Brazil Ends Crypto Tax Exemption, Introduces 17.5% Flat Rate on Gains
Brazilian Government Moves to Increase Revenue Through Taxation
In a significant policy shift, Brazil has eliminated its tax exemption for small-scale cryptocurrency profits, imposing a flat tax rate of 17.5% on all gains from digital assets. This change, announced under Provisional Measure 1303, reflects the government’s efforts to boost revenue through financial market taxation.
Previous Tax Framework and Changes
Previously, Brazilian residents selling up to 35,000 Brazilian reals (approximately $6,300) in cryptocurrency per month were exempt from income tax. Gains exceeding this threshold were subjected to a progressive tax system, with rates starting at 15% and escalating up to 22.5% for profits over 30 million Brazilian reals. The new uniform tax rate, effective from June 12, removes all exemptions and applies to investors of all sizes, marking a significant change in tax liabilities for smaller traders.
Larger investors, however, may benefit from this shift. Under the old structure, high-value trades exceeding 5 million Brazilian reals were taxed between 17.5% and 22.5%. With the introduction of the flat rate, many high-net-worth individuals may find their effective tax burden reduced.
Inclusion of Self-Custody and Offshore Holdings
The new tax framework also broadens the base of taxable assets to include cryptocurrencies held in self-custody wallets and offshore accounts. This move is part of Brazil’s sweeping reforms aimed at enhancing its tax regime and ensuring comprehensive compliance across various types of cryptocurrency assets.
Taxation will be assessed quarterly, allowing investors to offset losses from the preceding five quarters. However, starting in 2026, the opportunity to deduct losses will become more restricted, indicating a potential tightening of tax rules in the future.
Broader Implications and Additional Tax Increases
The reforms introduced through Provisional Measure 1303 are not limited to cryptocurrencies. Other financial instruments previously exempt from income tax, 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 face a standard tax rate of 5% on profits. Moreover, the tax on betting revenues has risen from 12% to 18%, reflecting a broader trend of increased taxation across multiple sectors.
Response to Financial Transaction Tax Backlash
These changes come after a significant backlash against an earlier proposal aimed at increasing the Financial Transaction Tax (IOF), which was ultimately shelved due to opposition from both the market and the Brazilian Congress. The government’s current strategy appears to focus on more manageable tax increases while expanding the reach of existing tax frameworks.
Future of Cryptocurrency in Brazil
As Brazil advances its regulatory landscape for digital assets, lawmakers are also exploring legislation that would allow partial salary payments in cryptocurrencies such as Bitcoin. Currently, a proposal suggests that no more than 50% of an employee’s wage can be paid in crypto-assets, with stricter regulations on full crypto payments for standard employees. Such measures highlight Brazil’s continuing evolution in accommodating financial technology while pursuing regulatory oversight.
This latest move to reform cryptocurrency taxation in Brazil signifies a pivotal moment for both investors and the broader financial market, as the country navigates its path in the rapidly evolving digital economy.