Brazil Eyes Taxing Crypto for Cross-Border Payments, Sources Say

The Brazilian government is reportedly considering a landmark move: extending its financial transaction tax, known as IOF (“Imposto sobre Operações Financeiras”), to cover certain cross-border cryptocurrency transfers, according to officials with direct knowledge of the discussions. If adopted, the measure would mark a significant tightening in Brazil’s crypto regulatory landscape, targeting transactions such as stablecoin transfers and other virtual asset payments. The proposal has drawn attention as both a fiscal strategy and a response to emerging risks.

The Emerging Policy Proposal

Two confidential sources familiar with the matter told Reuters that Brazil’s Finance Ministry is weighing an expansion of the IOF to include international crypto payments. Under the current system, most cryptocurrency transactions, even those using stablecoins, are not subject to this tax — a regulatory gap that critics argue has enabled tax avoidance and regulatory arbitrage. (Reuters)

The officials noted that the tax would likely apply to cross-border transfers using virtual assets, especially stablecoins, which the Central Bank of Brazil recently reclassified as foreign-exchange operations. (Investing.com) This reclassification is a foundational shift: effective February 2026, any purchase, sale, or exchange of stablecoins, as well as transfers involving virtual assets for international payments, will be treated as forex operations under Brazil’s regulatory framework. (Reuters)

Currently, while crypto capital gains are taxed via income tax beyond a monthly threshold, IOF does not apply to crypto payments. (Investing.com) The proposed change would close that loophole and potentially generate significant revenue for the government, which is under pressure to meet fiscal targets.

Why Brazil Is Considering the Move

1. Closing a Regulatory Loophole

Brazilian authorities argue that allowing stablecoin-based cross-border transactions to escape IOF undermines the integrity of the foreign-exchange regime. Because stablecoins can be used like digital dollars, some individuals and businesses allegedly leverage them to bypass traditional FX transaction taxes. (The Star) By extending IOF to these operations, the government aims to align crypto transfers more closely with conventional currency flows and to mitigate unfair tax arbitrage.

2. Boosting Public Revenue

Revenue generation is another strong motivator. According to the sources, Brazil may be losing tens of billions of dollars annually because of unregulated crypto flows. (FinanceFeeds) A specific Federal Police estimate cited by one insider placed the figure at more than $30 billion per year in potential lost revenue, particularly from import-related transactions settled via stablecoin transfers. (Investing.com) For a government juggling economic pressures and fiscal targets, the extension of IOF to crypto could represent a lucrative—and politically feasible—tool.

3. Addressing Money Laundering and Illicit Finance

Stablecoins and other virtual assets are increasingly being used for cross-border payments, but they also raise concerns about illicit finance. Brazilian regulators have long flagged stablecoins as a potential channel for money laundering and regulatory arbitrage. (The Star) By reclassifying certain crypto flows as forex operations and taxing them accordingly, the government can assert more control and transparency over these transfers.

4. Regulatory Consistency

The move coincides with a broader regulatory overhaul. The Central Bank of Brazil recently published rules that require virtual-asset service providers (VASPs) to meet stricter anti-money laundering, governance, and reporting requirements. (Reuters) These regulations are set to take effect in February 2026, reinforcing the government’s broader push to integrate crypto markets into its existing financial infrastructure. (Forbes) By matching the tax system to the regulatory classification, the government ensures that its tax regime is consistent with its regulatory framework.

The Scale of Brazil’s Crypto Market

To understand why this issue is so urgent, one must look at the explosive growth of Brazil’s crypto market. According to the federal tax authority, total crypto transaction volume in the first half of 2025 reached 227 billion reais (roughly $42.8 billion), a 20% increase compared to the previous year. (The Star)

Notably, stablecoins dominate this volume. The dollar-pegged USDT (Tether) alone accounted for approximately two-thirds of these transactions, while more volatile assets like Bitcoin represented a much smaller slice—just around 11%. (Cointelegraph) This points to stablecoins being used not just as speculative or investment vehicles, but as practical instruments for payment and value storage.

Brazil’s Central Bank Governor, Gabriel Galipolo, has warned that much of this flow is being used to settle payments, buy goods from abroad, or transfer value cheaply across borders. (Reuters) These trends are precisely what regulators are now targeting.

Potential Mechanics of the New Tax

While details remain fluid, insiders suggest several possible contours for the tax:

• Scope: IOF could apply to some or all cross-border crypto transfers, especially those involving stablecoins or virtual assets that now fall under the forex classification. (Investing.com)

• Rate: The exact rate has not been disclosed, but officials are expected to calibrate it carefully based on the risk of creating new distortions or hampering legitimate use.

