Casey Wagner

<div id="highlights-block_63446dc33270c" class="highlights">
 <ul>
 <li>Portugal’s days of tax-free crypto gains may soon be over</li>
 <li>In its budget proposal for next year, the country is tackling a rising deficit and slowing GDP growth</li>
 </ul>
 
</div>



Portugal has long exempted individuals from paying capital gains tax on crypto earnings, but&nbsp; Finance Minister Fernando Medina says it’s time to pay up.&nbsp;



Medina is calling for a 28% capital gains tax on earnings made from cryptoassets held less than one year, according to a <a href="https://app.parlamento.pt/webutils/docs/doc.pdf?path=6148523063484d364c793968636d356c6443397a6158526c63793959566b786c5a79394562324e31625756756447397a5357357059326c6864476c325953396c4d6d59314e4745794d53307a596a55314c5451305a6a45745957457a4e69307959575a6c5a57466a4e446b7a4d6d49756347526d&amp;fich=e2f54a21-3b55-44f1-aa36-2afeeac4932b.pdf&amp;Inline=true" target="_blank" rel="noreferrer noopener">draft</a> 2023 budget introduced to Portugal’s parliament Monday. It is the same rate that traditional investment vehicles are currently taxed in the country.&nbsp;



Income made from cryptoassets held for one year or more will continue to be tax-free, the proposal adds.&nbsp;



If the budget passes as is, Portugal will cease to be one of the last countries in Europe to let taxpayers keep the full fruits of their crypto gains.&nbsp;



Portugal’s tax office, which has deemed crypto gains as non-taxable income since 2018, warned in May 2022 that the tax-free days <a href="https://cms.blockworks.co/crypto-loves-portugal-but-how-long-will-it-last/" target="_blank" rel="noreferrer noopener">were coming to an end</a>. 



“Portugal is in a different situation, because, in fact, several countries already have systems. Several countries are building their models regarding this matter and we are going to build ours,” Medina told the country’s parliament in May 2022. “I do not want to commit myself to a date at the moment, but we will adapt our legislation and our taxation.”



For now, the budget only refers to crypto taxes in the context of capital gains, but, as Portugal’s secretary of state for fiscal affairs pointed out at the time, the nature of crypto makes taxing it a challenge. Crypto as property versus crypto as income creates different tax structures, Mendonça Mendes told a <a href="https://eco.sapo.pt/2022/05/13/medina-confirma-que-ganhos-com-criptomoedas-vao-passar-a-pagar-impostos/" target="_blank" rel="noreferrer noopener">local Portuguese newspaper</a> in May. Plus, using crypto as a means of payment creates another taxable event all together.&nbsp;



It’s an issue the US has been dealing with recently as well. Currently, crypto gains are taxed in the same long- or short-term capital gains brackets as other investments, but there has been debate over how cryptocurrency payments and <a href="https://cms.blockworks.co/new-crypto-bill-suggests-unrealized-staking-gains-should-not-be-taxed/" target="_blank" rel="noreferrer noopener">staking rewards</a> should be approached.&nbsp;



In the US, <a href="https://cms.blockworks.co/colorado-residents-can-now-pay-state-taxes-with-crypto-for-a-fee/" target="_blank" rel="noreferrer noopener">Colorado</a> recently made it possible for residents to pay non-crypto related taxes, like sales and business income tax, in cryptocurrencies, but doing so still creates a headache for taxpayers down the line.



“Colorado’s plan to accept crypto currency for state tax payments and other government fees is proof of crypto’s wide acceptance as both an investment and payment method,” Kell Canty, CEO of Ledgible, said, at the time of the initial plan announcement. “Of course, using crypto to pay taxes does not change the tax treatment of the transaction for federal income or state income tax purposes.”



Portugal’s potential tax pivot comes as the country attempts to lower its deficit and combat slow gross domestic product growth. The budget plan proposes taxing windfall profits of oil and gas companies — also a new addition to the existing tax code.&nbsp;



According to the budget, Portuguese officials are expecting only a 1.3% increase in GDP next year. The country’s projected debt-to-GDP ratio is anticipated to hit 122% by the end of the year, according to data from <a href="https://tradingeconomics.com/portugal/government-debt-to-gdp#:~:text=Government%20Debt%20to%20GDP%20in%20Portugal%20is%20expected%20to%20reach,macro%20models%20and%20analysts%20expectations." target="_blank" rel="noreferrer noopener">Trading Economics</a>.



