Individuals in Portugal May Soon Be Required to Pay Taxes on Their Cryptocurrency Profits for the Short Term

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Last Updated on October 11, 2022 by Bitfinsider

Individuals in Portugal have been exempted from paying capital gains tax on cryptocurrency earnings for a long time; however, Finance Minister Fernando Medina has stated that it is time to pay up.

According to a draft of Portugal’s 2023 budget that was presented to the Portuguese parliament on Monday, Prime Minister Medina has proposed imposing a capital gains tax of 28% on earnings made from cryptoassets that have been held for less than a year. It is the same rate that is currently applied in the country to traditional investment vehicles for the purpose of taxation.

The proposal stipulates that any income generated from cryptoassets that have been held for a period of one year or longer will continue to be exempt from taxation.

If the proposed budget is approved in its current form, Portugal will no longer be one of the few countries in Europe that permits taxpayers to keep the full fruits of any cryptocurrency gains they have made.

The Portuguese tax office, which has treated gains in cryptocurrency as income that is exempt from taxation since 2018, issued a warning in May 2022 that the tax-free era would soon come to an end.

“The situation in Portugal is unique because, in point of fact, a number of other countries already have systems in place. “We are going to build our own model regarding this matter just as several other countries are building their models regarding this matter,” Medina told the country’s parliament in May of 2022. “At this time, I do not feel comfortable making a commitment regarding a date, but we will adjust both our legislation and our taxation.”

In the current version of the budget, cryptocurrency taxes are only mentioned in the context of capital gains. However, as Portugal’s secretary of state for fiscal affairs pointed out at the time, the nature of cryptocurrency makes it difficult to tax. According to statements made by Mendonca Mendes in May to a local Portuguese newspaper, the treatment of cryptocurrency either as property or as income results in different tax structures. In addition, the use of cryptocurrency as a medium of exchange results in the creation of a new and separate taxable event.

Recently, the United States of America has also been focusing their attention on this problem. At the moment, gains from cryptocurrency are taxed in the same long-term or short-term capital gains brackets as gains from other investments; however, there has been debate regarding the appropriate way to treat cryptocurrency payments and staking rewards.

Even though the state of Colorado in the United States recently made it possible for residents to pay non-crypto related taxes in cryptocurrencies, such as sales and business income tax, doing so still creates a headache for taxpayers further 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,” said Kell Canty, CEO of Ledgible, at the time of the initial plan announcement. This was said in reference to Colorado’s intention to accept crypto currency for state tax payments and other government fees. The tax treatment of the transaction will not change, regardless of whether the payment was made with cryptocurrency or fiat currency, for purposes of either federal or state income tax.

The potential shift in Portugal’s tax policy comes at a time when the country is attempting to reduce its deficit and combat slow growth in gross domestic product. The plan for the budget proposes adding a new component to the existing tax code in the form of a tax on windfall profits made by oil and gas companies.

According to the budget, the Portuguese government anticipates that the GDP will grow by no more than 1.3% in the coming year. According to data provided by Trading Economics, it is anticipated that the ratio of the country’s projected debt to GDP will reach 122% by the end of the year.

That places it in third place across all of Europe, just behind Greece and Italy in the rankings. The average debt-to-gross domestic product ratio for the EU as a whole is 95.6%.

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