As the cryptocurrency market continues to evolve, governments around the world are grappling with the challenge of regulating and taxing this new form of digital currency. Portugal, in particular, has recently implemented a specific tax regime for cryptocurrencies, which came into force on January 1st, 2023. This article aims to provide a detailed overview of the crypto taxation laws in Portugal, offering valuable insights for individuals and businesses operating in the country.
Understanding the different categories of Crypto Income
To navigate the tax landscape surrounding cryptocurrencies in Portugal, it is essential to have a clear understanding of the different categories of crypto income. The Portuguese Personal Income Tax Code (Código do IRS) classifies crypto income into three main categories: passive income (Category E), capital gains (Category G), and freelancer/self-employment income (Category B).
Passive investments in Crypto
Remuneration received in fiat money from passive investments in crypto, which do not involve any crypto transfer, will be subject to a flat tax rate of 28%. This default rule applies when the income does not fall under another category. However, it is important to note that crypto can still be received as remuneration itself (not fiat money) if it qualifies as salary or self-employment income, and it will be taxed accordingly, usually at progressive tax rates.
Capital Gains derived from the sales of Crypto
Sales of crypto assets owned for less than 365 days fall under taxable capital gains. Sales of crypto held for more than 365 days are reportable, but not taxed. These sales will be subject to a flat tax rate of 28% on the capital gains when made for fiat money. However, if the income is received by a Portuguese tax resident who chooses to aggregate (englobamento) it, progressive tax rates between 14.5% and 53% will apply. It is worth mentioning that “investment/security tokens” will be considered securities and taxed accordingly, irrespective of the 365-day rule.
Self-employment income Crypto Operations and Validation
Self-employment income encompasses operations related to the issuance of crypto assets, including mining, or the validation of crypto transactions through consensus mechanisms, for fiat money. Under this category, progressive tax rates between 14.5% and 53% will apply. A 5% fixed presumption of expenses will be applied to income derived from mining operations, with 95% applied to the sale of mined assets. It is important to note that the cessation of activity as a self-employed worker is considered equivalent to the sale of crypto assets.
Furthermore, under the self-employe income rules, the taxpayer is required under law to issue invoices concerning the income received, which, depending on the applicable, situations may trigger VAT reporting obligations and compulsory registration with the Portuguese Social Security and payment of social security contributions (on top on the personal income tax burden).
Common Rules for Crypto Taxation in Portugal
Understanding the common rules for crypto taxation in Portugal is crucial to ensure compliance with the tax regime. Here are some key points to consider:
- Crypto for Crypto Exchanges: When crypto for crypto exchanges occurs under capital gains income or self-employment income, the taxation will be deferred until the moment the crypto is sold (i.e. conversion into fiat currency). When determining the acquisition value, a “first-in, first-out” rule will apply (FIFO), meaning the crypto sold will be the one held for the longest period.
- Offsetting Capital Losses: Capital losses can be offset against gains, except if incurred in tax havens (some countries that have signed a DTA with Portugal are classified by the latter as such).
- Exit Tax: If an individual stops being a tax resident in Portugal, an “Exit Tax” of 28% will be imposed on all crypto assets. This tax will apply in the same way as if there had been a sale, capital gains, based on the difference between the market value and the acquisition value determined through FIFO.
- Donation of Crypto: The donation of crypto will be subject to a 10% Stamp Duty, or 4% for fees charged by or with the intermediation of crypto service providers. However, donations between spouses, life partners, ascendants, and descendants, or donations below €500, are exempt from taxation.
- NFTs: Non-fungible tokens (NFTs) are excluded from taxation. However, it is important to note that the taxation regime for NFTs may vary compared to investment/security tokens and utility/commodity/payment tokens.
Factors to Consider for Effective Crypto Taxation in Portugal
To ensure effective crypto taxation in Portugal, there are several factors to consider:
Correct Qualification of Assets and Income
A correct qualification of the type of asset and income is crucial in determining its taxation. Understanding the specific characteristics of different cryptocurrencies and their intended use is essential for accurate tax reporting.
Applicability of Double Tax Agreements
The applicability of Double Tax Agreements (DTAs) signed by Portugal, including those with black-listed jurisdictions (tax havens), is also a significant consideration. It is important to note that the new crypto tax regime does not change the applicability of the non-habitual resident (NHR) regime which may provide certain benefits to eligible individuals receiving crypto income.
Conclusion
While the new tax regime in Portugal provides legal certainty, navigating the complexities of crypto taxation can still be challenging. It is always advisable to seek professional tax advice when dealing with crypto income, especially when operating globally or residing in Portugal as a non-tax resident.
The implementation of a specific tax regime for cryptocurrencies in Portugal marks a significant step towards providing clarity and legal certainty in the ever-evolving world of digital currencies. Whether you are an individual or a business operating in Portugal, understanding the crypto taxation laws is crucial for compliance and effective tax planning. By considering the different categories of crypto income, common rules, and important factors, you can navigate the tax landscape with confidence and ensure proper reporting and payment of taxes. Seek the guidance of tax professionals to ensure compliance with the regulations and optimize your tax position in the realm of crypto taxation in Portugal.
Summary:
- Portugal’s specific tax regime for cryptocurrencies will come into force on January 1st, 2023.
- The new regime aims to provide clarity and legal certainty regarding the taxation of cryptocurrencies in Portugal.
- It is important to correctly classify the type of assets and income to determine the applicable tax rates.
- Double Tax Agreements (DTAs) signed by Portugal may impact the taxation of crypto income.
- Seeking professional tax advice is highly recommended to ensure compliance with the tax laws and regulations in Portugal.
Disclaimer: The information provided in this article is for informational purposes only and should not be considered legal or tax advice. Please consult with a qualified tax professional for specific guidance tailored to your individual circumstances.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more