That’s the <a href="https://ec.europa.eu/eurostat/documents/2995521/14644644/2-21072022-AP-EN.pdf/ce72169d-1c4a-076c-d9da-4e87577a18dd" target="_blank" rel="noreferrer noopener">third-highest in Europe</a>, behind only Greece and Italy. The EU as a whole has an average debt-to-GDP ratio of 95.6%.



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Portugal Moves Closer to Taxing Individuals on Short-term Crypto Gains

Shalini Nagarajan

Sebastian Sinclair

<div id="highlights-block_6321e52edc832" class="highlights">
 <ul>
 <li>Portugal is looking to bring its crypto tax policies in line with other European countries</li>
 <li>The move, if too heavy-handed, could threaten the country’s status as a crypto hub</li>
 </ul>
 
</div>



Portugal has evolved into a destination of choice for crypto investors seeking solace under the country’s relaxed approach to digital assets.



Expats are drawn to its warm weather, reasonably low cost of living and relatively low crime rate. But perhaps most alluring for those with deep crypto portfolios is Portugal’s lax tax rules.



Holders in Portugal are exempt from paying tax on crypto profits, as long as that income isn’t their primary professional activity. In other words: If crypto trading and investing is more of a side hustle, you won’t have to pay any taxes on that revenue.



Under Portugal’s Non-Habitual Resident program (NHR), non-residents benefit from most of the tax breaks enjoyed by locals. The NHR exempts most foreign-sourced income and negates wealth tax while offering other forms of special treatment.



The only catch is that individuals need to reside in Portugal for a minimum period of 183 days, but that still allows them to duck in and out of the country at their leisure.



But while Portugal has taken a hands-off approach to investors&#8217; pockets, those favorable tax breaks may soon be about to change.



<h3 class="wp-block-heading">Crypto tax breaks more of a loophole</h3>



There’s other draws for blockchain entrepreneurs, apart from tax breaks.&nbsp;



Lisbon and Porto, the country’s two largest cities, house many budding firms including crypto-oriented coworking space startup <a href="https://www.theblocklisboa.com/" target="_blank" rel="noreferrer noopener">The Block</a> (not to be confused with the media brand), which caters specifically to professionals in the digital asset industry.



Portugal also boasts two major working groups — The Blockchain Center Portugal and Blockchain Portugal — aimed at bringing proponents together to drive adoption and innovation.



But while those initiatives are intentional, the tax breaks enjoyed by crypto investors are more of a loophole, stemming from a <a href="https://www.thomsonreuters.com/en/reports/cryptos-on-the-rise-2022.html" target="_blank" rel="noreferrer noopener">2016 law</a> that stated cryptocurrencies aren’t actual currencies. 



So, digital assets aren’t legal tender, which means they’re not subject to taxation.



“The truth is, this didn&#8217;t happen from a strategic government standpoint but from a gray area within the Portuguese law where all the things that are taxed need to be listed,” <a href="https://www.linkedin.com/in/tiagotpratas/?locale=en_US" target="_blank" rel="noreferrer noopener">Tiago Emanuel Pratas</a>, DeFi business developer at Ankr and Portuguese local, told Blockworks. 



“As you can imagine, since they’re relatively new, cryptocurrencies are not listed there.”



Now, the country is considering how it might <a href="https://cms.blockworks.co/portugal-may-move-to-tax-crypto-gains-soon/" target="_blank" rel="noreferrer noopener">tax crypto gains</a>, dragging its legislation in line with most other European countries. And that may end the country’s status as a crypto hub, Pratas said.



Portugal’s finance ministry is said to be working on a new draft law that would kill its dreamy crypto tax haven status. The plans are still unclear and are likely to be presented during the next budget in October.&nbsp;



As of right now, salaries remain taxable even if they’re paid in crypto, just like any other currency would be. If an individual primarily works within the crypto industry, their income is still taxed like anybody else.



“Portugal embraced digital currencies so enthusiastically that it was the envy of other countries in the early days, levying no tax on crypto holdings or profits,” Brad Yasar, CEO of EQIFi, told Blockworks.



According to Yasar, it’s unlikely that authorities will take steps to stop the inflows of promising projects and developers.



The country implemented its Digital Transition Action Plan in April 2020 aiming to bolster innovation through the use of <a href="https://www.vda.pt/xms/files/05_Publicacoes/2020/Flashes_Newsletters/Flash_VdA_-_Portuguese_Government_approves_the_Digital_Transition_Action_Plan_and_ZLT__Technological_Free_Zones.pdf" target="_blank" rel="noreferrer noopener">Technological Free Zones</a>. Those zones, while still fresh, are expected to foster development in blockchain technology, among other areas, in a bid to further stimulate Portugal’s economy.



