On November 29, 2023, the Federal Senate Plenary approved, in the form of the report by Senator Alessandro Vieira (MDB-SE), Bill ("PL") No. 4,173/23. This Bill, sanctioned by the President of the Republic on December 12, 2023, has been enacted as Law No. 14,754/23. It addresses new taxation rules for overseas investments and the advance payment of taxes on investments in Brazilian investment funds.

The final wording of the approved text incorporates what is contained in Provisional Measure 1,184/23, which presents relevant changes to the text in relation to the original proposal presented by the Executive.

Law No. 14,754/23 also establishes a semi-annual taxation regime through the "come-cotas" system, with different rates depending on the investment scheme adopted by closed investment funds based in Brazil. A 15% Income Tax rate will be applied to earnings from funds classified as "long-term". In contrast, funds with shorter mandates of up to a year will face a higher rate of 20% on earnings from the following year. This taxation model alters the previous one, where earnings were only taxed at the time of redemption.

Another significant aspect is the taxation of capital gains from foreign exchange variations in deposits in current accounts or on debit or credit cards abroad, which will not be subject to Income Tax. Similarly, there will be no tax on foreign exchange variations up to the alienation limit of US$5,000.00 in the calendar year.

Foreign exchange variations corresponding to the divestment of participation in controlled foreign entities will indiscriminately constitute the capital gain earned by the individual in these cases, including returns of capital, as stipulated in Article 21 of Law No. 8,981/95.

It is evident that the changes introduced by Law No.14,754/23 will directly impact Brazilian tax residents with investments in closed funds and those with overseas investments. These include remunerated bank deposits, remunerated deposit certificates, crypto assets, digital wallets, or current accounts with earnings, investment fund shares (excluding those treated as controlled foreign entities), financial instruments, insurance policies whose principal and earnings are redeemable by the insured or beneficiaries, investment certificates or capitalization operations, retirement or pension funds, fixed and variable income securities, credit operations, including mutual funds of financial resources where the debtor resides or is domiciled abroad, and derivatives and shareholdings (excluding those treated as controlled foreign entities).

Below is a table summarizing the main tax changes established by the regulations, emphasizing that each case must be individually analyzed to assess the form and intensity of the impacts caused by the new rules.

From a compliance and cryptocurrency perspective, the presidential sanction of the regulation will bring significant changes for those investing in the virtual asset market, particularly regarding the obligations to report information to the RFB, considering that the tax applies to any user holding cryptocurrencies valued at more than R$ 6,000 (six thousand Brazilian reais), in companies abroad. This new rule primarily impacts individuals, but will also entail a greater flow of information to be reported by exchanges and other players in the cryptocurrency market, especially concerning the obligations of Normative Instruction No. 1,888/2019 of the Federal Revenue.

Another significant point is that the approved text still to designates the Federal Revenue as responsible for regulating which virtual assets and digital wallets will be considered financial instruments for taxation purposes, leaving a gap to be filled in the legal framework related to cryptocurrencies.

The VPBG has a specialized team in investment taxation, estate planning, and compliance, and is available to address your inquiries related to this matter.