Crypto exchanges in Brazil are experiencing a decline in trading volumes and a few have shut down operations due to unfavorable tax regulations. As the country is yet to implement specific crypto tax regulations, exchanges are struggling to comply with laws not suited to the industry.
Crypto Exchanges Battling with Strict Tax Laws
According to Fintech Zoom, two crypto exchanges in Brazil – Acesso Bitcoin and Latoex have announced the shut down of their operations. The crypto firms have reportedly experienced declining trading volumes and diminishing returns in recent months due to stringent crypto tax requirements.
Industry players in the country have expressed challenges in conducting crypto-based businesses as Brazil is yet to implement specific crypto tax policies. As such, crypto-related activities have been administrated by Normative Instruction 1888 implemented back in August 2019 by the country’s Department of Federal Revenue, the Secretaria da Receita Federal do Brasil (RFB).
According to the instruction by the tax authority, all crypto exchanges in the country must provide detailed records of all transactions made regardless of the corresponding amount. Crypto firms also face a $350 fine should they fail to file a monthly declaration of transactions made on their respective exchanges and platforms.
Cofounder of crypto exchange platform Acesso Bitcoin, Pedro Nunes pointed out that his firm experienced a decline after the RFB implemented this policy. Nunes remarked:
“After the Federal Revenue Service introduced these rules we noticed a significant decrease in the traded volume. We also feel that the market has cooled off for smaller exchanges.”
The Porto Alegre-based Acesso Bitcoin has encouraged clients and users with bitcoin holdings to move their coins to another exchange or a private wallet if they wish to withdraw their funds. The exchange also revealed that customers with holdings in Brazilian real (BRL) can withdraw their funds at their own convenience.
Latoex, another Brazilian cryptocurrency exchange confirmed its shut down last week. Diego Velasques, CEO of the exchange’s investment arm – Latoex Capital, disclosed that the firm was unable to continue complying with the stringent requirements imposed by the country’s tax service.
Latin America Not a Fertile Ground for Crypto Commerce
The shut down of some cryptocurrency exchange platforms in Brazil is the latest development born out of stringent crypto tax regulations imposed on businesses across Latin America. Banco de Crédito e Inversiones, a Chilean commercial bank recently closed accounts belonging to the country’s first crypto exchange, Chilebit.
In December 2019, Brazil’s Administrative Council of Economic Defense (CADE) gave a ruling allowing banks to cease offering financial services to crypto exchanges. Soon after in January 2020, one of Brazil’s biggest commercial banks Banco Bradesco revealed its move to close crypto exchange accounts despite efforts from the country’s Association of Cryptocurrencies and Blockchain (ABDC).
The decline of exchanges in Latin America due to harsh crypto tax policies mirrors some of the challenges faced by crypto firms in Europe. The European Union’s (EU) fifth anti-money laundering directive (AMLD) published back in June 2018 has forced some nation-states to crack down on crypto activities. Some areas in the South-East Asia region have also adopted strict crypto tax regulations.
Elsewhere across the globe, authorities are becoming increasingly keen on enforcing crypto taxation compliance. As previously reported by Blockonomi, South Korean crypto trading behemoth Bithumb was embroiled in a legal battle with the country’s National Tax Service (NTS) over a $69 million crypto tax fine back in January 2020.
Australia’s tax office (ATO) has imposed a 100% crypto tax rate on capital gains raised from trading Ethereum (ETH) as it considers the token as fork crypto. Also, the ATO has placed a fringe benefits tax on companies that pay employees in cryptocurrencies.
However, other countries in Europe and North America have made efforts to implement crypto-friendly regulations. Back in December 2019, the French Finance Minster revealed a tax exemption for traders engaging in crypto-to-crypto trades. Also, the U.S. Congress is currently considering the introduction of a de minimis crypto tax exemption.