The moves have led to an influx of crypto enthusiasts and companies such as CriptoLoja and Mind the Coin to set up bases there and draw talent.&nbsp;



<h3 class="wp-block-heading">Hub, schmub</h3>



<a href="https://www.linkedin.com/in/adamcarver/" target="_blank" rel="noreferrer noopener">Adam Carver</a>, CEO at Bitgreen, said the country’s embracing of blockchain is why so many Web3 conferences are happening there this fall, including Nearcon, Solana Breakpoint and the Sub0 Polkadot Developer Conference.



Even aside from the upcoming tax changes and free zones, Portugal isn’t the ideal crypto hub it’s made out to be, according to some.



One blockchain games developer who left his home country of Japan due to its bureaucratic business policies pointed out some flaws in the relocation process.



Shinnosuke “Shin” Murata, the founder of <a href="https://murasaki.community/" target="_blank" rel="noreferrer noopener">Murasaki</a>, told Blockworks that while the country is willing to accept crypto startups or investors, basic formalities for migrants aren’t mature enough.



Many of his friends in the crypto industry in Lisbon and Porto are struggling with visas and other administrative issues such as business registration. “I didn&#8217;t want to spend time on this as an entrepreneur,” said Murata, who chose to move this year to the Netherlands instead.



Portugal has created investment incentives to attract high net worth individuals and entrepreneurs, such as the Golden Visa Residence Program and D7 Visa.&nbsp;



But Murata said the process lasts too long and can take 6 months, even if applicants are qualified.



Carver agreed, saying administration there can be slow — a trend which has traditionally been the antithesis of crypto industry players.



The reason for the slow crawl in processing applications could partly be blamed on the jurisdiction’s lack of legislation around crypto — which until this point hasn’t featured any specific laws directly targeting the industry.



Still, over the last few years, locals have demonstrated a willingness to be part of innovative projects, particularly fueled by responses to the hardships brought on by the pandemic, according to some.



They’ve also shown eagerness to contribute to a rapidly evolving era of digitization throughout the country, Portuguese local Eduardo Nunes told Blockworks.



Nunes, who is head of sales trading at multi-asset brokerage and banking services platform BiG, said this entrepreneurial streak has contributed to a buzz of activity in the domestic fintech sector, of which digital assets is effectively adjacent.



“Portugal is able to attract motivated and talented people that continuously contribute to a robust and flourishing community,” Nunes said.&nbsp;



“Authorities here understand that if any new taxation proves to be particularly aggressive, important participants in this space — including high net worth individuals or companies that create several jobs — could be incentivized to search for other places as their crypto hub. That’s an outcome I believe every party is willing to avoid.”



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Crypto Loves Portugal — But How Long Will It Last?

<div id="highlights-block_6290f7ffa5637" class="highlights">
 <ul>
 <li>The government could wait for a common European approach to the taxation of cryptoassets, which could delay the future bill</li>
 <li>Corporations in Portugal have always had to pay taxes on their capital gains from crypto investments</li>
 </ul>
 
</div>



Portugal’s parliament this week rejected two bills that would introduce heavy taxes on crypto gains for individuals. The Socialist Party, which gained a majority in January’s parliamentary election, voted against the two bills but is looking to undertake a more comprehensive review of tax legislation soon.&nbsp;



<a href="https://app.parlamento.pt/webutils/docs/doc.pdf?Path=6148523063446f764c304653546d56304c334e706447567a4c316857544556484c3039464c7a49774d6a49794d4449794d4451784d793951515338784e6a59324e6a41774e693168593246694c5451794d575174595464684f43307a5a4751334d5752694d44517a5a4449756347526d&amp;Fich=16666006-acab-421d-a7a8-3dd71db043d2.pdf&amp;Inline=true" target="_blank" rel="noreferrer noopener">One of the amendments</a> would compel tax authorities to tax capital gains from personal crypto investments beyond 5,000 euros ($5356). <a href="https://app.parlamento.pt/webutils/docs/doc.pdf?Path=6148523063446f764c304653546d56304c334e706447567a4c316857544556484c3039464c7a49774d6a49794d4449794d4451784d793951515338355a444a6d5a6a5a6b4e79316a595749784c5451334d6a5974596d46685953316b596d49785a6a56694f475979595455756347526d&amp;Fich=9d2ff6d7-cab1-4726-baaa-dbb1f5b8f2a5.pdf&amp;Inline=true" target="_blank" rel="noreferrer noopener">The other</a> would impose a flat rate tax of 28% on all crypto gains, which is the normal capital gains tax in Portugal for residents. The final version of the 2022 budget, which doesn’t include these bills, was approved this Friday in the Portuguese parliament.



