Portugal’s finance minister has announced that cryptocurrency enthusiasts will have to consider a 28 percent capital gains tax. A date for the entry into force of this new tax has not yet been announced.
When is the party over?
For a long time, the crypto community considered Portugal the promised land, because the government was lenient towards cryptocurrencies. Many have therefore moved with their cryptos to the warm climes of the southern European country.
According to the Portuguese news media ECO, Finance Minister Fernando Medina announced at a meeting of the Portuguese parliament that crypto assets in the country will soon be subject to capital gains tax. This is confirmed by António Mendonça Mendes, State Secretary for Tax Affairs.
What is a capital gains tax?
The capital gains tax is a tax on the profit from the sale of cryptocurrency. Buy Bitcoin for 100 euros, but sell it for 1100 euros? Then you have a profit of 1000 euros, you have to pay 28 percent tax on this profit. In other words, every time a Portuguese exchanges crypto for fiat money, he or she gives up more than a quarter of the funds.
If you report crypto gains as income in the UK, taxes on crypto assets follow the same range as any other income, from 0 per cent to 45 per cent, with the same personal threshold of £12,570.
For a long time, Portugal did not consider cryptocurrencies as wealth or as an investment, but simply as another form of money. Therefore, crypto has been exempt from capital gains tax since 2018. Apparently, the country has changed its mind to consider crypto as an asset and allows it to impose a profit tax of 28 percent on it.
Portugal seemed to be the promised land for a long time
Due to the fact that crypto was not effectively taxed, Portugal gained a reputation as one of the most attractive crypto tax havens in the world. It helps that Portugal is a country with good weather, beautiful cities, good food, beautiful beaches and a (somewhat) stable currency and government.
This has also led to the relocation of many crypto companies, exchanges and events to the country. Portuguese politicians stress that the introduction of a 28 percent capital gains tax should not be seen as a deterrent for companies.
Instead, Portuguese politicians have claimed that they have always planned to regulate crypto and have looked closely at how other countries have adapted their regulations. Portugal was able to make decisions on this basis.
“It is an area where there is much more knowledge and much more progress, so Portugal can benefit from international experience”, Medina told Parliament.
More taxes on the way?
Portugal may be considering other crypto-related taxes for much longer. António Mendonça Mendes, Secretary of State for Fiscal Affairs, said at the same meeting that “Cryptocurrencies are a much more complex reality than taxes alone when it comes to capital gains”. He further suggested that crypto could soon be subject to VAT, fees or even property taxes in Portugal.
“We are evaluating the best regulation in this matter so that we can present not a legislative initiative that appears on the front page of a newspaper, but a legislative initiative that really serves the country in all its dimensions.“
The kitchen is not so special, the weather is more gray than blue and living is unaffordable, but otherwise all lovers of as little taxes on crypto as possible can just as well come to the Netherlands.
Not so black and white
It remains to be seen whether the new tax will really become such a deterrent for companies, as it could be years before it becomes law in Portugal. When the law comes into force, all these companies and people with crypto will probably move to the Portuguese island of Madeira, where the tax rules for crypto will remain favorable and Bitcoin will soon become legal tender.