Crypto Tax In Portugal: All You Need To Know

Key Takeaways

• Portugal remains a crypto-friendly nation, encouraging innovation and attracting talent.
• Crypto taxation is clearly defined: 28% tax on short-term gains, long-term holdings exempt.
• ICOs and token sales continue to thrive, with guidance suggesting consultation with the CMVM for legal clarity.
• Portugal actively aligns with evolving EU regulations, particularly the Markets in Crypto-Assets (MiCA) framework

Portugal has solidified its position as a welcoming hub for cryptocurrencies and blockchain technology in 2024. This approach aims to strike a balance between fostering technological advancement and safeguarding against potential risks such as money laundering, fraud, and tax evasion.

The country has taken several steps to provide clarity in terms of regulatory expectations, taxation, and licensing for crypto-related activities. Portugal’s regulatory approach seeks to provide legal certainty for businesses and individuals engaging in cryptocurrency-related activities while addressing potential risks associated with the technology.

This article explains crypto regulations in Portugal, including tax laws, reporting requirements and how the country aligns with the EU’s MiCA framework. 

Portugal Crypto Tax Law For 2024

Here’s an overview on crypto legislation and regulations in Portugal:

Capital Gains Tax For 2024

The Portugal Crypto Tax Law for 2023, which has been approved by the Portuguese Parliament, seeks to regulate crypto-related activities.

The 2023 crypto tax law continues to be in effect for 2024, imposing a 28% tax on short-term crypto gains (held for less than a year). Long-term holdings are exempt from taxation. This law ensures clarity and compliance for all crypto investors. 

Tax-Loss Harvesting In Portugal

Crypto harvesting, also known as crypto tax-loss harvesting, is a strategy used by cryptocurrency investors to reduce their tax liabilities by selling cryptocurrencies at a loss to offset potential capital gains from other investments. 

Crypto tax-loss harvesting is permitted in Portugal, allowing investors to offset capital gains with losses from crypto sales. This initiative aims to reduce the regulatory and legal burdens faced by crypto businesses as they develop and experiment with new technologies.

Is Cryptocurrency Taxed In Portugal?

Portugal;s crypto tax laws have garnered attention, raising questions such as “Is Portugal tax-free for crypto?” and “Is Portugal a crypto tax haven?” While the country is not entirely tax-free for crypto, it does offer favorable conditions, particularly with long-term holdings being exempt from taxation, making it a crypto-friendly country.

The Portuguese Tax and Customs Authority (PTA) oversees crypto taxation in Portugal. Taxation of crypto in Portugal is categorized into different tiers or categories of taxation. These categories include: 

Category E 

Income earned from passive crypto investments received in fiat currency will be liable for a fixed tax rate of 28%, specifically when the income does not fall under any of the categories mentioned below.

Category G 

Portugal’s cryptocurrency taxation, profits gained from selling cryptocurrency owned for under a year will face a fixed 28% tax when converted into fiat money. For Portuguese tax residents, a progressive tax scale spanning from 14.5% to 53% is applicable if these gains are combined.

Notably, the 365-day guideline doesn’t affect “investment/security tokens,” which follow taxation akin to securities. Exceptions emerge if gains originate from taxable individuals or entities beyond the European Economic Area, without specific agreements in place.

Category B 

Under Category B, activities related to the creation of crypto assets, such as mining, or the validation of crypto transactions using consensus mechanisms, even when conducted in exchange for fiat currency, will be subject to a gradual tax scale ranging from 14.5% to 53%. 

Additionally, a fixed presumption of 5% in expenses will be considered for income generated from mining activities. Furthermore, during the sale of the mined crypto, 85% of the income will be presumed as expenses. For instance, if an individual earns €1,000 from mining, they will only be taxed on €950 based on the first scenario, or €150 based on the latter scenario. It’s important to note that discontinuing self-employment activities is treated on par with selling cryptocurrency.

Crypto Tax Reporting In Portugal

There are essentially three reporting options for capital gains in Portugal:

• Annex G: Typically used for capital gains considered to be of Portuguese origin.
• Annex G1: Typically used for exempt capital gains.
• Annex J: Typically used for foreign-source income, including capital gains.

