Rio de Janeiro Aims to Accept Property Tax Payments in Crypto
One of the most popular cities in Brazil has announced its plan to accept property tax payments in multiple cryptocurrencies starting in 2023. The city hall has published a decree in its municipal Gazette that states that the companies willing to facilitate these crypto payments for taxes in Rio de Janeiro are mandated to register with the city authorities and prove compliance with Brazilian SEC requirements.
The decree notes that Rio will hire companies specialising in converting crypto assets to fiat. After receiving payments and converting them to Brazilian Real, these companies will transfer the collected funds to the city. The municipality assured customers that they would not pay additional conversion fees. Mayor Eduardo Paes, earlier this year, indicated that he was looking into ways to allow Rio to start holding crypto in its treasury. Mayor Paes said that “we are the first city in Brazil to offer this payment option to taxpayers.” Paes claimed that Rio was already ahead of several other Brazilian provinces also looking into crypto tax payment programs.
History of Brazil and cryptocurrency
Brazil is one of the top five countries with the most significant number of crypto investors. Bitcoin is popular in Brazil, the country’s largest cryptocurrency market in South America. In April 2019, Brazil set the record for the most Bitcoin traded in a single day in Latin America, with over 100,000 BTC changing hands. According to CoinDesk data, Mercado Bitcoin traded $5 billion in the first quarter of 2021 compared to $1.2 billion in 2020. Despite the growing use of cryptocurrency in Brazil, the regulatory framework has been slow. There has been no update on the status of the proposed bill to bring legal clarity to Brazil’s unregulated crypto space to hold scammers and fraudsters accountable. According to an expert at Bitsoft 360 this is one of the most pertinent points of contention in the crypto world.
How do tax payments work?
In Brazil, IPUT (the Urban Building and Land Tax) payments on a piece of real estate are determined by calculating its market value. All municipalities in the nation charge their residents this tax, which generates money for state governments. Taxpayers are given two payment method options: either pay all their IPUT obligations in one annual lump sum or pay in monthly instalments. The deal with crypto firms would allow the municipality to receive 100% of the value of crypto payments in fiat without incurring additional costs to city hall. Taxpayers will be allowed to deposit their funds with more than one cryptocurrency, and the hired crypto firms will then convert the payments to the Brazilian Real for the treasury.
Other countries using crypto for tax payments
The use of cryptocurrencies as a mode of paying taxes is not a new concept; similar trends are growing worldwide. On the 1st of September, the state of Colorado in the U.S. started accepting crypto as payment for any taxes owed. Legislatures in Arizona, Wyoming, and Utah have introduced bills to accept tax payments in the form of digital currencies in varying degrees, too, in an attempt to incentivise cryptocurrency investments. Mayor Paes said that “Rio de Janeiro is a global city. As such, we are following the technological and economic developments in the world of digital financial assets. We look to the future and want to help Rio become the country’s capital in innovation and technology.”
What are the dilemmas in making tax payments with crypto?
It is no secret that cryptocurrency prices are volatile, meaning your cryptocurrency’s value will change over time. It’s possible for your cryptocurrency’s price to drop between the instant you pay your tax with it and the time the network approves the transaction. This will mean you might not have enough to pay for the tax. Conversely, you might send too much if the price rises during that time. Using crypto to pay state taxes is considered taxable disposal for individuals, making a payment triggers its income event. According to a Cointelegraph article, the IRS treats cryptocurrency as property. This means that if the price of the crypto you are using to pay state taxes has appreciated over time, you have taxable income equal to how much the price has appreciated since you bought it. This will, however, trigger another taxable event for the following tax year.
We continue to root for Rio, as it will be the first city in Brazil to accept tax payments in crypto and serve as a road map for other cities to follow in the future. This will also help determine what guidelines and rules to clarify for consumers. This article is for general information purposes, do your own research on this topic so that you have more information. And it is not in any way intended to be taken as legal or investment advice.