Crypto Tax: This Country's Tax Rate Has Just Gone Through the Roof

In Brief

• Lawmakers in a European country have drafted a 2023 budget that revealed a 28% tax on crypto assets held for under a year.
• An initial tax bill was rejected earlier this year.
• The proposed draft budget will only likely be passed in 2023.

Crypto tax: The new regime would allow gains from assets held for longer than 12 months to be exempt.

Lawmakers in Portugal propose a 28% tax on profits earned from crypto assets held for less than a year. This was revealed in the country’s 2023 budget submitted to Parliament on Oct. 10, 2022.

Is Portugal losing its crypto haven status?
Under the new law, recipients of token airdrops may need to fork out a 10% tax, while those categorized as crypto brokers would need to pay a 4% tax on any commission earned.

“It’s a regime that fits into our tax system and also to what is being done in the rest of Europe,” said António Mendonça Mendes, a senior government tax official. In Germany, crypto investors do not pay taxes for crypto held for a year or more. The bill will need to be passed by Parliament to become law.

In response, technical analysis trader Michaël van de Poppe pointed out that no one has earned a profit in the last year:
Until now, Portugal has only imposed taxes on crypto business transactions and professional trading activity. It soon became a destination of choice for retail crypto investors, offering mild weather and lower living costs than other European countries. In the wake of the pandemic, many remote workers moved to the country to escape costly living in cities like London.

Taxation laws
Crypto Viking, a self-described crypto enthusiast, opines that it was Portugal’s lack of expedience in drafting taxation laws that caused people to think it was a crypto-friendly destination:

As of Aug. 2022, five crypto companies had set up shop in the country, namely CriptoLoja, Digital Luso, Utrust, Mind the Coin, and Bison Digital assets. While this was a welcome development for the country’s new crypto migrants, banks initially refrained from allowing the crypto firms to open and operate accounts due to non-compliance with risk policies.

In May 2022, the country conducted its first-ever crypto-only real estate transaction, with the buyer paying the seller directly in crypto without prior conversion to euros. In the same month, Parliament rejected proposals by left-wing parties Bloco de Esquerda and Livre to impose crypto taxes.

Crypto tax: Portugal remains crypto-friendly (for now)
The fate of the proposed taxation regime, still in the draft phase, will likely only be decided in 2023. This means that for now, short-term crypto holders would do well to either cash out their crypto or dig in their heels for the long term.

Portuguese crypto companies would do well to ensure they are well-capitalized should the government impose taxes, lest the same fate befalls them as did some Indian exchanges after the government proposed a 30% tax on crypto assets earlier this year.

While larger exchanges like Binance saw an uptick in app downloads, smaller businesses like CoinDCX saw their downloads drop from 2.2 million in Jan. to 163,000.

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