Brazil ends crypto tax exemption: 17.5% flat rate now applies to all investors

Brazil has shocked the crypto market by abruptly ending its crypto tax exemption for small investors, imposing a blanket 17.5% capital gains tax on all digital asset profits.

The controversial move, enacted through Provisional Measure 1303, marks one of Latin America’s most aggressive crypto tax reforms and could reshape investor behavior nationwide.

Goodbye exemptions, hello flat rate

The 17.5% flat rate took effect on June 12, eliminating all prior exemptions and applying uniformly to investors, whether trading modest sums or multimillion-dollar portfolios, the local news medium, Portal do Bitcoin reported

Until June 12, Brazilian traders enjoyed a crypto tax exemption on monthly sales below 35,000 reals ($6,300). The progressive system taxed larger gains between 15% and 22.5%. Now, the 17.5% flat rate applies universally, whether trading $100 or $100 million.

“This levels the playing field but punishes casual investors,” said São Paulo-based tax attorney Felipe Costa. “The crypto tax exemption was a lifeline for small holders. Its removal may push traders toward informal markets.”

Offshore and self-custody wallets now taxable

In a major enforcement expansion, Brazil’s tax authority will now track:

• Self-custody wallets (e.g., MetaMask, Ledger)

• Offshore exchange holdings (e.g., Binance, KuCoin)

Previously, these assets often slipped through the cracks of the crypto tax exemption system. Quarterly reporting begins immediately, with loss deductions permitted for the past five quarters, though this shrinks to one year by 2026.

Winners and losers emerge

Small traders:

• Previously paid 0% under crypto tax exemption

• Now owe 17.5% on all profits

Whale investors:

• Paid up to 22.5% pre-reform

• Save 5% with the new flat rate

“Ironically, the wealthy benefit most from killing the crypto tax exemption,” noted economist Larissa Menezes. “This contradicts the government’s ‘tax fairness’ rhetoric.”

Broader financial market impact

The reforms extend beyond crypto:

• Fixed-income instruments (LCAs, LCIs): New 5% tax

• Sports betting revenue: Rate jumps from 12% to 18%

The measures aim to boost Brazil’s $3.7 billion annual tax haul after failed attempts to hike the Financial Transaction Tax (IOF).

Crypto salary proposal still pending

Separately, lawmakers debate allowing partial Bitcoin salary payments (max 50% of wages). The bill, proposed in March, would maintain some flexibility while ensuring further protections:

• Mandatory use of Central Bank-approved exchange rates

• Full crypto payments only for foreign contractors

Market reactions and compliance challenges

Local exchanges report surging withdrawal requests as traders explore decentralized alternatives. “Many who relied on the crypto tax exemption now face impossible compliance burdens,” said Matera Exchange CEO Marcelo França.

Legal experts warn the reforms may backfire: “Without the crypto tax exemption, Brazil risks losing retail investors to underground markets,” cautioned blockchain analyst Carlos Abreu.