Portugal wants to start taxing crypto profits

Portugal is currently one of those rare countries where no taxes are paid on any profits from buying and selling crypto. 

However, this fortunate situation could change because, as Bloomberg reports, the Portuguese government yesterday presented to parliament new provisions for the 2023 budget, in which the 28% taxation of capital gains generated on cryptocurrencies held for less than a year also appears. 

Portugal might tax capital gains on crypto

In some other countries, any capital gains from buying and selling cryptocurrencies held for more than a year are not taxed, and so should be the case in Portugal. Right now in the country, no crypto capital gains are taxed, but if the government’s stance passes then only gains on cryptocurrencies held for less than a year will be taxed. 

In other words, starting next year in Portugal, those who buy cryptocurrencies and resell them at a higher price less than 365 days later will have to pay 28% tax on the profits generated. In contrast, those who generate them by reselling them at least 366 days after purchase will continue to be exempt. 

In addition, the Portuguese government’s draft proposal also calls for taxing mining, staking and ICO profits at 28% as ordinary income.

In fact, mining profits are already taxed now in Portugal, as are all gains in cryptocurrency from professional or commercial activities. It is the taxation regime for capital gains from mere buying and selling in the market that changes

The draft for the bill has yet to be approved by parliament, so in theory it could still undergo changes. But given that the Portuguese government’s decision simply brings local regulations into line with those of other European countries, it is hard to imagine that it could raise vetoes. 

What might be harder, however, might be the approval of proposed new rules to introduce a 10% tax on the “free” transfer of cryptocurrencies, and 4% on fees pocketed by brokers on crypto transactions. 

The government itself, in order to maximize the chances of approval, has admitted that the new rules are in line with, for example, Germany’s cryptocurrency legislation. 

Secretary of State for Fiscal Affairs António Mendonça Mendes said:

“It’s a regime that fits into our tax system and also to what is being done in the rest of Europe.”

Portugal’s policies

It is worth noting that the absence of specific legislation for cryptocurrencies, and taxes on capital gains, has attracted many cryptocurrency holders and crypto companies to the country in recent times, thanks in part to a low cost of living and mild temperatures. 

Moreover, for several years now Portugal’s policy choices have aimed precisely at, among other things, attracting wealthy foreigners, thanks to the country’s so-called program for non-regular residents, which offers a flat income tax of 20%, or even as low as 10% on pensions. Thanks to this policy over the past decade, the number of foreign residents living in Portugal has increased by 40%. 

Although the introduction of a crypto capital gains tax dedicated explicitly to traders could also in theory harm this trend, in reality the true holders are not affected, so the harm could be minimal. 

It is worth noting that Portugal has only 10 million inhabitants in all, which is slightly more than the population of the city of London alone. Of these, about half a million are foreign residents who have arrived in the past decade. 

To be fair, in many other European Union countries the taxation regime regarding cryptocurrencies is definitely much harsher. While the rate on capital gains is generally 26%, instead of 28%, there is usually no 365-day threshold, like in Germany. 

It is worth mentioning that speculators very rarely hold cryptocurrencies for more than a year, as opposed to investors who often do. Thus there is no shortage of those who earn capital gains, but only after holding their cryptocurrencies in the portfolio for at least a year. 

This is why Germany’s crypto tax regime, or Portugal’s, is able to attract many investors, but not speculators. 

In the US, for example, there is no threshold, so taxes on any capital gains are always paid. 

The issue of taxation is one of the most critical and sensitive ones regarding the actual use of cryptocurrencies depending on which country you are in. 

In fact, one of the big problems is that when you spend cryptocurrencies to purchase assets whose value is greater than the cost at which they were purchased, there is always the risk that the difference in value could be considered a capital gain. In the case of mandatory capital gains taxation, it becomes very difficult to calculate the amount of taxes due, and more importantly to charge them. The 365 threshold completely eliminates the problem for holders, making it much easier to spend cryptocurrencies held for at least a year.