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This week, the Brazilian Federal Reserve Board (RFB) announced that investors are required to pay income taxes on converting one cryptocurrency to another, and trading crypto pairs incurs a tax liability regardless of whether there was an intermediary conversion to the the Brazilian real, the country's local currency.

For example, converting Bitcoin to Ethereum or Ethereum into Litecoin would require a tax to be paid. The statement was published in the Diário Oficial da União, and outlined the new tax policy: "“The capital gain calculated on the sale of cryptocurrencies, when one is directly used in the acquisition of another, even if the acquisition cryptocurrency is not previously converted into reais or other fiat currency, is taxed by the Individual Income Tax, subject to progressive rates, in accordance with the provisions of art. 21 of Law No. 8,981, of January 20, 1995.”

There is still some ambiguity about what constitutes a “capital gain,” given that investors cannot reap a profit in Brazilian currency during the conversion process. 

Still, the announcement is helpful for clarifying that not every example of capital gains is required to be submitted to the government, with only capital gains that exceed $7,300 (or 35,000 Brazilian real) counting for income tax payment. 

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"Capital gain earned on the sale of cryptocurrencies is exempt from income tax, the total value of the sales in a month, of all types of crypto-assets or virtual currencies, regardless of their name.. [when] equal to or less than BRL 35,000.00 [around $7,300]," the body said.