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.
Crypto tax in Portugal explained
The United States may be taking a hard line on cryptocurrency, but the Portuguese Tax & Customs Authority (PTA) has announced that buying or selling cryptocurrency in Portugal is tax-free, so if you have an interest in crypto tax in Portugal, read on.
Portugal has taken the opposite tack: it made clear that buying or selling cryptocurrencies would not be subject to capital gain taxes or value-added tax (VAT). The PTA previously clarified in 2016 (downloads in Portuguese as a PDF) that buying or selling cryptocurrency in Portugal would not be considered a taxable event which means that it’s not subject to tax. There are exceptions: the receipt of cryptocurrency in exchange for goods or services doesn’t change the tax treatment of the original transaction, and taxpayers who deal in cryptocurrency as a professional or business activity are still subject to some taxes.
Most of our understanding of the Portugal tax authorities and their view on crypto are derived from this 2016 document.
It is translated into English at the end of this document (thanks to Google translate).
Cryptocurrencies or virtual currencies are not technically considered money due to not having legal tender in Portugal. However, they can be exchanged, with a resulting profit, for real currencies (euros, dollars, or other) at exchanges, with the prices being determined by the demand for said cryptocurrency.
Thus, cryptocurrencies can generate different types of taxable income:
- Gains obtained from the purchase and sale of virtual currency units/exchange from the cryptocurrency to real currency (whatever it may be)
- For obtaining commissions for the provision of services related to obtaining cryptocurrency.
- For gains derived from sales of products or services in cryptocurrency
This document only considers the first scenario. This is the scenario faced by most crypto investors.
The profits from this activity are candidates for three categories of income types:
- Capital Gains – category G (e.g. sale of an apartment, sale of shares)
- Capital Yields – category E (e.g. rent of an apartment, dividends)
- Professional Income – category B (e.g. consultancy, freelance work)
Article 10 of the IRS Code specifies the cases that are taxable as capital gains. The key thing to note here is that when the legislator created this law, they resorted to a closed type, meaning that the law is specifically for the items mentioned and nothing else. Since cryptocurrencies do not fall within the specific cases mentioned, and their value is merely determined by supply and demand, therefore we can conclude that they are not taxable within this category.
This category clearly does not apply to the sale of crypto assets since it relates to yields on capital e.g. dividends, rental income.
Here’s the tricky one. Category B relates to the income of a self-employed worker. When a type of income can be classified as of category B or any of the other two categories considered here, category B would prevail. So in this category income can be taxed whether it comes from sales, whether it is capital income, or any other nature, pursuant to paragraph 1 of article 3 of the IRS Code.
If you’re in doubt you should consult a qualified Portugal tax lawyer. There are several factors that determine whether one’s trading activity is professional or not. These include:
- Number of trades per day/week/month/year.
- Holding period of financial products
- Complexity of traded financial products
- Number of trading platforms used
- Debt-to-equity ratio, credit financing
- Profit level and relationship to other income
- Additional relevant trading activities (such as advice)
- Traders’ main activity (where else do you get your money from?)
The fact that one of the factors listed above applies to you does not automatically make you a professional trader. Ultimately one must look at every individual’s overall situation, and this can only be reliably done by involving a tax lawyer who will give you a written opinion.
In summary, cryptocurrencies in Portugal are only taxable if you do it as a professional trading activity and therefore you need to open an activity as a trader and pay taxes according to your profit, otherwise they are considered non-taxable in Portugal due being unable to fit in any category.
Note that the above is true for individuals but not for corporate entities. If you hold your crypto in a Portuguese company, all the gains from cryptocurrency trading are taxed together with any other profit the company had, irrespective of whether the company is engaged in trading or whether it held the crypto as a long-term investment.
Subject: Taxation of cryptocurrencies or virtual currencies
Process: 5717/151DOCUMENT DOCUMENTDiploma: IRS Code Article:3rd CIRS5th CIRS9th CIRS
Process: 5717/2015, Order of 12/27/2016, from the Deputy Director General of the IR
Content: The Applicant has requested the issuance of binding information in which it questions the framework income from the purchase and sale of cryptocurrency. Crypto currencies or “virtual currencies” are technically not considered “currency” because they do not have legal or liberatory power course in Portugal, however, they can be exchanged, with profit, in real currency (be they euros, dollars, or other), from specialized companies for the effect, being the value, in relation to the real currency, that determined by the online demand for Crypto-currency.
Thus, cryptocurrencies can generate different types of taxable income:
1) For gains obtained with the purchase and sale of virtual currency units / exchange from the moment of cryptocurrency to real currency (whatever it may be)
2) For obtaining commissions for the provision of services related to obtaining or normal course of cryptocurrency.
3) For gains derived from sales of products or services in cryptocurrency. In the present case, only the first of the income-generating activities is under consideration. The income generated by this activity can, in theory, be integrated into three categories of different yields:
Equity additions – category G (capital gains);
Capital income – category E;
Business or professional income – category B;
Regarding category G Article 10 of the IRS Code provides that the following realities are taxable, as capital gains:
- a) Onerous disposal of shares and other securities;
- b) Transactions related to financial derivative instruments, with the exception of gains provided for in paragraph q) of paragraph 2 of article 5;
- c) Transactions related to certificates that grant the holder the right to receive a value of underlying asset, with the exception of the remunerations provided for in paragraph r) of 2 of article 5;
- d) Onerous assignment of credits, ancillary payments and supplementary payments.
Now, when the legislator built this incidence rule, it resorted to a closed typification, ie the taxation only applies to gains derived from the facts described there. In the case of cryptocurrencies, we are not dealing with social parties, nor do they constitute any entitlement to receive any amount. On the other hand, the appreciation of cryptocurrencies is not based in any underlying asset, since its value is merely determined by supply and demand(and the creation of cryptocurrency depending on their use),considered as a derivative financial product, and finally, attentive to the definition of security of article 1 of the Securities Code, we are not facing a reality that may, in the present be subsumed in the definition of securities.
Therefore, it is concluded that this reality is not taxable in category G headquarters. Regarding category E With regard to capital income, we note that the incidence rule is constructed in accordance within an open way, indicating a general rule and exemplifying various realities subject to taxation(but not the only ones). Thus, it appears that in this category are taxed the income that is generated by the mere application of capital, that is, the legal fruits are taxed ie the rights
Process: 5717/15 two prejudice to the producer’s substance. In the present case, the income produced is obtained for the sale of the right, so it will not be liable to be taxed in category E.
For category B First of all, it should be noted that category B if applicable in competition with any of the previous categories prevail over these. In category B, income earned on according to the exercise of an activity and not according to the origin of the income. So in this category income can be taxed whether it comes from sales, whether it is fruit, or any other nature, pursuant to paragraph 1 of article 3 of the IRS Code. Now the exercise of activity is determined by its habituality and by the orientation of the activity towards obtaining profits. If the existence of the exercise of a business or professional activity is verified, then the taxpayer obliged to comply with the declarative obligations contained in paragraph 6 of article 3 of the Code of IRS, ie to issue an invoice or equivalent document (electronic invoice-receipt), whenever you make selling or providing a service.
It is concluded that the sale of cryptocurrency is not taxable under the Portuguese tax system, the unless, due to its habituality, it constitutes a professional or entrepreneurial activity of the taxpayer, in which case it will be taxed in category B.
Don’t hesitate to get in touch should you need help from the experienced US expat tax accountants in Portugal.