Brazil Ends Crypto Tax Exemption Imposes 17.5% Flat Rate

Brazil has implemented a significant change in its cryptocurrency tax policy by ending the tax exemption for small-scale crypto profits and introducing a 17.5% flat rate on all capital gains from digital assets. This new rule, announced under Provisional Measure 1303, is part of the government's broader strategy to increase revenue through financial market taxation. Previously, Brazilian residents who sold up to 35,000 Brazilian reals in crypto assets per month were exempt from income tax. Gains beyond this threshold were taxed progressively, starting at 15% and reaching as high as 22.5% for volumes above 30 million Brazilian reals.

The new flat rate, effective from June 12, eliminates all exemptions and applies uniformly to all investors, regardless of the size of their transactions. This change means that smaller investors will now face higher tax burdens, while high-net-worth individuals could see their effective tax rate drop. Under the previous system, large trades exceeding 5 million Brazilian reals were taxed between 17.5% and 22.5%. With the uniform 17.5% rate now in effect, many large investors will benefit from a lower tax rate.

The provisional measure also expands the tax base to include crypto assets held in self-custody wallets and foreign crypto holdings. Taxation will be assessed quarterly, with investors allowed to offset losses from the previous five quarters. However, starting from 2026, the window for loss deduction will be tightened. This overhaul extends beyond crypto, as fixed income instruments such as Agribusiness and Real Estate Credit Letters (LCAs and LCIs), as well as Real Estate and Agribusiness Receivables Certificates (CRIs and CRAs), will now incur a 5% tax on profits. Additionally, taxation on betting revenue has increased from 12% to 18%.

The finance ministry introduced these changes following backlash over an earlier attempt to hike the Financial Transaction Tax (IOF). That proposal was shelved after facing stiff opposition from both the market and Congress. The new measures are designed to simplify the tax collection process and ensure that all crypto gains are subject to taxation, promoting transparency and compliance within the market. This move is part of a broader effort by the Brazilian government to regulate the cryptocurrency market more effectively and integrate digital assets into the country's financial system. By taxing crypto profits, the government aims to generate additional revenue and ensure that the cryptocurrency market operates within the same regulatory framework as traditional financial markets. This decision is likely to influence other countries in the region to consider similar measures to regulate their own cryptocurrency markets.