“The two proposals rejected in Parliament this week were overly simplistic and would have created problems” for individuals and tax authorities, says Hugo Volz Oliveira, secretary-general of the New Economy Institute, a Portuguese nonprofit founded by leading Web3 companies and backed by the Near blockchain, the web browser Brave and several Portuguese universities.



Under current Portuguese tax law, capital gains from crypto investments are seen as a form of payment — a currency, but not an asset — and are not taxed so long as they do not serve as an individual’s main source of income. This is a result of a lack of legislation rather than an active policy by Portuguese lawmakers.



Corporations in Portugal have always had to pay taxes on their capital gains from crypto investments, and that will not change under the new tax regime.



Volz Oliveira believes the ruling party will announce a new proposal around October, when Parliament begins discussing the budget for 2023, but recent comments from Portuguese Finance Minister Fernando Medina imply policymakers will wait for a European consensus on the matter.&nbsp;



“This means a holistic approach to the tax regime could be on the cards, which would imply taxation could only be part of the budget for 2024,” Medina said.&nbsp;



Earlier this month Medina <a href="https://cms.blockworks.co/portugal-may-move-to-tax-crypto-gains-soon/" target="_blank" rel="noreferrer noopener">confirmed</a> that his government was studying crypto gains taxation. The minister did not provide a timeframe for when this will happen, he said in Parliament on May 13 in a hearing about the country’s 2022 budget, which was delayed after a political crisis in late 2021 and an early election in January.



“Several countries are building their models concerning [taxing crypto] and we are going to build our own. Right now, I don’t want to make a commitment regarding a date,” Medina said. He argued that there shouldn’t be any loopholes that spare crypto investors from paying taxes, but he also cautioned that high levels of taxation could “bring revenue down to zero.”



The reform being studied by the government will include other aspects of tax legislation beyond capital gains, such as value-added tax, or VAT. It will also cover anti-money laundering legislation, as well as regulation and supervision of crypto markets in Portugal.



Portuguese tax authorities last week delivered to the government a study about how other countries are dealing with capital gains from cryptoassets, Volz Oliveira said. “The cases of Belgium, Luxembourg and Germany, which exempt capital gains from cryptoassets held for a certain period without any trading involved are interesting,” he said.&nbsp;



The finance minister’s answers to members of Parliament suggest that Portugal is waiting on the final outcome at the European level of MiCA — the Markets in Crypto Assets regulation — as well as the Transfer of Funds Regulations (TRF) legislation, to go ahead with a broad legislative reform regarding cryptoassets.



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Portuguese Parliament Holds Off Taxing Crypto Gains for Individuals

<div id="highlights-block_62829666bdc9f" class="highlights">
 <ul>
 <li>No timeframe yet, but a draft bill is being discussed in this year’s budget</li>
 <li>Currently, the normal capital gains tax in Portugal for residents is a flat rate of 28%</li>
 </ul>
 
</div>



Portugal’s days as alleged crypto tax haven might soon be over. Portuguese Finance Minister Fernando Medina has confirmed that his government is studying how to tax crypto gains in the country. There is no timeframe for when this will happen, he said in Parliament on May 13.



Currently, capital gains from crypto investments, which are seen as a form of payment — a currency, but not an asset — under Portuguese tax law, are not taxed so long as they are not an individual’s main source of income.&nbsp;



“Several countries are building their models concerning this issue [crypto taxing], and we are going to build our own. Right now, I don’t want to make a commitment regarding a date, but we’re going to adapt our legislation and our taxation,” the minister said in a Parliament hearing about the country’s 2022 budget. 



The standard capital gains tax in Portugal for residents is 28% and personal income tax ranges from 14.5% to 48%. The corporate income tax is a flat rate of 21%, but there are also local and state surtaxes.&nbsp;



Medina said there would be a balanced approach to how crypto is going to be taxed in the country and promised to follow principles such as “tax justice” and “effectiveness.&#8221; He argued that there couldn’t be any loopholes that spare crypto investors from paying taxes, but he also cautioned that high levels of taxation could “bring revenue down to zero.”



Moreover, Portugal would seek to learn from countries with more experience taxing crypto, the minister added, although he didn’t specify which countries.&nbsp;



Changes to the rules may impact the growing crypto community in the country. One example is the famous &#8220;<a href="https://www.cnbc.com/2022/02/06/bitcoin-family-moves-to-portugal-crypto-tax-haven.html" target="_blank" rel="noreferrer noopener">bitcoin family</a>&#8221; who moved to Portugal in February, citing zero crypto taxes as a reason for their relocation. 



