Brazil replaced tax exemption for small-scale cryptocurrency earnings with a 17.5% flat tax rate on all digital currency capital gains under Provisional Measure 1303 to boost financial market revenue.
Before, selling up to 35,000 Brazilian reals monthly in cryptocurrency was tax-exempt.
The government taxed earnings beyond this threshold on a sliding scale, starting at 15% and increasing up to 22.5% for amounts over 30 million Brazilian reals.
The newly established flat tax rate, effective from June 12, removes all exemptions and applies uniformly to all investors, irrespective of their transaction sizes, according to a report by local news platform Portal do Bitcoin.
While smaller investors will now encounter increased tax obligations, affluent individuals may experience reduced rates.
Under the former system, the government taxed substantial trades over 5 million Brazilian reals between 17.5% and 22.5%. With the introduction of a consistent 17.5% rate, many high-value investors will see a decrease in their effective tax rate.
The temporary measure also broadens the tax scope. Crypto assets stored in self-custody wallets and international crypto holdings are now part of the tax framework.
According to the report, investors will be allowed to deduct losses from the preceding five quarters on a quarterly basis. However, starting in 2026, there will be a restriction on the period for loss deductions.
Are The Changes Limited to Cryptocurrencies?
The changes are not limited to cryptocurrencies. Fixed income instruments that were previously exempt from income tax, including Agribusiness and Real Estate Credit Letters (LCAs and LCIs), along with Real Estate and Agribusiness Receivables Certificates (CRIs and CRAs), will now be subject to a 5% tax on gains.
At the same time, the tax on betting revenue has risen from 12% to 18%.
The finance ministry implemented these modifications following backlash against a prior proposal to increase the Financial Transaction Tax (IOF). They abandoned that plan after encountering strong resistance from both the market and Congress.
Brazil’s Proposal for Crypto Salaries
In March, lawmakers in Brazil introduced a proposal that would allow employers to compensate employees partially with cryptocurrencies such as Bitcoin. According to the proposed regulations, crypto payments must not represent more than 50% of an employee’s total salary.
Full payments in cryptocurrency would only be permissible for foreign workers or contractors, and only under certain conditions specified by the central bank of Brazil. The legislation forbids the payment of salaries entirely in digital currencies for regular employees.
Independent contractors would also receive their entire compensation in crypto if their contract mutually agrees upon it. All payments in cryptocurrency must adhere to official exchange rates established by institutions authorized by the Central Bank.