Brazil's New Crypto Tax: Hurting Small Investors?

Brazil's Proposed Crypto Tax: A Blow to Retail Investors?

Brazil's Congress is considering Provisional Measure 1303/25, a reform that could reshape crypto taxation. The proposal introduces a flat 17.5% tax on all crypto gains, regardless of the amount.

Fabio Plein, Coinbase’s Regional Director for the Americas, suggests this measure would disadvantage retail and small-scale investors, while potentially benefiting wealthier individuals.

Understanding Provisional Measure 1303/25

Enacted in June, Provisional Measure 1303/25 aims to simplify the tax treatment of financial instruments, including cryptocurrencies.

• It replaces the current progressive tax system (15% to 22.5% based on gain size) with a flat 17.5% rate.
• The measure eliminates the exemption for crypto transactions under R$35,000 (approximately $6,500).
• It standardizes tax treatment for crypto assets, irrespective of storage location (self-custody wallets or offshore accounts).

The government introduced this measure to offset revenue shortfalls and achieve its fiscal target of a zero deficit in 2025. Congress will vote on its permanence soon.

"There are at least fifteen proposed amendments regarding crypto aimed at correcting these distortions, and a vote is expected between September and October. If the MP is not approved, it will not be converted into law, and the proposed rules will not apply. If approved, it will enter into force [on] January 1, 2026," Fabio Plein told BeInCrypto.

Such taxation changes could potentially stifle innovation in Brazil’s crypto sector.

Disparity Between Crypto and Securities

The Brazilian crypto community has largely reacted negatively to Provisional Measure 1303/25. Plein argues that the legislation is based on the incorrect assumption that crypto is tax-exempt in Brazil.

"A persistent, but incorrect, narrative claims crypto ‘does not pay taxes,’ even though the sector already bears corporate taxes (Corporate Income Tax, CSLL, PIS, COFINS), existing withholding obligations, and progressive end-user rates of 15%–22.5% on domestic operations and 15% on international ones," Plein said.

He adds that crypto is treated unfavorably compared to securities, despite the measure’s intention to unify taxation across various investment instruments.

"Compared with securities, crypto is treated worse: securities would enjoy a R$60,000 quarterly exemption, and non-resident investors in securities would not face withholding (WHT) income tax," he explained.

The flat rate, coupled with the elimination of the monthly minimum exemption, disproportionately affects smaller investors.

Winners and Losers

Abolishing the R$35,000 monthly exemption means capital gains are calculated for every transaction. Plein likens this to the defunct Provisional Contribution on Financial Transactions (CPMF), a tax levied on nearly all financial transactions that was criticized for its impact on casual investors.

"While this remains income tax on capital gains, taxing each small transaction without regard to ability to pay effectively creates a sort of ‘CPMF at every click’: buying a loaf of bread using crypto should not turn someone into a trader," Plein said.

Plein argues that the new flat rate contradicts the government’s claim of not raising taxes, as it eliminates the monthly exemption and increases the floor tax from 15% to 17.5%.

Paradoxically, this measure is more beneficial for high-net-worth individuals.

"Although framed as targeting ‘the super-rich’… a flat 17.5% reduces the top rate (previously up to 22.5%) while increasing the effective burden on smaller investors, an outcome at odds with expectations of fairness," Plein told BeInCrypto.

The measure also introduces a new Withholding Income Tax (WHT) on crypto activities, sparking further controversy. This WHT, taken directly from earnings, impacts activities like DeFi-as-a-service and staking-as-a-service offered by centralized platforms.

It also extends to non-resident investors and liquidity providers, potentially creating a competitive disadvantage. Traditional securities would remain exempt from this tax for non-resident investors, potentially driving foreign capital away from crypto. This could also push users to less regulated platforms.

"Introducing WHT is likely to push users toward decentralized solutions and self-custody. WHT on non-resident investors may reduce liquidity and generate price distortions reminiscent of the ‘kimchi premium,’ similar to what happened in South Korea," he said.

Brazil at a Crossroads

Brazil has one of the highest crypto adoption rates globally, with many using crypto for transactions and hedging against inflation.

"With roughly 25 million Brazilians (about 16% of the population) already participating and an expectation of 70 million users by 2026, Brazil is the world’s 7th-largest market," Plein said.

The high adoption rate means this tax measure could significantly impact the national economy. The decision Congress makes now will shape Brazil’s future role in the global crypto economy.

"Getting this [provisional measure] right is… about fostering innovation, investment, and jobs in Brazil rather than abroad," Plein added.