A Portuguese government-issued report published on October 10th has proposed a new cryptocurrency tax policy as part of its national budget for 2023. The report recommends that the government impose a 28% capital gains tax on cryptocurrency gains made over one year. However, the draft includes a provision that gains realized after crypto assets have been held for a period of one year will not be taxed.
The draft proposal was submitted to parliament by Portugal’s Finance Minister, Fernando Medina. Under the guidelines, proceeds made from the mining and issuance of cryptocurrencies would also be subject to taxation. A further 4% tax on free crypto transfers could also be implemented, and would see stamp duties applied where applicable.
Establishing a Clear Framework for Crypto Taxation
The report represents a follow up to the announcement made by Finance Minister Fernando Medina in May, which stated that cryptocurrencies would soon be made taxable.
“Portugal is in a different situation because, in fact, several countries already have systems. Several countries are building their models regarding this matter, and we are going to build ours.” Medina told the country’s parliament in May 2022.
By establishing a clear framework for crypto taxation, the proposal ultimately intends to see crypto treated on level terms with other industries, matching the country’s standard capital gains tax of 28%.
Nonetheless, the draft proposal must first go through the full legislative process before it can be passed into law. In this regard, some Twitter users believe that it will be a long time before the legislation sees the light of day.
On Portugal’s plans to tax crypto, a ,
– Finance Minister said crypto would be taxed in a loose statement with few details 3 days ago
– Portugals bureaucracy moves hyper slow, legislation like this takes a long time to move, never mind be implemented, IMO 2+ years
— Jorge (@nftjorge) May 16, 2022
In the event that the draft budget is approved, it remains to be seen how the new policies would affect Portugal’s crypto economy, and whether it will subject the country to an exodus the likes of which were seen in India. Furthermore, Portugal will cease to be among the last crypto bastions in Europe which allow taxpayers to retain their full crypto gains.
The country’s status as a crypto hub has been a key reasons for the Portuguese Republic’s transformed demographic, becoming home to “Bitcoin Beach” in Meia Praia—an unofficial gathering spot for crypto fanatics who had relocated to the region as a means of avoiding cryptocurrency taxes.
For some time, Portugal, which is regarded as one of the less prosperous countries in Western Europe, has promoted favorable tax policies as a way to encourage foreign investment. The country also granted its first crypto-banking license in April.
A Strategy to Combat Slow GDP?
While the budget only covers crypto taxation in regards to capital gains, the nature of crypto makes taxing the asset class inherently difficult, as Portugal’s Secretary of State for Fiscal Affairs highlighted in May. Furthermore, Deputy Minister for Finance and Tax Affairs Mendonça Mendes notes that crypto can have different tax structures depending on whether the asset in question is considered to be property or income.
The potential tax reform comes as Portugal attempts to lower its deficit and combat slow GDP growth. The budget also lays out provisions for potentially taxing the windfall profits of oil and gas companies.
Portuguese officials expect GDP to grow only 1.3% next year, while the country’s debt-to-GDP is estimated to reach 122% by the year’s end, according to Trading Economics.
On the Flipside
- The Portuguese government has hitherto taken a liberal stance towards crypto.
- The country’s Parliament notably rejected a Bitcoin tax bill earlier this year, but the administration isn’t giving up on taxing cryptocurrencies yet.
Why You Should Care
- How much the draft budget will affect Portugal’s crypto economy will only become apparant with time, though many fear that it could trigger an exodus.
- Portugal would also cease to be among the European countries that allow taxpayers to retain their crypto gains.