Brazil to tax digital assets in foreign exchange transactions

Brazil is mulling taxing digital assets used in foreign exchange transactions in a proposed new framework, sources have revealed.

In South Korea, industry experts warn that the government’s planned digital asset taxation, set to take effect in 2027, could plunge the country into unprecedented financial chaos as both the investors and the taxman are unprepared.

Brazil’s new digital asset taxation targets FX transactions

Brazil’s financial regulators have proposed amendments to the taxation framework to encompass digital assets used in international payments, sources familiar with the matter tell Reuters.

The watchdogs, led by the Banco Central do Brasil, claim that Brazilians have been turning to digital assets to evade the levy charged on FX transactions, known as the financial transaction tax (IOF).

In Brazil, digital asset transactions have long been considered investment assets exempt from the IOF tax; holders are only required to pay income tax on their capital gains, but only if they exceed the monthly BRL 30,000 ($5,600) limit.

However, two weeks ago, the top bank released new guidance that classifies digital asset transfers in cross-border payments as FX transactions. The guidance, which takes effect in February, also extends to any international payment made using digital assets, including those made via credit or debit cards.

The new taxation reflects a shift in the Brazilian digital asset sector from speculation to utility. According to the tax authorities, Brazilians transacted BRL 227 billion ($43 billion) in the first six months of the year, representing a 20% year-over-year increase.

Notably, the Latin American nation has pivoted from speculative digital assets to stablecoins. USDT, for instance, accounted for nearly 70% of the $43 billion. The central bank believes investors have turned to dollar-pegged stablecoins as a cost-effective way to access the U.S. dollar.

The regulator is seeking to plug this gap, ensuring “that the use of stablecoins does not create regulatory arbitrage vis-a-vis the traditional foreign-exchange market,” one unnamed source told Reuters.

CARF is a digital asset taxation framework by the Organisation for Economic Co‑operation and Development (OECD) that obliges countries to collect and exchange digital asset tax information. Brazil was among the 50 countries that had expressed intent to implement CARF into local laws by 2027.

With the new announcement, the Receita Federal do Brasil extends its scope of reportable digital asset transactions to include swaps, staking, airdrops, and transfers between wallets. It also extends to offshore VASPs that serve Brazilian investors, which is a localized interpretation of the CARF (OECD’s blanket version doesn’t include this stipulation).

The taxman will also raise the reporting threshold from $5,600 to $6,500.

South Korea’s impending digital asset tax chaos

While Brazil is rolling out a more transparent framework that gives the industry certainty, South Korea could be heading into digital asset taxation chaos in two years.

South Korean legislators first voted for a 20% tax on digital asset income five years ago, and it was set to take effect in January 2022. However, it was postponed to 2025, and later, a faction of legislators lobbied for another two-year extension to 2027.

These delays have been deemed necessary for the tax agency and the digital asset industry to implement the necessary infrastructure. However, experts say that little has been done, and the country could plunge into tax chaos within two years.

“Unresolved issues could spark legal challenges once taxation begins. The deferral period should be used to clarify key definitions and prepare for international data-sharing challenges,” Park Joo-cheol, a researcher at the Korea Institute of Public Finance, told The Korea Times.

Digital asset taxation has become politicized, with President Lee Jae‑myung’s Democratic Party of Korea ascending to power earlier this year on pledges of a tax deferral.

Kim Kab-lae, a researcher at the Korea Capital Market Institute, says these deferrals could become the norm.

“A fourth deferral can no longer be ruled out. If public sentiment begins to support another delay, it could trigger tax resistance strong enough to jeopardize future implementation,” he stated.

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