Happy tax-free days could become a thing of the past for crypto traders in Portugal, if Finance Minister Fernando Medina has his way. A draft annual budget introducing a tax on capital gains made from crypto has now made it to the parliament.
The draft budget 2023 document introduced on Monday reveals that a 28% tax could be applied to short-term crypto gains—that is, income made from crypto assets held for less than a year. This is the same rate at which traditional financial instruments are currently taxed in the country.
The country has long exempted residents from a tax on capital gains from crypto. In fact, it has been the only country in Europe to do so. Germany, the largest economy in Europe, for example, only has a 0% tax rate on crypto gains for long-term holders—those who’ve been holding on to their crypto for more than one year. It also does not tax short-term crypto gains of less than 600 EURO.
Portugal has been seeing a mass influx of migrants over the last decade, and crypto has been of the main reasons behind it. Crypto fans have been flocking to the “Bitcoin Beach” in Meia Praia to avoid the crypto taxation of other European countries. With the new law, these immigrants will have to look elsewhere.
The move to tax short-term gains from crypto therefore isn’t entirely unexpected. The minister had even warned citizens about the end of tax-free days earlier this year, in May 2022.
Portugal’s move to tax crypto transactions is also an attempt to lower its fiscal deficit. The country is witnessing increased pressure due to inflationary conditions and a slowdown of GDP growth. Officials in Portugal, according to the budget, are expecting a modest 1.3% increase in GDP next year. The debt-to-GDP ratio is expected to hit 122% by the end of this year. That would put the country among the bottom three countries with the highest debt-to-GDP ratio.
Legislators have, however, been concerned for some time now that crypto gains are difficult to tax because, for now, crypto is in a bit of a legal grey area. For instance, crypto creates different tax structures as an asset, as compared to when it is considered a security. Also, there is some uncertainty about how tax treatment on income from staking should be approached.
The draft budget also revealed that the government could impose a 4% tax on any free crypto transfers. Stamp duties could also be levied where applicable.