Portugal has drafted a budget for 2023, proposing taxation on short-term crypto-related investments. It calls for a 28% income tax for all cryptocurrencies held for less than a year.
Provisions of the draft budget
According to the budget draft released on Monday, October 10, the new tax regime would only apply to cryptocurrencies owned for less than a year. This means that gains from cryptocurrencies held for more than 12 months (long-term investments) would be exempted from this new taxation structure.
If Portugal adopts the taxation of short-term crypto investment, it will follow the likes of Germany, who exempt crypto held for over 12 months from taxation. The country’s Secretary of State for Tax Affairs, António Mendonça Mendes, said:
“This approach fits into our tax system and what is being done in the rest of Europe.”
Another proposal featured in the budget draft is that free crypto transactions would also be taxed, with a 4% rate on all commissions charged by brokers or intermediaries (brokerages and a 10% tax on all cryptocurrency transfers. In addition, issuing and mining cryptocurrency will produce taxable income.
While the budget draft sets a premise for reduced gains among crypto hobbyists in Portugal, there is no guarantee whether Portuguese regulators will pass it as law. According to the report, the budget draft will be presented before parliament for consultation and approval should it receive majority support. However, because the ruling party Socialist Party Partido Socialista (PS) (the Socialist Party), commands the absolute majority, it has the power to see it through single-handedly.
According to a Reuters report, Portugal’s new budget draft is not limited to crypto alone and touches on other sectors of the country’s economy. According to Reuters, the country’s government proposes raising taxes for firms dealing in commodities such as oil and gas while lowering taxes for workers within low-income categories. The draft also calls for higher pension rates.
The Portuguese government is committed to taxing crypto
Portugal could soon impose taxes on crypto investors through new rules in its draft budget. If the ruling party backs the budget proposals, it would not be the first time the PS has its way on matters of crypto tax. During a voting session in May for the 2022 budget, the parliament terminated two proposals from minority political parties that touched on taxing cryptocurrencies.
Portugal’s Finance Minister Fernando Medina announced his commitment to initiate crypto taxation during a May declaration, noting that the government would work on the regulatory framework. He stated:
“There should not be any gaps resulting from certain gains not being taxed in the country.”
The government would achieve this per Medina’s declaration by creating a framework promoting the crypto-economy. In his opinion, such measures would provide safety and legal certainty.
Portugal has made a name for itself as a ‘crypto tax haven,’ given that the country does not impose taxes on most cryptocurrency investors unless they profit from professional or business-based crypto investments. If the parliament approves the budget draft, the playing field will change for the country.
Although Portugal’s administration is anticipating an economic slowdown, with this new budget, the country expects to reduce its budget deficit by 1.0% in 2023, from 1.9% to 0.9%.