“Crypto people that moved to Portugal are extremely mobile, curious to see what impact this will have on them and Portugal’s image as a crypto hub,” <a href="https://mobile.twitter.com/paddi_hansen/status/1525853461803417604">tweeted</a> EU policy expert Patrick Hansen, Presight Capital’s crypto venture adviser.



The budget for 2022 was delayed after a political crisis in late 2021 and an early election in January. A radical left-wing party called Left Bloc has a draft bill to tax crypto gains already this year. However, with the Socialist Party in the majority in the Parliament, it is unlikely to be accepted as the government looks to undertake a more comprehensive review of tax legislation.



The reform being studied by the government will include other aspects of the tax legislation beyond capital gains, such as VAT (value-added tax). It will also cover anti-money laundering legislation, as well as regulation and supervision of crypto markets in Portugal.



The finance minister’s answers to members of Parliament suggest that Portugal is waiting on the final outcome at the European level of MiCA — the Markets in Crypto Assets regulation — as well as the Transfer of Funds Regulations (TRF) legislation, to go ahead with a broad legislative reform regarding cryptoassets. 



The 2022 budget is set to be approved in the Portuguese Parliament by the end of May.

Portugal May Move To Tax Crypto Gains Soon

<div id="highlights-block_6262cc120e9ec" class="highlights">
 <ul>
 <li>Crypto custodial services were first brought under the purview of German financial regulators in January 2020</li>
 <li>European Union watchdogs are still in the process of drafting and implementing their own regulatory measures on digital assets</li>
 </ul>
 
</div>



Commerzbank, Germany’s fourth-largest bank, has confirmed it wants to offer digital assets custody and exchange services to clients, joining a growing number of conservative banks in Europe moving into digital assets.



Bernd Reh, a Commerzbank senior spokesman, confirmed to local media <a href="https://www.boersen-zeitung.de/banken-finanzen/commerzbank-beantragt-krypto-verwahrlizenz-303b9c3a-bbeb-11ec-8e62-5f7cf1d225cc" target="_blank" rel="noreferrer noopener">Börsen-Zeitung</a> last week that the bank applied for a license in January from BaFin, Germany’s Federal Financial Supervisory Authority, and that the bank would first focus on institutional customers. The banking giant currently has 70,000 corporate and institutional clients worldwide.



“Where traditional and large banks until very recently have seen crypto as competition and shied away from it, we now start to see adoption even from some of the most conservative players in the banking field,” Mikkel Morch, executive director at crypto hedge fund ARK36, said. Commerzbank, which had some 541 billion euros ($583 billion) under management in late 2021 according to its latest financial statement, has been working on several blockchain projects since 2018.



In January 2020, Germany introduced crypto custody into the German Banking Act as a new financial service. “Crypto custody business is also subject to the notice issued by [the German central bank] Deutsche Bundesbank on the granting of authorization to provide financial services,” BaFin says on its website dedicated to crypto licensing.&nbsp;



The regulator is also cracking down on unauthorized activity. Recently, the supervisory authority opened investigations into several crypto services companies that have not been granted authorization to operate in the country. If found guilty, individuals involved could face up to five years in prison.



Authorities and legislators in the European Union are still in the process of building regulatory regimes, but some, such as those in Germany and Portugal, already have registration procedures in place.



And traditional banks are increasingly applying for crypto licenses in Europe, including in Portugal, where <a href="https://www.securities.io/portugals-bison-bank-granted-the-license-to-offer-crypto-custody-services/" target="_blank" rel="noreferrer noopener">Bison Bank</a> last week became the first authorized bank to receive a crypto license from the country’s central bank.



Last July, Coinbase was awarded Germany’s <a href="https://blog.coinbase.com/coinbase-secures-first-crypto-licence-in-germany-8a5207fbc03b" target="_blank" rel="noreferrer noopener">first crypto license</a>. A <a href="https://cms.blockworks.co/report-germany-is-the-most-crypto-friendly-country/" target="_blank" rel="noreferrer noopener">report by Coincub</a> last week ranked Germany as the most crypto-friendly country.



Added Morch: “These moves can be interpreted as the beginnings of a race within the traditional banking field to gain a competitive edge by being the first entity in its local market to offer crypto services.”



As a result, crypto adoption will increase, he believes, and it will be a mainstream financial service – instead of the “next big thing.”



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