Portugal’s new tax rules on crypto assets
Portugal’s new tax rules on crypto assets entered into force on January 1st, 2023. The following rules currently apply to individuals who are resident for tax purposes in Portugal.
Executive Summary
Definition: unique and non-fungible crypto assets are excluded from the definition of crypto assets for tax purposes.
Professional and business income: only 15% of the income derived from activities related to crypto assets will be subject to tax (with the exception of mining activities).
Capital gains: no taxation on gains derived from the sale of crypto assets held for 365 or more days (even if acquired before January 1st, 2023).
Crypto for crypto exchanges: no taxation applies when crypto assets are received as consideration for crypto assets sold.
Exit tax: ceasing to be resident in Portugal will be considered a disposal event for capital gains tax purposes.
What Is Considered A Crypto Asset For Tax Purposes?
For tax purposes, the definition of crypto asset is as follows: “any digital representation of value or rights which may be transferred or stored electronically through distributed ledger technology or similar”. [1]
However, the law expressly excludes from the definition of crypto asset “unique and non-fungible crypto assets.” [2]
How Is Income From Crypto-Related Activities Taxed?
a) Income derived from professional, business or commercial activities (category B income for personal income tax purposes)
Operations related to the issuance of crypto assets, including mining, or the validation of crypto assets transactions through consensus mechanisms [3] are deemed business and commercial activities and will be treated accordingly. [4]
Trading activities related to crypto assets are considered business and professional activities and will be treated accordingly.
Income from professional, business, and commercial activities (category B income for personal income tax purposes) related to crypto assets is taxed as follows under the simplified regime of taxation: [5] [6]
Income derived from mining activities of crypto assets: only 95% of the income earned will be considered to calculate the amount of taxes due (a 5% exemption will apply).
Income derived from other activities related to crypto assets [7]: only 15% of the income earned will be considered to calculate the amount of taxes due (a 85% exemption will apply).
In both cases (mining and other activities related to crypto assets), income is considered to be earned at the moment of the onerous disposal of the crypto assets (unless other crypto assets are received as compensation). An onerous disposal is deemed to occur if the professional, business or commercial activity is terminated or if the individual ceases to be resident in Portugal. [8] [9]
b) Income from capital (category E income for personal income tax purposes)
All kinds of remuneration derived from crypto-related activities [10] are deemed income from capital (category E for personal income tax purposes) and will be treated accordingly. [11]
Income from capital is generally taxed at 28%. However, if the remuneration consists of crypto assets (crypto for crypto exchanges), the crypto assets received will not be taxed (when received) but will be taxed for capital gains upon their future sale. [12]
c) Capital gains income derived from crypto assets (category G income for personal income tax purposes)
Gains derived from the onerous disposal of crypto assets (that are not qualified as category B or category E income) will be considered a capital gain for tax purposes. [13]
The capital gain shall correspond to the positive difference between the disposal value [14] and the acquisition value. [15] [16] [17]
The annual positive difference between capital gains and capital losses derived from the onerous disposal of crypto assets will be taxed at 28%. [18] [19]
However, if the crypto assets sold [20] were held for at least 365 days, [21] the relevant capital gains and losses shall not be considered for the purposes of calculating the annual taxable gain or loss (i.e., no taxation applies on gains derived from the sale of crypto assets held for 365 or more days). [22]
If crypto assets are received as compensation for the onerous disposal of crypto assets held for less than 365 days, no taxation shall occur at that moment. However, the crypto assets received shall be considered to have the same acquisition value as the crypto assets being sold. [23] [24]
The capital gains exemption for crypto assets held for at least 365 days shall not apply to: [25]
Income received by individuals who are not resident for tax purposes in another Member State of the EU or the EEA or in another State or jurisdiction with which an international double taxation treaty, bilateral or multilateral agreement providing for the exchange of information for tax purposes is in force.
Income due by any person or entity who is not resident for tax purposes in another Member State of the EU or the EEA or in another State or jurisdiction with which an international double taxation treaty, bilateral or multilateral agreement providing for the exchange of information for tax purposes is in force.
How Does the New Regime Integrate With The Non-Habitual Resident Regime?
The new tax framework and rules for crypto assets have no impact on the application of the Non-Habitual Resident (NHR) regime.
Hence, income and gains derived from crypto assets and crypto-related activities will be treated for NHR purposes as any other type of income qualified as category A, B, E or G income for personal income tax purposes.
[1] Article 10, para. 17 of the Personal Income Tax Code.
[2] Article 10, para. 18 of the Personal Income Tax Code.
[3] Including staking activities.
[4] Article 4, para. 1, sub-para. o) of the Personal Income Tax Code.
[5] Article 31, para. 1, sub-paras. a) and d) of the Personal Income Tax Code.
[6] The simplified regime of taxation is available to taxpayers who in the previous year earned less than EUR 200.000 of category B income.
[7] Including the issuance of crypto assets, staking and other validation activities.
[8] Article 31, para. 17 and para. 18, sub-paras. a) and b) of the Personal Income Tax Code.
[9] Article 10, para. 22 of the Personal Income Tax Code.
[10] Which may include income derived from some staking activities not qualified as income under categories B (business and professional income) and G (capital gains).
[11] Article 5, para. 2, sub-para. u) of the Personal Income Tax Code.
[12] Article 5, para. 11 of the Personal Income Tax Code.
[13] Article 10, para. 1, sub-para. k) of the Personal Income Tax Code.
[14] The market value of a crypto asset on the day of its disposal will be presumed to be its disposal value for tax purposes (Article 52, para. 4 of the Personal Income Tax Code).
[15] Article 10, para. 4, sub-para. a) of the Personal Income Tax Code.
[16] If the taxpayer ceases to be resident in Portugal, the relevant income is determined by the positive difference between the market value on the date the person loses his/her status as a resident and the acquisition value (plus any necessary and effectively incurred amounts in connection with the acquisition of the crypto assets held) - Article 43, para. 10 of the Personal Income Tax Code.
[17] When calculating the taxable capital gains, any necessary and effectively incurred expenses in connection with the acquisition and disposal of the relevant crypto assets should be added to the acquisition value (Article 51, para. 1, sub-para. b) of the Personal Income Tax Code).
[18] Article 72, para. 1, sub-para. c) of the Personal Income Tax Code.
[19] Capital losses incurred from the onerous disposal of crypto assets to counterparties resident in blacklisted or low-tax jurisdictions will not be considered for the purposes of calculating the annual positive or negative difference between capital gains and losses (Article 43, para. 5 of the Personal Income Tax Code).
[20] FIFO method to be used (Article 43, para. 6, sub-para. g) of the Personal Income Tax Code.
[21] The capital gains exemption for crypto assets held for at least 365 days is also applicable to crypto assets acquired before January 1st, 2023 (article 220 of Law n.º 24-D/2022, of 30 December – 2023 State Budget).
[22] Article 10, para. 19 of the Personal Income Tax Code.
[23] Article 10, para. 20 of the Personal Income Tax Code.
[24] In other words, the acquisition value (for tax purposes) of the crypto assets received as compensation will be the acquisition value of the crypto assets for which they were exchanged (and not the market value of those crypto assets on the day they were received).
[25] Article 10, para. 21 of the Personal Income Tax Code.