The Crypto Tax War Begins: Small Traders Bear the Brunt

Brazil’s move to impose a 17.5% flat tax on all capital gains from crypto assets in June 2025 marks a significant shift in the country's approach to digital asset taxation and reflects a growing global trend. Previously, minor gains were exempt from taxation, but this exemption has now been removed. The new tax applies regardless of the size of the gain, signaling a broader strategy by the government to extract more revenue from financial markets, particularly from high-growth asset classes like cryptocurrency [1].

This change in Brazil is not an isolated event. Similar developments have occurred elsewhere, such as Portugal’s introduction of a 28% tax on crypto gains held for less than a year in 2023. These moves suggest that governments are increasingly viewing crypto as a viable source of tax revenue, especially as the market continues to mature and attract broader retail participation [1]. Countries with historically crypto-friendly tax policies, like Germany and the United Kingdom, may also face pressure to close their respective tax loopholes. Germany currently offers an exemption for gains on crypto assets held for more than a year, while the UK provides a 3,000-pound annual capital gains tax-free allowance that was recently reduced by half from 6,000 pounds in 2023 [1].

The shrinking tax-free thresholds and rising regulatory scrutiny could significantly impact everyday investors, particularly in emerging markets where crypto is often used as a hedge against inflation. Brazil’s new tax, for instance, has disproportionately affected small traders, who lack the resources or mobility of larger institutions to absorb the costs or relocate to more favorable jurisdictions [1]. This is a concern not only for individual investors but also for startups and innovation in the crypto space, which may face higher compliance costs and reduced liquidity.

At the same time, countries such as Dubai, Singapore, and Estonia are emerging as so-called "crypto havens," offering more favorable tax regimes and stable regulatory environments. These jurisdictions are attracting both traders and entrepreneurs who seek to avoid higher tax burdens elsewhere [2]. The shift in policy in Brazil and other countries underscores the growing tension between governments seeking to generate revenue and the global nature of the crypto economy, which allows users and businesses to operate across borders with relative ease.

As the global regulatory landscape continues to evolve, the focus is shifting toward how quickly and aggressively other nations will follow Brazil and Portugal’s lead. The UK’s reduction in its crypto tax-free allowance and the potential for further cuts indicate a possible trajectory toward more aggressive taxation. With increased retail participation and the explosive growth of crypto, governments are likely to continue prioritizing digital assets as a source of revenue. However, the speed at which these changes occur will depend on political and economic conditions, as well as the resilience of the crypto market itself [1].

Source:

[1] Brazil's crypto tax grab signals the end of an era (https://cointelegraph.com/news/brazil-crypto-tax-grab-signals-what-s-coming-next)

[2] Crypto tax havens in 2025 (https://www.reddit.com/r/CryptoMarkets/comments/1mx9dqc/crypto_tax_havens_in_2025/)