• Reporting Requirements: The federal tax authority has already expanded its reporting obligations, now including foreign crypto service providers operating in Brazil. (Investing.com)

• Implementation: The IOF extension would likely come with guidance or regulation clarifying which crypto transactions are covered, how they will be tracked, and how their value will be assessed for taxation.

Reactions and Risks

Industry Concerns

Crypto firms, fintech companies, and some analysts are likely to push back. They may argue that:

• The tax could stifle innovation, especially for cross-border payments—a use case where crypto arguably offers clear value.

• Compliance costs could rise sharply, especially for smaller players. Foreign exchanges and VASPs may need to adhere to more complex regulatory obligations or limit services to Brazilian users.

• It may push users into less regulated or more opaque channels, undermining the risk-management goals the tax aims to address.

Indeed, some commentators view the potential IOF extension as part of a broader “regulatory squeeze” on crypto, aligned with global efforts to tighten oversight.

Government and Enforcement Benefits

From the government’s perspective, the benefits are multifold:

• Increased transparency: More reporting and classification of these flows give tax authorities better visibility on cross-border crypto transactions.

• New revenue stream: The IOF tax could deliver meaningful boosts to public coffers, especially in a context where fiscal discipline is under pressure.

• Reduced illicit flows: Tighter oversight and tax treatment may discourage the misuse of stablecoins for money laundering or tax evasion.

• Regulatory coherence: Aligning tax policy with the central bank’s classification ensures consistency across financial regulation and taxation.

Broader Implications for the Crypto Market

Brazil’s move is not happening in a vacuum. Across the globe, regulators are evolving their approach to digital assets, especially stablecoins, which straddle the line between crypto and traditional finance. What makes Brazil’s plan particularly notable:

1. Advance in Latin America: As one of the region’s largest economies, Brazil’s actions could set a precedent for neighboring countries dealing with stablecoin flows, capital flight, and crypto-based payments.

2. Integration of FX and Crypto: By classifying certain crypto transfers as forex operations, Brazil is formalizing a hybrid approach that recognizes stablecoins as part of the broader financial ecosystem.

3. Taxation as a Policy Tool: Rather than banning or restricting stablecoins outright, Brazil is using taxation to bring them into its regulatory purview. This signals a more nuanced, revenue-driven approach to crypto regulation.

4. Global Trend Alignment: Brazil’s tighter policy aligns with global pressure to regulate cross-border crypto flows, increase tax transparency, and enhance AML (anti–money laundering) frameworks.

Challenges and Trade-Offs

Implementing such a tax is not without challenges:

• Measuring Value: Calculating tax liability on cross-border crypto transactions could be complex, especially if stablecoins or coins with volatile pricing are involved.

• Avoidance Risk: High tax rates might encourage users to route transactions through more opaque jurisdictions or make use of peer-to-peer channels.

• Overburdening Companies: VASPs, foreign exchanges, and other service providers may face heavy compliance burdens, which could reduce competition or service availability in Brazil.

• Economic Impact: While designed to generate revenue, the tax could slow down the adoption of crypto payments for genuine use cases, potentially stifling innovation and economic dynamism.

What’s Next: Road to Implementation

To make this proposal a reality, several steps still lie ahead:

1. Tax Guidance: The Federal Revenue Service (Receita Federal) will need to issue clear guidance that defines the IOF scope, applicable assets, and enforcement mechanisms.

2. Public Consultation: Given the implications, there may be stakeholder consultations (or at least behind-closed-doors discussions) with crypto firms, fintechs, and financial institutions.

3. Regulatory Alignment: The IOF expansion must dovetail with the Central Bank’s new virtual-asset rules that take effect in February 2026.

4. Technology and Reporting Systems: Tax authorities will need to develop or upgrade systems to monitor crypto cross-border flows effectively, especially given the decentralized nature of many crypto transactions.

5. Enforcement & Audits: Authorities will need capacity to audit and enforce the new tax, including mechanisms to verify whether a given crypto transfer qualifies as a cross-border IOF event.

Brazil’s consideration of taxing cross-border crypto payments represents a bold step toward closing regulatory and fiscal loopholes in its financial system. By extending the IOF tax to stablecoins and other virtual assets used in international transfers, the government aims to raise revenue, enhance oversight, and curb abuse—a reflection of how seriously it now treats crypto as part of its foreign-exchange infrastructure.

However, this policy also poses risks: for innovation, for adoption, and for smaller players in the crypto ecosystem. Striking the right balance between regulation and growth will be essential. As Brazil navigates this transition, its path could offer valuable lessons for other emerging markets grappling with the rapid rise of stablecoins and the challenge of integrating them into traditional financial systems.

Whether this proposal will be finalized, and how it will be implemented, remains to be seen. But one thing is clear: Brazil is preparing to reshape the way crypto payments are taxed and regulated, signaling a new chapter in the intersection of digital assets and national finance.