Since January 1st, 2023, a new tax regime for crypto assets was introduced in the Portuguese tax law, with the most significant changes occurring at the level of Personal Income Tax (“PIT”). There were also changes at the level of Corporate Income Tax, Stamp Duty and Real Estate Transfer Tax, however, not discussed herein.
For PIT purposes, income deriving from crypto assets, that do not qualify as securities, may fall into three different income categories. Below is a brief description of the PIT regime for the taxation of crypto assets.
Definition of crypto asset
A definition of crypto asset was introduced in the PIT legislation, which is in line with the European legislation (Markets in Crypto-Assets – MiCA), considering as such, any digital representation of value or rights which may be transferred or stored electronically, using distributed ledger technology or similar blockchain technology.
For PIT purposes, non-fungible crypto assets (NTF) are excluded from the regime.
According to the Bank of Portugal's understanding, crypto-assets do not qualify as genuine currency because they do not possess the essential traits of legal tender.
Business and Professional Income
Income deriving from operations related to the issuance of crypto assets, including mining and the confirmation of transactions through consensus-taking processes, will be subject to taxation as business and professional income.
Under the simplified taxation regime, applicable to a total gross income not higher than EUR 200,000 per year, the taxable income will be calculated by applying a coefficient of 0.95 over the gross income deriving from mining activities and a coefficient of 0.15 over the gross income deriving from other activities. The taxable income is subject to the progressive tax rates, which may be as high as 53%, for income exceeding EUR 250,000 (in 2024).
Investment Income
The new legislation defines that forms of remuneration derived from operations involving crypto assets (e.g., staking), are classified as investment income.
Accordingly, any form of remuneration of crypto assets that qualifies as an investment income, will be subject to a 28% flat rate (the taxpayer may opt to subject this income to the progressive tax rates).
If any kind of remuneration is obtained in the form of additional crypto assets, it will only be taxable when those assets are sold, according to the capital gains regime – no tax is payable at the time of receiving crypto assets as remuneration. Taxation only arises upon their exchange into FIAT currency.
Capital Gains
Gains from the disposal of crypto assets that do not qualify as securities are subject to a flat rate of 28% (taxpayers may opt to subject these gains to the progressive tax rates).
Capital gains from the disposal of crypto assets held for 365 days or more will be tax exempt – considered for this purpose the crypto assets acquired before the 1st of January 2023. The holding period for crypto assets acquired prior to 2023 is taken into consideration.
Operations where the investor receives other crypto assets as a consideration of the transfer of the disposed crypto assets are not subject to taxation at that moment. Taxation will occur when the investor trades crypto assets for a FIAT currency. At that moment, the capital gain corresponds to the positive difference between the ultimate sale price (FIAT currency) and the acquisition cost of the original crypto assets.
As such, exchanging cryptocurrencies (e.g., between cryptocurrency A and cryptocurrency B) is also considered a taxable transaction – if cryptocurrency A was not held for at least 365 days. However, such an operation is not taxed immediately – taxation only occurs when exchanges occur with FIAT currency, if effectively due. In this example, however, if the taxpayer holds cryptocurrency B for at least 365 days, even if the cryptocurrency B is exchanged for FIAT, no taxation will occur (neither in this transaction nor in the exchange between A and B).
Capital losses arising from crypto-assets can be deducted, on the condition that the counterparty involved in the transaction is not a resident of a “black-listed” territory, and provided the taxpayer chooses to apply the progressive tax rates to the loss. These losses are eligible for carryforward for up to five subsequent years.
In addition, we would like to note that:
- The capital gains tax regime adopts the FIFO (First In First Out) method, and when the crypto assets are held in more than one financial institution or service provider, the FIFO method is applied to each one individually;
- If the Tax Authorities suspect a potential mismatch between the declared and actual values of transferred crypto assets, they are authorized to correct the valuation, assuming that the sale price of the crypto assets reflects their market value at the time of the transfer;
- The non-taxation regime for crypto assets held for at least 365 days does not apply in transactions performed with residents of jurisdictions not part of the European Union or the European Economic Area or a State or jurisdictions with which Portugal has not signed a Double Tax Treaty or a bilateral or multilateral agreement that provides for the exchange of information for tax purposes;
- An exit tax regime is in place, and consequently, the loss of tax residency qualifies as a sale operation, for tax purposes, leading to the eventual taxation of the crypto assets held at the day of exit.
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