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Over the last few years, Portugal has become a safe haven for cryptocurrency investors.
The rugs are now being pulled out from under them as more people moved there during the pandemic and cryptocurrencies skyrocketed.
The Portuguese government has proposed a new cryptocurrency tax policy as part of the 2023 national budget. The 450-page document covering all things finance includes a 28% capital gains tax on cryptocurrency profits.
This 28% capital gains tax is standard in Portugal and means it is no longer a cryptocurrency paradise. Also, free cryptocurrency transfers are subject to a 4% tax and possibly more stamp duty.
Importantly, however, profits from the sale of cryptocurrencies held for more than one year continue to be exempt from such taxes. This means that the proposed capital gains tax is actually closer to a trade tax.
This move should come as no surprise. Finance Minister Fernando Medina announced in May that a move to bring cryptocurrencies into the realm of capital gains would happen sooner or later.
The decision is behind the move to reclassify cryptocurrencies as investments rather than money, meaning they are subject to capital gains tax.
Lisbon, the capital of Portugal, is considered one of Europe’s cryptocurrency hubs. Portugal also offers an easier route to live than many countries, further attracting crypto investors.
It will be interesting to see how this affects things going forward. The competition among jurisdictions to establish itself as a European cryptocurrency hotspot has been fierce. The Portuguese island of Maderia, home of football superstar Cristiano Ronaldo, has sent a signal of intent by announcing Bitcoin as legal tender at the latest Bitcoin conference in Miami. .
The small Swiss city of Lugano is the only place in Europe where Bitcoin is de facto legal tender. In addition to Bitcoin, the stablecoin Tether is also de facto fiat currency, with a Lugano-specific stablecoin in development.
With the bear market roaring and investors hurting everywhere, remember that you need to secure profits to qualify for capital gains tax.
So the move to impose a capital gains tax is likely not to have a negative impact in the short term. Remember, earnings from more than a year ago will not be affected. And given that Bitcoin traded at $69,000 11 months before him, it’s hard to imagine many traders worrying about this imminent 28% tax. Silver lining?
Nonetheless, as Lugano and other locations continue to strive to attract digital money, it will be interesting to follow if crypto enthusiasts start setting up shop elsewhere.
