Retail investors cry! Brazil cancels cryptocurrency tax exemption and levies a unified income tax of 17.5%

Brazil’s Temporary Decree 1303 came into effect, levying a 17.5% cryptocurrency income tax across the board and canceling the original tax exemption of 35,000 reais (approximately US$6,300), with small investors bearing the brunt.
(Preliminary summary: Brazil passed the Bitcoin reserve draft: investing up to 5% of foreign exchange reserves to buy BTC, which is expected to set a precedent for G20 countries)
(Background supplement: Michael Saylor talks about the "All in Bitcoin" decision: COVID-19 made me see clearly that the U.S. dollar and gold are fake)

Brazilian Provisional Decree No. 1303 was launched on June 14, local time, stipulating that all personal cryptocurrency profits must be subject to the same rules. The 17.5% income tax and exemption that used to amount to about 35,000 reais (approximately $6,300) per month are officially eliminated. In the past, the old system had a progressive tax rate of 15% to 22.5%, and only high-value transactions were subject to high taxes. Now the tax rate has been leveled, with retail investors bearing the brunt, while institutions have dropped from the original 22.5% to 17.5%.

FinanceFeeds reported that the Brazilian government estimates that this move will increase tax revenue by 10 billion reais in 2025, doubling to 20 billion reais in 2026. At the same time, the bill also requires exchanges and wallets to withhold taxes on pledges and profits. Minister of Economy Fernando Haddad said at a press conference:

"The unified tax rate can expand the tax base and make the rules simpler."

Details of tax reform and possible impact

According to statistics from financial technology company ABCrypto, nearly 90% of retail investors whose monthly transaction volume is below the tax-free threshold will face tax for the first time; based on an annualized return rate of 15%, net income may fall by more than 10%. In contrast, the tax rate for large traders has been reduced from 22.5% to 17.5%, effectively saving 5 percentage points in tax burden.

Affected by the policy news, the trading volume of Brazil’s local exchange Mercado Bitcoin on the 14th increased by 27% compared with the previous day, indicating that some investors rushed to settle their positions before the old system expired. Crypto consultant Paulo Silva said

“For customers with monthly transactions of less than 35,000 reais, the tax burden jumped from zero to 17.5%, and many people simply stopped.”

On the other hand, the new law requires that virtual asset service providers (VAPs) are obliged to withhold 17.5% of tax directly at the source before all staking interest and liquidity mining are distributed. This may also cause some users to switch to decentralized platforms without withholding, or increase compliance risks.

Despite the complaints from small investors, the flat tax rate has officially brought cryptocurrencies into the mainstream investment framework of Latin America’s largest economy. If Congress subsequently confirms the law again, the Brazilian market will officially move towards the new normal of "same taxes, same regulations".