However, for compliant reporting purposes, these options need further clarifications, as raised below:

Annex G

Here are key clarifications to consider when filing Annex G:

• Centralized Exchange (CEX) reporting: All CEX transactions, irrespective of the exchange location or tax ID, must be reported in Annex G. Clarify whether to utilize a zero TIN if the exchange does not have a Portuguese tax ID.
• Counterparty identification: Establish a clearer definition of “counterparty” in decentralized blockchain transactions, as this is an area where conventional financial notions might not be applicable. It is relevant only for short-term losses if the taxpayer opts to carry them forward.
• Box 18B and non-compliant jurisdictions: To ensure compliance reporting in Box 18B, authorities should offer a definitive list rather than depending on taxpayers to identify non-compliant jurisdictions.

Annex G1

The Portuguese law states that for swaps of crypto-assets held for over 365 days, the holding period and acquisition cost reset, making gains or losses realized but exempt. This includes reporting the Portuguese TIN and CASP’s country, implying that gains outside a CEX might not need reporting. 

The law doesn’t clearly state if all swaps must be reported, regardless of the platform. Identifying the counterparty on the blockchain is irrelevant for exempt gains and long-term losses but is relevant for short-term losses if carried forward.

Annex J

Three points needing clarification:

• Source uncertainty: Tokens, in contrast to traditional assets, are linked to blockchain networks without having a distinct geographical source or issuer. This leads to uncertainty when establishing the source, particularly for DEX transactions such as swaps of Bitcoin or Ethereum.
• Tax payable abroad: It’s uncertain if including tax payable abroad entails the availability of a tax credit because crypto-assets aren’t normally taxed based on source or domicile. This needs to be made clear.
• The counterparty’s country: The question of whether the counterparty’s country differs from the source of the transaction is raised by its inclusion, necessitating additional explanation for taxpayers.

Additional Factors To Consider For Cryptocurrency Taxes in Portugal

Here are some additional considerations to take into account:

• Cryptocurrency as a form of payment: Portugal does not apply VAT to cryptocurrency payments for goods or services. This favorable treatment encourages using cryptocurrencies in everyday transactions and contributes to Portugal’s reputation as a crypto-friendly nation.
• Cryptocurrency mining and staking: In Portugal, cryptocurrency mining and staking are subject to taxation. Mining activities are treated as business income, and profits are taxed according to the applicable personal or corporate income tax rates. Staking rewards are generally considered as capital gains or income and are taxed accordingly based on individual circumstances.
• Accurate record-keeping: Maintaining detailed records of all transactions, including dates, amounts, and cryptocurrency types, is essential for proper tax reporting and compliance.
• Penalties for noncompliance: In Portugal, failing to comply with crypto tax regulations can lead to fines ranging from €150 to €10,000, depending on the severity of the offense. Repeated or intentional noncompliance may result in more substantial penalties and legal consequences.

Blockchain Technology And Innovation In Portugal

Portugal has taken significant steps to promote innovation and the adoption of blockchain technology. The country has shown an entrepreneurial spirit and a commitment to fostering innovation, making it an appealing environment for blockchain-related projects and businesses.

Lisbon, the capital city of Portugal, has silently emerged as a prominent technology hub, particularly for blockchain. The city hosts technology conferences, such as the Web Summit, attracting thousands of professionals annually, and fostering a thriving ecosystem. 

Lisbon benefits from a strong pipeline of skilled talent from local universities and is attracting talent from abroad by offering residency and citizenship incentives. Lisbon’s trajectory as an upcoming tech powerhouse appears promising, due to its resilient spirit, pleasant climate, and rich cultural heritage.

Definition And Classification Of Cryptocurrencies As Per The Portuguese Law

Notably, the tax classification of cryptocurrencies encompasses various categories, as detailed above, including capital income, capital gains income, and self-employment income.

Each category carries specific tax rates and rules, with capital gains from cryptocurrency sales held for less than a year being taxed at a flat rate of 28%. Longer-term holdings are generally tax-free. 

Unless cryptocurrency trading qualifies as a taxpayer’s professional or entrepreneurial activity, the PTA holds the view that capital gains arising from cryptocurrency sales are exempt from Personal Income Tax.

Furthermore, Portugal’s stance on cryptocurrencies has evolved over the years, transitioning from a relatively tax-free environment for crypto to a more structured taxation approach in recent times.

Cryptocurrency Donations

Donations involving cryptocurrency will be subject to a Stamp Duty of 10% or a 4% fee pertaining to charges from crypto service providers acting as intermediaries. 

These rates apply to the value of the donation and are applicable when the transactions are considered to occur within Portuguese territory. However, donations between spouses, life-partners, ascendants, and descendants, as well as donations below €500, are exempt from this tax.

Taxation Of Non-Fungible Tokens

In addition, Non-Fungible Tokens (NFTs) are not subject to taxation, but this exemption applies only to NFTs that are genuinely unique and non-fungible. 

