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28% cryptocurrency tax proposal in 2023 Portugal budget

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The state of the cryptocurrency market is not ideal right now. Since the beginning of the year, it has been in a protracted bear market and declining. The current crypto bear market has seen some of the biggest losses in the industry. Adding to the dismal is the crypto tax being imposed in countries globally.

In its 2023 budget, Portugal will impose a 28% cryptocurrency tax, according to a Bloomberg article. The tax, which would be implemented for the first time in Portugal, is being pushed for inclusion in the budget for the following year.

The idea, according to authorities, aims to create standards so that Portugal may boast a system that encourages expansion of the local crypto industry. Portugal’s government wants to capitalize on the growing adoption of cryptocurrency across much of Europe.

The proposed legislation would impose a 28% crypto tax on all digital assets in Portugal, although not all of them would be subject to the new legislation. According to the announcement made on Monday, only virtual currencies purchased and held for less than 12 months would be liable to taxation.

The plan from lawmakers also maintains the tax exemption for digital assets held for more than a year. A 10% tax on free crypto transactions, which might include airdrops, was also proposed by policymakers. According to reports, the proposal also includes a 4% tax on the commissions paid by crypto brokers.

However, the budget must first receive approval from the Portuguese parliament before becoming a law.

Portugal’s history with cryptocurrency

Deputies from the Portuguese government spoke during a discussion of the State Budget for 2022. There were a number of up-front proposals. It was intended for the discussion to go on all week.

Different suggestions from various parties were turned down. One of many recommendations was the taxation of cryptocurrency. A news site called ECO Sapo reported in May 2022 that the taxing proposal for cryptocurrencies was rejected.

One of the most crypto-friendly nations in Europe, Portugal, recently announced that it would start taxing cryptocurrencies. The days of tax-free benefits for cryptocurrency investors in Portugal, according to many, are over.

Portugal: Trouble In Europe’s ‘Crypto Paradise’

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Portugal’s reputation of being one of the most crypto-friendly nations is at stake as its Finance Minister Fernando Medina confirmed to tax crypto gains but has not given any specific date as to when.

According to Sapo, a local news outlet, the move was formally endorsed by Secretary of State for Tax Affairs António Mendonça Mendes on May 1. However, neither the date nor the tax rate has been publicly revealed so far.

Sources further divulged that tax would be imposed on investment gains made from cryptocurrencies such as Bitcoin.

But why the complete reversal?

In a parliamentary session, Medina explained his reasoning by referring to countries that “already have systems” in place. He said it doesn’t make sense for an asset that creates capital gains to not be taxed.

Attempting to put out a reassuring tone, the Finance minister stated that the tax would not be too stifling as it is important to create and implement a system that makes taxation “adequate,” but which does not “end up reducing revenue to zero, which is contrary, in fact, to the objective for which it exists.”

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Portugal: Trouble In Europe's 'Crypto Paradise' 2

In addition to that, Medina admitted that the taxation of cryptocurrency is more complicated than most other assets because “there is no universal definition of cryptocurrencies and crypto-assets.”

Portugal Tax Proposal Would Dissuade Foreign Crypto Investors?

The news comes as a surprise to many as it amounts to overruling the current tax law [ Est. in 2016] that said crypto gains cannot be taxed as it is not a legal tender.

Moreover, it would deal a heavy blow to many Golden Visa seekers.

For those unfamiliar, the highly popular Golden Visa program is a fast-track process for obtaining permanent residence and citizenship for non-EU nationals in Portugal.

On top of that, cryptocurrency transactions were exempted from VAT, as the Iberian nation viewed digital currencies as a form of payment rather than an asset.

It was a win-win situation for both crypto traders and investors. But now it looks like foreign investors would have to wait and watch how Portugal’s proposed tax structure would be laid out.

Portugal Emerges As A Top Crypto Hub For Ukrainians

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Portugal, like its neighbors, has opened its doors to thousands of fleeing Ukrainians, particularly attracting crypto workers. This is due to the fact that the nation has been able to position itself as a tech hub. One of the primary advantages is its zero-percent taxes on digital-currency gains. This combined with the affordable living costs and temperate climate makes it one of the most preferred destinations for crypto-adherents.

Besides that, the country is already home to an established community of Ukrainians. In the past three weeks, the nation received more than 13,000 Ukrainian refugees after the government undertook measures to speed up and simplify the entry process of those fleeing the war. As per sources, Ukrainian nationals in Portugal have climbed to about 40,000 from about 27,200.

Valentin Sotov, a software developer who is working on a crypto-based metaverse game called Amber has fled from his native Ukraine’s city of Mukachevo to Lisbon. Despite the grim situation back at home, he sees the move to the south European nation as “a big opportunity for our product because we can work with a lot of IT people in one place.”

Portugal – land of crypto unicorns

Portugal has a thriving business community as many foreign entrepreneurs have succeeded in establishing a handful of unicorn startups, worth more than $1 billion. One such example is Anchorage Digital, a U.S.-based digital asset bank with offices in northern Portugal, is the latest of these unicorns and was co-founded by Diogo Monica, a Portuguese national. There has been a steady flow of people across nations not just limited to Ukrainians.

The one who is bearing the brunt of the brain drain is neighboring Spain, which shares a similar climate. Crypto enthusiasts from Spain began crossing the border into Portugal after their government made it mandatory for its citizens to declare their crypto holdings in an effort to combat tax fraud. 

Maria Extremadouro, a lawyer in the Spanish city of Vigo, who specializes in blockchain and crypto legislation lamented, “Two out of every three people who come to consult me leave. There’s lots of talent leaving for Portugal.”