EuropePolicy Updates

Portugal’s Plans to Tax Crypto Next Year Are Not Such Bad News, Won’t Affect Golden or D7 Visa Demand, Argue Local Attorneys

As we first alerted our readers to in May, Portugal – which, for years, has been considered a crypto tax haven thanks to its policy of treating cryptocurrencies as currencies, rather than securities or commodities – has for some time had concrete plans to subject crypto earnings to taxation.

The question has not been one of whether Portugal would eventually tax cryptocurrency gains but, rather, trepidation has been tied to how it would do so.

It was, therefore, no particular shock when the country’s Finance Minister Fernando Medina yesterday submitted a 2023 draft state budget that contained provisions for various levies on digital currency transactions, including:

  • a 4% tax on brokerage commissions
  • a 10% tax on free transactions (effectively a stamp duty applied on transactions where no broker is involved)
  • a 28% capital gains tax (the same rate as for capital gains generally) on crypto assets held for fewer than 365 days.

The policy of exempting from capital gains tax such positions as have been realized only after at least one year mirrors the stance adopted by German tax authorities.

Many observers will recognize the proposal as a compromise. Portuguese authorities no doubt understand that its crypto tax haven status has attracted considerable investment, employment opportunities, and foreign residents with great purchasing power, which it would have to forego if it implemented an aggressive crypto tax policy. At the same time, the country has been under some pressure from the EU – who see Portugal’s lax approach to crypto as an unfair advantage – to impose at least some taxes on crypto transactions.

“The proposal,” says Porto-based lawyer Pedro Catão Pinheiro of Next Laywers Gali Macedo & Associados,”will be discussed in the Portuguese parliament and will be subject to a final vote.” That final vote, he adds, is expected to take place on the 25th of November.

“Since the government is supported by the center-left PS, which has a majority in parliament, [the proposal] is expected to be approved without any issues,” he explains, saying he anticipates only minor amendments, if any at all.

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If approved, Pinheiro points out, the new rules would take effect from January next year.

No uncertain terms

About the proposed rules, he argues that they actually represent good news because they favorably settle a matter that had been a known unknown, thereby providing clarity on the future of Portuguese policy on crypto. Long-term crypto “HODLers”, crucially, need not worry about any unexpected tax exposure.

“I think the government was actually very smart and ‘soft’ with this proposal,” says Pinheiro, hinting that this was the best news Portugal watchers could have hoped for.

The effect on demand for golden and D7 visas is, in any case, expected to be minimal:

In May, Patricia Valadas Coriel of Valadas Coriel & Associados pointed out that “Golden visa applicants typically don’t want to become tax residents anyway. They just want to have the residency [but not relocate to Portugal] and then apply for citizenship after five years, so whatever happens to taxes in Portugal doesn’t concern them.”

For D7 applicants, meanwhile, the appeal of lenient crypto policies pales in comparison to that of the NHR (non-habitual resident) regime, the principal fiscal point of attraction for remote workers relocating to Portugal. “Only a small percentage of D7 applicants primarily come for the crypto-related tax advantages,” said Valadas Coriel in May.