate abroad. It would be recommended that the RFB does not, under any circumstances, require the digital certificate for transmission.


The reasons that led RFB to create the declaration are valid and fair, and follow the international trend in view of the adoption of a new technology that imposes the need for some discipline. However, RFB Normative Instruction no. 1,888 / 2019 deserves some criticism.

The RFB created an obligation to declare transactions involving bitcoins and other crypto assets and imposed fines without having previously clarified the taxpayer about the subject of the tax. The main flaw here is that the RFB treats virtual currencies as if they were official currencies, and exchanges as if they were exchange institutions, even though the Central Bank expressly acknowledges that they are not.

This becomes clearer when thinking about transactions involving bitcoins and other virtual currencies as if they were transactions for exchanging physical objects (chairs or real estate). As in all operations in which the parties do not directly exchange a currency between themselves, but exchange objects with each other, taxation is possible, but encounters difficulties. The fact that virtual currencies are digital, that is, they are not located in any country, adds complexity to the problem.

It would be more advisable that, before imposing obligations, the RFB communicated with the Central Bank and the Securities and Exchange Commission (CVM), each within its competence, and listened to the participants in this new market. In addition, it would be up to the RFB to better detail how to correctly calculate the tax due, if it wishes to obtain tax compliance from the taxpayer and avoid tax evasion. In the absence of these precautions, in the coming years it is most likely to see numerous difficulties in the formation of this new market and the initiation of litigation on transactions in virtual currencies, as is already the case with so many other matters of tax legislation. Leave your comment or send me an email or via WhatsApp. Click here to send a message now.

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Vinicius Tersi é advogado, especialista em Direito Tributário Internacional.

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