Portugal announced that it will begin taxing short-term gains on digital assets the following year, capping months of speculation.
It is a noteworthy move, particularly for a nation thought to be supportive of the industry. What is curious about this story is the response. What was the response from the burgeoning crypto community in that country in southern Europe? That all is well.
This article is not meant as a professional recommendation for bitcoin or any cryptocurrency investment, but simply as an explainer of the recent introduction of the cryptocurrency tax policy.
For more detailed and personal guidance about your specific tax situation, please consult the services of a professional tax attorney.
If you want to invest as an expat or high-net-worth individual, which is what i specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).
This article isn’t formal tax, legal or financial advice, and is only written here for informational purposes.
The facts might have also changed since we wrote this article.
What is the 2023 Portugal cryptocurrency tax?
The country’s 2023 budget proposal states that gains on digital asset holdings maintained for less than a year will be subject to a 28% tax rate, while crypto held for longer will be free from taxes. Additionally, profits from cryptocurrency issuing and mining will be regarded as taxable income by the authorities.
As a result of the new laws, Portugal will no longer be considered a cryptocurrency tax haven in Europe.
That distinction was mostly acquired by the absence of tax laws specific to the cryptocurrency industry in the nation. The hordes of crypto nomads that have flocked to the tiny Iberian country in recent years are adjusting to it now that it has been put in place.
Some even applauded the move, saying it gives investors more protection and a defined set of regulations for a largely unregulated industry at a weekly crypto meetup on a Lisbon rooftop.
It is also an indication that bitcoin is getting more popular in a nation where several banks have declined to work with cryptocurrency brokers, according to Pedro Borges, the creator of Portugal’s first cryptocurrency exchange, CriptoLoja.
According to the administration, the new regulations are the outcome of a comparison of the crypto laws of many other European nations.
For instance, taxes are only levied in Germany on cryptocurrency gains that are held for less than a year. Additionally, Portugal’s Secretary of State for Tax Affairs, António Mendonça Mendes, expressed confidence that his nation would continue to rank among the most crypto-friendly in Europe.
Portugal still possesses the majority of the necessary elements for cryptocurrency investors and companies to succeed, including a developing tech sector, reasonably priced housing, excellent internet access, and even a visa for digital nomads.
Portugal has established itself as a leader in economic innovation in Europe in recent years. The same may be said of cryptocurrency in Portugal.
Bitcoin traders are keeping tabs on which European nations provide the best conditions for cryptocurrency users as interest in blockchain technology and cryptocurrencies grows in the mainstream media. And at the top of the list is Portugal.
It is no wonder the Portuguese government has shifted toward implementing a regulatory framework addressing bitcoin. Several projects in Portugal are using blockchain technology, and institutions there are taking steps to better control crypto assets.
Starting from 1st January, 2023, Portugal has put in place new tax laws that are for those who are considered tax residents in Portugal. For tax purposes, non-fungible crypto assets behave differently than conventional crypto assets, and here’s what you need to know about why.
Cryptocurrencies are not explicitly prohibited by Portuguese law, thus private investors can freely acquire, store, and trade them.
The Portuguese government also acknowledges the legitimacy of cryptocurrencies and their potential as alternate means of payment and investment.
The official stance of cryptocurrency legislation (including Portugal’s position as one of the top countries for crypto traders and sell them) has been clarified in recent remarks published by financial authorities. Meaningful crypto tax legislation) are a major step in attracting and keeping investors.
Portugal plans to enact cryptocurrency taxes in 2023. Short-term capital gains will be subject to a 28% tax, but capital gains on cryptocurrencies sold after a year will remain tax-free.
Portugal will continue to have more benevolent crypto tax laws than the US and the UK, even with the impending changes to the nation’s tax laws. Most nations tax long-term bitcoin gains, except Portugal.
Do you now have to pay taxes on all cryptocurrency transactions in Portugal?
Crypto income presently falls into one of three categories under the Portuguese Personal Income Tax Code (the “PIT Code”): capital (Category E), capital gains (Category G), or self-employment income (Category B).
For Portuguese taxpayers, this is a significant change because Portugal was hitherto known as a cryptocurrency “tax free” zone.
The Portuguese Ministry of Finance declared in 2016 that only transactions or money derived from professional operations would be liable to taxes, and that retail cryptocurrency trading would remain tax-free. This is altered by the new tax system.
What are Portugal’s cryptocurrency tax rates?
Portugal has cryptocurrency tax rates ranging from 14.5% to 53%, and we will go into more detail about the specific rules for mining later in this post. In Portugal, the usual capital gains tax rate is 28%.
Notably, it seems that the new crypto tax system in Portugal does not impose any taxes on really non-fungible NFTs.
The three main categories of Portugal crypto tax rates are capital, capital gains, and self-employment income.
Income from capital: PIT Category E
This category includes fiat compensation for passive cryptocurrency investments that are not dependent on cryptocurrency transfers. There is a flat 28% tax rate on these.
When cryptocurrency income does not fit into another category, this one is used by default.
Be aware that cryptocurrency may be accepted as payment in and of itself when it meets certain requirements, such as PIT Category A for salaries and PIT Category B for income from self-employment.
The use of a good or service in lieu of cash for cryptocurrency payments is known as in-kind payment, and it is taxed appropriately.
Income from capital gains: PIT Category G
When making capital gains with fiat money, cryptocurrency will be taxed at a fixed rate of 28% if you hold it for fewer than 365 days.
These gains will be subject to progressive tax rates ranging from 14.5% to 53% if you decide to aggregate them. Holding cryptocurrency for longer than 365 days exempts the investor from taxation. Take note that cryptoassets that are categorized as securities are not covered by this.
