Portugal's finance minister has announced that cryptocurrency enthusiasts will have to consider a 28 percent capital gains tax. A date for the effective date of this new tax has not yet been announced.
When is the party over?
For a long time, the crypto community considered Portugal to be the promised land because the government was lenient towards cryptocurrencies. Many have therefore moved to the warm climes of the southern European country with their cryptos.
According to Portuguese news outlet ECO, Finance Minister Fernando Medina announced at a session of the Portuguese Parliament that crypto assets will soon be subject to capital gains tax in the country. This is confirmed by António Mendonça Mendes, Secretary of State for Tax Affairs.
What is Capital Gains Tax?
Capital gains tax is a tax on 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 tax on this profit at 28 percent. 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 profits as UK income, taxes on crypto assets follow the same range as any other income, from 0 percent to 45 percent, with the same personal threshold of £12,570.
Portugal has long viewed cryptocurrencies not 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 considering crypto as an asset and allowing it to levy a 28 percent profit tax 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, nice cities, good food, beautiful beaches, and a (somewhat) stable currency and government.
This has also resulted in many crypto companies, exchanges and events relocating to the country. Portuguese politicians emphasize that the introduction of a 28 percent capital gains tax should not be seen as a deterrent for companies.
Instead, Portuguese politicians have claimed they have always intended to regulate crypto and have been taking a close look at how other countries have adjusted their regulations. Portugal was able to make decisions on this basis.
"It's 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 consider other crypto-related taxes for much longer. António Mendonça Mendes, Secretary of State for Tax Affairs, said at the same session 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 on this matter so that we can't present a legislative initiative that will make the front page of a newspaper, but rather a legislative initiative that really serves the country in all its dimensions."
The kitchen may not be that special, the weather is more gray than blue and housing is unaffordable, but other than that, all lovers of as little tax as possible on crypto might as well come to the Netherlands.
Not so black and white
It remains to be seen whether the new tax will really be that deterrent for businesses, as it could take years before it becomes law in Portugal. If the law goes into effect, all of these crypto-using companies and individuals will likely relocate to the Portuguese island of Madeira, where tax rules remain favorable to crypto and Bitcoin will soon become legal tender.
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