In recent years Portugal has become a safe haven for crypto investors.
Many moved there during the pandemic as cryptocurrencies reached new highs, and now that stability is being shaken.
As part of its 2023 state budget, the Portuguese government has proposed a new tax policy for cryptocurrencies. The 450-page document, which covers all tax aspects, includes a 28% capital gains tax on cryptocurrency profits.
This 28% capital gains rate is Portugal’s standard, meaning the country is no longer the tax haven it once appeared to be for crypto investors. The proposal also includes a 4% tax on free crypto transfers and additional stamp duties in certain cases.
Importantly, however, gains from the sale of crypto assets held for more than one year remain exempt from this tax. In practice, the proposed capital gains tax functions more like a business tax for active traders.
Portugal signaled this change earlier
The move is not entirely unexpected. Finance Minister Fernando Medina indicated in May that bringing cryptocurrency into the capital gains tax framework would happen sooner rather than later.
The decision follows a reclassification of cryptocurrencies as investments rather than as money, which subjects them to capital gains taxation.
Lisbon and Madeira
Lisbon, Portugal’s capital, is regarded as one of Europe’s crypto hubs, partly because of its previously relaxed approach to crypto regulation. Portugal also offers a comparatively straightforward path to residency, which has attracted many crypto investors.
It will be interesting to see how this change affects future growth. Competition between jurisdictions to establish themselves as European crypto hotspots has been intense. Madeira, the Portuguese island famously associated with football star Cristiano Ronaldo, made headlines at a recent Bitcoin conference in Miami by announcing Bitcoin as legal tender.
Lugano, a small Swiss city, remains the only other place in Europe where Bitcoin is de facto legal tender. Alongside Bitcoin, the stablecoin Tether also functions as legal tender there, and a Lugano-specific stablecoin is under development.
Final thoughts
With the bear market continuing and investors feeling the pressure, it’s crucial to remember the importance of realizing gains to cover any capital gains tax liability.
In the short term the new tax measure is unlikely to cause widespread harm. Remember that gains on assets held for over a year are not affected. Given that Bitcoin traded around $69,000 eleven months ago, many traders may not be immediately concerned about the impending 28% tax — a potential silver lining.
Nevertheless, it will be worth watching whether crypto enthusiasts relocate to other jurisdictions as Lugano and other cities continue to promote digital currencies and related initiatives.