Portugal and Cryptocurrency Taxation: A Simplified Guide to the 2023 Rules
Once upon a time, Portugal was known as a crypto-friendly nation. Why, you ask? Simply put, the government hadn't formulated any specific laws to tax cryptocurrency. This wasn't a strategic move, rather an instance of oversight that unintentionally turned Portugal into a hotspot for crypto investors.
Fast forward to 2023, the landscape took a sharp turn. The Portuguese State Budget introduced new regulations, putting cryptocurrencies under the tax lens.
So, what does this mean for you?
For the uninitiated, a crypto-asset is any digital representation of value or rights transferable or electronically storable using distributed ledger technology or something similar. The new definition aims to envelop the broad spectrum of crypto-assets. However, non-fungible tokens (NFTs) and crypto assets viewed as securities got a free pass from the new tax rules.
Now, let's delve into the crux: How is the taxation divided? Well, we're looking at three income categories:
- Capital gains on sale of Crypto : Category G
- Business and professional income : Category B
- Capital income : Category E
Category G: Capital Gains on Sale of Crypto
Here's the deal. If you sell crypto that you've owned for less than a year, you're slapped with a flat 28% tax on the capital gain when converted into fiat currency. Alternatively, if you're a Portuguese tax resident who opts to aggregate the income, you're taxed at progressive rates between 14.5% and 53%.
The profits are the difference between the sale and acquisition price calculated using the FIFO, First In First Out, method (i.e. the crypto held the longest is sold first).
Let's break it down with two examples:
- Bought 1 Crypto Coin at €5,000 on 01/01/2022 and sold at €10,000 on 01/06/2023. After subtracting the Cex fees of €100, your profit stands at €4,900. As you held the tokens for over a year, no taxes for you!
- Now, imagine you bought 1 Crypto Coin at €5,000 on 01/01/2023 and sold it at €10,000 on 01/06/2023. After Cex fees, your profit remains €4,900, but this time you owe taxes: 28% of €4,900, which equals €1,372.
Category B: Business and Professional Income
Miners, validators, and "professional" traders will find themselves playing in a new field. The law now views their blockchain transactions as professional activities. So, these types of income may be taxed like any other professional activity.
The good news? You have a choice between two regimes to organize your tax activity:
- Organized Accounting Regime: Here, you are taxed on your annual profit, calculated based on your Profit & Loss statement.
- Simplified Accounting Regime: This regime is your go-to if your total turnover doesn't exceed €200,000 annually. No need for an accountant here. Your task? Use your total turnover, apply a coefficient, and pay taxes based on the generic tax rate.
In the simplified regime, you'll find two roads:
- Trading and validating activities: Apply a coefficient of 0.15 to your turnover. Here, 85% is considered as costs and expenses.
- Mining: Apply a coefficient of 0.95 to your turnover.
Let's break it down with a couple of examples:
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Trader's tale: Suppose you're a trader who sells tokens amounting to €100,000. Apply a coefficient of 0.15 to it, and you get €15,000. This amount is considered your profit, and you pay tax only on this amount. However, this model doesn't let you offset any other losses or costs.
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Miner's story: If you're a miner with operations in Portugal, and you mine an amount of €1,000, you will have a coefficient of 0.95, equating to €950. This amount is viewed as your profit, and your tax is calculated only based on this amount.
Category E: Capital Income
Staking, lending, or liquidity providing (through liquidity pools) fall under this category. However, the tax application is divided into two scenarios:
- If the yield is paid in fiat currency, a 28% tax applies.
- If the yield is paid in crypto, taxes as capital gains are only applied at the time of disposal, not when they are earned.
Other Key Crypto tax Considerations in Portugal
The new regime imposes a 28% exit tax for crypto asset holders changing their Portuguese tax residency. But certain rules remained untouched:
- VAT is still not applied to cryptocurrencies.
- Crypto assets received as gifts or inheritances aren't taxed if given to spouses or direct descendants.
- Non-fungible tokens (NFTs) and crypto assets considered as securities are exempted from the new tax regulations.
These changes in Portugal's crypto tax laws underscore the country's recognition of the mushrooming crypto market and the need for more orderly and equitable regulations for investors. As the crypto world keeps evolving, it's intriguing to see how Portugal's tax laws will keep pace.
Disclaimer: The information in this guide is based on our understanding of the laws and regulations. However, it doesn't guarantee that the tax or judicial authorities won't take contrary positions. Always consult a professional for your specific situation.
