Europe’s most crypto-friendly nation plans to impose taxes on digital currency earnings for purchases made for less than a year.

The move is a major policy change, as Portugal currently does not tax crypto profits that are not professional or business activities. According to the plan presented to parliament on Monday, Portugal’s proposed budget for 2023 includes a provision to tax cryptocurrency gains held for less than a year at a rate of 28%.

However, the plan has established that crypto assets held for more than 365 days will remain tax-exempt.

In addition to the tax on digital currency gains, the budget also consists of plans to issue new cryptocurrencies and mining operations as taxable income.

The draft budget still needs to be approved by parliament.

According to the budget plan, other taxes to be introduced are a 10% tax on the free transfer of cryptocurrencies and a 4% tax on commissions charged by brokers on cryptocurrency operations.

The country has backed the new rules by supporting crypto legislation in other European countries, including Germany. Investors from these countries do not have to pay taxes if they hold crypto for more than a year.

“It is a regime that fits into our tax system and also into what is being done in the rest of Europe,” Secretary of State for Fiscal Affairs António Mendonça Mendes said at a press conference in Lisbon.

The country has attracted a growing number of digital nomads and crypto businesses in recent years due to a lack of legislation, combined with affordable costs of living and mild temperatures.

According to the National Statistical Institute of Portugal, the country has witnessed a 40% increase in foreign residents over the last decade to 555,299 people in 2021.

Bloomberg reported that some of these residents also benefit from a flat 20% tax on their income or a 10% tax on their pensions, under the country’s so-called non-habitual resident program.

The Portuguese government first announced plans to tax crypto income in May this year.

Fernando Medina, the new finance minister of Portugal, announced in parliament in early May that cryptocurrencies will be taxed in the near future.

Medina stated that “many countries already have systems, many countries are building their models in relation to this issue, and we will build ours.”

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