This distinction may lead to disagreements in interpretation, as the taxation rules differ not only for  NFTs and investment/security tokens but also within the categories of utility tokens and commodity/currency/payment tokens.

However, this could change in the future as the regulation of NFTs evolves.

Registration Of Cryptocurrency Businesses

In Portugal, the licensing and registration requirements for cryptocurrency businesses involve said businesses to register with the Bank of Portugal before engaging in activities with cryptocurrencies and other virtual assets professionally. 

A virtual asset, in the eyes of the Portuguese government, can be compared to a digital representation that holds value and is used for investing, exchanging, transferring, and trading electronically. 

The registration process with the Bank of Portugal assesses the suitability and competence of the applying business. Essential information, such as details about the applicant entity, ultimate beneficial owners (UBOs), shareholding holders, business plans, internal procedures, members of supervisory and management bodies, and anti-money laundering and anti-terrorist financing measures, needs to be included in the application. 

It’s worth noting that businesses operating under the regulation of free provision of services in Portugal are exempt from the duty of prior registration as stipulated in Article 112/A of the Law to Combat Money Laundering and Terrorist Financing.

Initial Coin Offerings (ICOs) And Token Sales

In Portugal, ICOs and token sales have gained traction as fundraising methods for companies and projects. These sales involve the issuance and distribution of digital tokens, often without granting ownership in the issuing entity but potentially offering utility or governance rights. 

The evaluation of each ICO in Portugal is unique and focuses on the distinction between utility and security tokens. Tokens that reflect project rights, software access, or service access are subject to consumer protection laws. ICOs that use tokens to share financial gains or other economic interests may be subject to securities restrictions. 

Participation-only tokens for platform development surveys that lack any financial aspects are not regarded as securities. Tokens that reflect private economic rights and their closeness to traditional securities are two elements in the appraisal of securities. Securities law concerns may result from investor expectations for returns, such as earnings or value growth.

Therefore, while tokens qualifying as securities under the Portuguese Securities Code are subject to specific rules governing security tokens and financial instruments, tokens meeting the criteria for electronic money entail a requirement for an E-money institution license. 

There are no clear rules preventing ICOs from launching in Portugal; however, any entities wishing to launch an ICO are encouraged  to clarify token legality with the CMVM, the Portuguese Securities Market Commission. 

Portugal And The EU’s MiCA Regulation

Portugal is actively aligning with the EU’s Markets in Crypto-Assets (MiCA) regulation. MiCA aims to provide legal clarity, prevent misuse of crypto assets, and encourage innovation. 

The regulation also addresses environmental concerns and the supervision of stablecoins. Cryptocurrency businesses are expected to contribute to reducing the carbon footprint of cryptocurrencies and adhere to reporting requirements.

Key areas of alignment include:

• Authorization and oversight of CASPs: In accordance with MiCA standards, Portuguese authorities are putting in place procedures for the authorization and oversight of Crypto Asset Service Providers (CASPs). This entails evaluating their suitability, propriety, and adherence to prudential standards.
• Environmental sustainability: To encourage transparent and sustainable practices in the cryptocurrency industry, Portugal is putting environmental disclosure regulations for issuers of digital assets into effect.
• Consumer protection: Portugal is strengthening its consumer protection measures for crypto-assets, ensuring that investors are adequately informed about the risks involved and have access to recourse mechanisms in case of disputes.
• Stablecoin regulation: Portugal is developing specific regulations for stablecoins, a type of crypto-asset designed to maintain a stable value. These regulations will address potential risks to financial stability and consumer protection.

While MiCA offers many advantages, some challenges and considerations remain. For example, putting MiCA’s comprehensive framework into practice across all EU members is a difficult undertaking that calls for a great deal of coordination and collaboration among national authorities. Additionally, there can be a chance of regulatory arbitrage, in which companies try to do business in places with laxer restrictions.

Conclusion

As of July 2024, Portugal maintains a relaxed and open approach to cryptocurrency and blockchain innovation. The country is working on aligning with the EU’s regulatory improvements, such as the MiCA regulation, which aims to provide legal clarity, prevent misuse of crypto assets, and encourage crypto-based innovations. 

The new regulation also focuses on environmental responsibilities and the supervision of stablecoins. Cryptocurrency businesses are expected to contribute to reducing the carbon footprint of cryptocurrencies and adhere to specific reporting requirements. 

Moreover, the EU-wide regulation enhances the monitoring of non-compliant crypto asset service providers and may introduce a single pan-EU AML authority in the future.

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