Long considered a cryptocurrency tax haven, Portugal’s government has proposed a 28% tax on capital gains from cryptocurrencies held for less than a year.

The 2023 State Budget document published on Oct. 10 featured a short section addressing the taxation of cryptocurrencies, which to date have been untouched by the Portuguese tax authorities, given that digital assets were not recognized as legal tender.

The section notes that the Portuguese government intends to create a ‘broad and adequate’ tax framework aimed at cryptocurrencies in terms of their taxation and classification. A proposed income tax from operations involving cryptocurrencies through activities such as mining or trading, as well as capital gains, was put forward in the 444-page document:

“Capital gains relating to crypto-assets held for a period of less than one year are subject to the rate of 28% (without prejudice to the aggregation option), with the capital gains referring to crypto assets held for more than 365 days exempt from taxation.”

The State Budget also proposes a 4% taxation fee of free transfers of cryptocurrencies in instances of inheritance, as well as stamp duties on commissions charged by intermediaries involved in the cryptocurrency sector.

The section concludes by noting that security and legal certainty are provided in the proposed creation of the tax regime in an effort to foster the crypto economy.

Portugal’s parliament will have the final say as to whether the proposed cryptocurrency tax changes are enforced, while the notion is not entirely new. In March 2022, Secretary of State for Tax Affairs António Mendonça Mendes laid out the rationale in a parliamentary working session for taxing cryptocurrencies given that capital gains were being realized by users.

Germany recently took a similar stance toward the taxation of cryptocurrencies. It released new guidelines in May 2022 outlining clear income tax rules for cryptocurrency and virtual assets. Individuals who sell Bitcoin or Ether more than a year after acquisition will not be liable for taxes on the sale if they realize a profit.