January 2023 update courtesy RME Legal
2023 Overview of Crypto Taxation in Portugal
After years of uncertainty regarding the taxation of Crypto in Portugal, the Portuguese Parliament approved a specific tax regime that came into force on January 1st, 2023.
Under the Portuguese Personal Income Tax Code or “PIT Code”), related income from Crypto will qualify either as capital income (Category E); capital gains income (Category G); or self-employment income (Category B), as follows:
Remuneration received in fiat money from passive investments in Crypto, which do not imply any crypto transfer, will be taxed at a flat rate of 28%.
This is the default rule to be applied when the income does not fall under another Category.
However, Crypto can still be received as remuneration itself (not fiat money) when it qualifies as salary (Category A under the PIT Code) or self-employment income (Category B under the PIT Code). It can also be considered as another category of income that is paid in kind, which is taxed accordingly.
Sales of Crypto owned for less than 365 days will be taxed at a flat rate of 28% on the capital gains when made with fiat money or at progressive tax rates of between 14.5% and 53% if the income is received by a Portuguese tax resident who chooses to aggregate it.
“Investment/security tokens” will be equated to securities and will be taxed as such, not falling under the 365 days rule. The 365 days rule will also not apply when the capital gains are earned by a taxable person or paid by an entity residing outside the European Economic Area (“EEA”) or in another State or jurisdiction which doesn’t have a Double Tax Agreement (“DTA”) or another multilateral or bilateral agreement that prescribes the exchange of information for tax purposes.
Operations related to the issuance of crypto assets, including mining, or the validation of crypto transactions through consensus mechanisms, and fiat money, will be taxed at progressive tax rates of between 14.5% and 53%.
A 5% fixed presumption of expenses will be applied to income derived from mining operations or on 85% of its sale, e.g., if the taxable person receives €1.000 of income, it will only be taxed on €950 in the former scenario, or €150 in the latter. However, the cessation of activity as a self-employed worker is equated to the sale of Crypto.
When Crypto for crypto exchanges occurs, e.g., under Category G or B, taxation will be deferred to the moment it is sold. When determining its acquisition value, a “first-in, first-out” rule will apply (“FIFO”), meaning the Crypto sold will be the one held for longer. Capital losses can keep offsetting the gains, except if incurred in Tax Havens.
Also, when a person stops being a tax resident of Portugal, an “Exit Tax” of 28% will be imposed on the taxable person on all crypto assets held at the time. Under Category G, it will be imposed on the difference between its market value and its acquisition value determined through FIFO.
The donation of Crypto will be taxed at 10% in Stamp Duty or 4% with regards to the fees charged by or with the intermediation of Crypto service providers both on the value and when operations are deemed to be in Portuguese territory. Exempt from the former are donations between spouses, life partners, ascendants/ descendants and all donations below €500.
(“Non-Fungible Tokens”) are excluded from taxation, but only those which are truly non-fungible. Meaning it is one of a kind, something that may give rise to some qualification dissensus because, as explained, the taxation regime will vary from NFTs to investment/security tokens and from utility tokens to commodity/currency/payment tokens.
Nevertheless, the new regime does not exclude the applicability of any DTA that may be applied to the case. Still, because rarely capital gains from movable (personal) property arising abroad can be taxed at the source when received by a tax resident in Portugal, that will mean their exemption from taxation in Portugal under the non-habitual resident (“NHR”) regime is unlikely.
One of the most important aspects to consider in the new regime is the fact that a correct qualification of the type of asset and income will be decisive in determining its taxation.
The eventual applicability of several DTAs signed by Portugal, including with some black-listed jurisdictions, will also be relevant. Since the new regime does not change the applicability of the NHR regime or the “Programa Regressar”, which under certain circumstances may keep benefiting eligible individuals on the incomes they receive from/in Crypto.
We welcome the legal certainty carried by the new regime, even with all its nuances. However, it is still always advisable to seek proper tax advice when receiving Crypto worldwide while residing in Portugal and when being a non-tax resident who receives Crypto deemed as sourced from Portugal.