Brazil Imposes 17.5% Flat Tax On All Crypto Gains

Brazilian authorities have issued a Provisional Measure that terminates the previous tax regime for cryptocurrencies and introduces a new set of rules. This new regime aims to tax all profits derived from cryptocurrencies, including those held in self-custody wallets and digital assets held abroad. The measure, published on June 11, derogates the previous tax regime that established a lower floor for paying taxes linked to digital assets.

The new rules establish a flat fee of 17.5% as income tax for all gains obtained from holding or trading cryptocurrencies, without any exceptions. Previously, crypto income was taxed only if the amount exceeded 35,000 reais (nearly $6,320) and was lower than 5 million reais (nearly $900,000) at 15%, 17.5% for volumes between 5 million reais and 10 million reais ($1,800,000); 20% for the range between 10 million and 20 million reais ($3,600,000); and 22% for volumes above 30 million reais ($5,400,000).

The new tax regime includes all income, including net gains, obtained from transactions with virtual assets. This encompasses financial arrangements with virtual assets that are the digital representation of value negotiated or transferred by electronic means and used for payment or investment purposes. The measure also includes transactions and income produced by crypto held in self-custody wallets, hinting at the taxation of decentralized finance activities. However, the document does not explain how this process will be carried out or how the relevant authorities will be able to tax these operations.

The calculation of these taxes will be made every quarter, and traders will be able to deduct previous losses. This measure comes amid a public debate about the hike of the so-called financial transaction tax. Legislators were considering including crypto assets under the law’s umbrella to offset the increase to the cryptocurrency industry and its users.

This move by Brazilian authorities signifies a significant shift in the country's approach to cryptocurrency taxation. By introducing a flat tax rate and including self-custody wallets, the government aims to create a more comprehensive and uniform tax regime for digital assets. This change could have implications for both individual investors and the broader cryptocurrency industry in Brazil, as it seeks to integrate digital assets more fully into the country's financial system.