- Portugal’s days of tax-free crypto gains may soon be over
- In its budget proposal for next year, the country is tackling a rising deficit and slowing GDP growth
Portugal has long exempted individuals from paying capital gains tax on crypto earnings, but Finance Minister Fernando Medina says it’s time to pay up.
Medina is calling for a 28% capital gains tax on earnings made from cryptoassets held less than one year, according to a draft 2023 budget introduced to Portugal’s parliament Monday. It is the same rate that traditional investment vehicles are currently taxed in the country.
Income made from cryptoassets held for one year or more will continue to be tax-free, the proposal adds.
If the budget passes as is, Portugal will cease to be one of the last countries in Europe to let taxpayers keep the full fruits of their crypto gains.
Portugal’s tax office, which has deemed crypto gains as non-taxable income since 2018, warned in May 2022 that the tax-free days were coming to an end.
“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. “I do not want to commit myself to a date at the moment, but we will adapt our legislation and our taxation.”
For now, the budget only refers to crypto taxes in the context of capital gains, but, as Portugal’s secretary of state for fiscal affairs pointed out at the time, the nature of crypto makes taxing it a challenge. Crypto as property versus crypto as income creates different tax structures, Mendonça Mendes told a local Portuguese newspaper in May. Plus, using crypto as a means of payment creates another taxable event all together.
It’s an issue the US has been dealing with recently as well. Currently, crypto gains are taxed in the same long- or short-term capital gains brackets as other investments, but there has been debate over how cryptocurrency payments and staking rewards should be approached.
In the US, Colorado recently made it possible for residents to pay non-crypto related taxes, like sales and business income tax, in cryptocurrencies, but doing so still creates a headache for taxpayers down the line.
“Colorado’s plan to accept crypto currency for state tax payments and other government fees is proof of crypto’s wide acceptance as both an investment and payment method,” Kell Canty, CEO of Ledgible, said, at the time of the initial plan announcement. “Of course, using crypto to pay taxes does not change the tax treatment of the transaction for federal income or state income tax purposes.”
Portugal’s potential tax pivot comes as the country attempts to lower its deficit and combat slow gross domestic product growth. The budget plan proposes taxing windfall profits of oil and gas companies — also a new addition to the existing tax code.
According to the budget, Portuguese officials are expecting only a 1.3% increase in GDP next year. The country’s projected debt-to-GDP ratio is anticipated to hit 122% by the end of the year, according to data from Trading Economics.
That’s the third-highest in Europe, behind only Greece and Italy. The EU as a whole has an average debt-to-GDP ratio of 95.6%.