Cryptocurrencies have revolutionized the financial landscape, presenting individuals and businesses with new opportunities for investment and transactions. As the global cryptocurrency market thrives, governments worldwide are grappling with the challenge of regulating and taxing this digital currency. However, one country stands out as a beacon of crypto-friendly policies – Portugal. With its progressive and forward-thinking approach, Portugal has become an attractive destination for crypto enthusiasts, offering a clear and comprehensive cryptocurrency tax regime. This article will delve into the details of Portugal’s crypto taxation laws, highlighting the country’s commitment to providing legal certainty and fostering innovation in the digital currency space.
Understanding if Portugal crypto-friendly
Navigating the tax landscape surrounding cryptocurrencies in Portugal requires a clear understanding of the different categories of crypto income. Portugal’s 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 (Category E)
Passive investments in cryptocurrencies refer to remuneration received in fiat money from investments that do not involve any crypto transfer. This income falls under Category E in Portugal and is subject to a flat tax rate of 28%. However, it’s important to note that if crypto is received as remuneration (not fiat money) and qualifies as salary or self-employment income, it will be taxed accordingly, usually at progressive tax rates.
Capital Gains from Crypto Sales (Category G)
Sales of crypto assets owned for less than 365 days fall under taxable capital gains in Portugal. These sales are subject to a flat tax rate of 28% on the capital gains made for fiat money. However, if the income is received by a Portuguese tax resident who chooses to aggregate it, progressive tax rates between 14.5% and 48% will apply. It’s worth mentioning that “investment/security tokens” are considered securities and taxed accordingly, irrespective of the 365-day rule.
Taxpayers are responsible for providing their tax advisors with FIFO reports concerning each sale made during the year for the purposes of personal income tax reporting obligations.
Freelancer/Self-Employment Income from Crypto Operations (Category B)
Freelancer/self-employment income encompasses operations related to issuing crypto assets for fiat money, including mining or validating crypto transactions through consensus mechanisms. Under this category, progressive tax rates between 14.5% and 48% will apply. Additionally, 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’s important to note that the cessation of activity as a self-employed worker is considered equivalent to the sale of crypto assets.
Common Rules for Crypto Taxation in Portugal
To ensure compliance with Portugal’s crypto taxation regulations, it’s crucial to understand some standard rules and considerations. Let’s explore these key points:
Crypto for Crypto Exchanges
When crypto for crypto exchanges occurs under capital gains or self-employment income, the taxation is deferred until the crypto is sold or converted into fiat currency. The acquisition value is determined using the “first-in, first-out” (FIFO) rule, meaning the crypto sold will be held for the longest period.
Offset Capital Losses
Capital losses can be offset against gains, except if incurred in tax havens. Portugal classifies some countries that have signed a Double Tax Agreement (DTA) as tax havens. It’s essential to consider the applicability of DTAs, as they may impact the taxation of crypto income.
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 applies similarly to a sale, based on the difference between the market value and the acquisition value determined through FIFO.
Donation of Crypto
Donations of crypto in Portugal are 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 Exclusion
Non-fungible tokens (NFTs) are currently excluded from taxation in Portugal. However, it’s important to note that the taxation regime for NFTs may vary compared to investment/security tokens and utility/commodity/payment tokens.
Factors for Effective Crypto Taxation in Portugal
To ensure effective crypto taxation in Portugal, several factors should be considered:
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 a significant consideration. It’s vital to assess whether a DTA impacts the taxation of crypto income.
Conclusion
Portugal’s specific tax regime for cryptocurrencies reflects the country’s commitment to fostering innovation and providing legal certainty in the ever-evolving world of digital currencies. With its precise categorization of crypto income and comprehensive tax rules, Portugal has established itself as a crypto-friendly haven for individuals and businesses seeking to engage in crypto-related activities. However, consulting with tax professionals is essential to ensure compliance with the regulations and optimize your tax position. By understanding the different categories of crypto income, standard rules, and essential factors, you can confidently navigate the tax landscape and make informed decisions regarding your crypto investments 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 a qualified tax professional for specific guidance tailored to your 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