Keep in mind that if the following criteria are satisfied, the positive balance between capital gains and losses from the transfer for consideration of shares and other securities must be aggregated.
- You have owned the assets for less than a year.
- Your total taxable income (including gains and losses combined) equals or surpasses EUR 78,834.
Tokens used for investments or securities are not covered by the 365-day rule since they are taxed and treated like securities.
Additionally, if the capital gains are made by an individual or organization that is not a resident of the European Economic Area or another country without a double taxation agreement or other comparable arrangement governing the sharing of information for tax purposes, then this rule will not be applicable.
Additionally, keep in mind that if and when you cease to be a tax resident of Portugal, a “Exit Tax” equal to 28% of the difference between the market value of all crypto assets you own at the time and the value acquired via the First in First Out (FIFO) accounting technique will be applied.
Income from self-employment: PIT Category B
Revenue from activities related to the issuance of cryptocurrency assets, such as mining or consensus-based transaction validation, is subject to progressive taxation at rates ranging from 14.5% to 53%.
Also keep in mind that your profits from professional cryptocurrency trading will probably fall under this category and be subject to income tax.
Portugal’s cryptocurrency tax estimate
This is a straightforward computation of Portugal’s crypto tax for short-term capital gains under the new tax law. Take the example below.
In January, you buy €5,000 worth of Bitcoin. You make €2,500 when you sell this €5,000 in July for €7,500.
A flat tax rate of 28% will apply to this €2,500 unless your total taxable income (including all gains and losses) equals or surpasses €78,834. If so, depending on your income, these profits will be subject to progressive tax rates ranging from 14.5% to 53%.
Profits from professional cryptocurrency trading will probably fall under PIT Category B and be subject to income tax.
Several elements influence if your cryptocurrency trading activity will be regarded as “professional,” such as the volume of trades, holding times, number of platforms utilized, transaction complexity, debt-to-equity ratio, and profit margin in comparison to other sources of income.
If you trade cryptocurrency “full-time,” it is likely that tax authorities may view you as a professional trader and count your profits as income.
Portugal’s income tax brackets
For 2023, Portuguese citizens will pay progressive rates of taxation on their worldwide income, ranging from 14.5% to 48%. Non-residents pay a fixed 25% tax rate on income only originating in Portugal.
How Portugal’s cryptocurrency tax is reported
Both non-residents who make money in Portugal and nationals who reside there are subject to personal income tax, or IRS.
Portuguese taxpayers are required to file an annual return that includes information about their tax status as well as their income from the previous year. The online filing of the return through the tax portal is mandatory, and the submission window runs from April 1 to June 30.
Portugal’s cryptocurrency taxpayers must submit their returns online using the Tax Return (Model 3) tool on the tax portal.
If the amount to be paid or received (the assessment) has been made by July 31, tax is due by August 31. If the assessment has been made by November 30, tax is due by December 31. One month after receipt of the assessment, tax is due by July 31.
Quick overview of Portugal’s cryptocurrency tax process
The relevant blockchain taxes Portugal’s online tax portal handles all of the filing forms. As previously mentioned, Portugal’s crypto taxpayers must submit an online return by June 30 of each year; the platform will assist you with this procedure.
Extended crypto trading
Portugal generally encourages storing cryptocurrency for a year or more. Portugal has a unique classification for cryptocurrencies, and a recent law says that profits that are kept by investors for longer than 365 days should not be subject to capital gains taxes.
Staking, lending, and mining cryptocurrency
For income from mining operations, or on 85% of its sale, a set presumption of expenses of 5% is imposed. That is to say, in the former case, only €950 or €150 of the taxable person’s €1,000 mining revenue will be subject to taxation.
Take note that selling cryptocurrency is equivalent to ceasing to operate as a freelance contractor. Businesses must pay progressive rates on 95% of their mining gross income.
There is no set guideline for staking or lending, thus it is crucial to handle each situation separately. It is reasonable to assume that the proceeds from loan will be taxed as capital income.
It should be noted that if an investor is taxed in the country where they receive their revenue from international exchanges (such as staking or DeFi) and that country has a double taxation avoidance agreement with Portugal, they are probably not subject to taxes on that income.
Paying with cryptocurrency for products and services
The use of a good or service in lieu of cash for cryptocurrency payments is known as in-kind payment, and it is taxed appropriately. In other words, the standard tax consequences apply based on how your cryptocurrency profits are typically taxed if you use cryptocurrency to pay for a good or service.
For instance, you will not be taxed on any gains made on the acquisition if you have owned cryptocurrency for more than a year and used it for that purpose.
Taxes would apply to any gains made on the cryptocurrency between the time you bought it and the time you used it to pay for a specific good or service if you held it for less than a year.
Since Portugal sees cryptocurrencies as a means of payment rather than an asset, transactions using them are not subject to VAT.
Regarding utility tokens and the new crypto taxes Portugal system, there is no explicit guidance available. These should be handled individually, and it is anticipated that any money received through the sale or exchange of utility tokens will be liable to capital income tax at the standard rates mentioned above.
Tips on how to reduce Portugal’s crypto taxes
Holding your cryptocurrency for more than a year is the easiest method to reduce your liabilities for crypto taxes in Portugal. As of this writing, Portugal does not impose taxes on gains from cryptocurrency held for more than a year, so you can earn from long-term trades without facing any tax repercussions.
Additionally, you can reduce your tax rate by donating your cryptocurrency, which is subject to a 10% Stamp Duty.
Donations made by spouses, life partners, ascendants and descendants (such as children and grandchildren), and any donations under €500 are also free from this tax. To put it briefly, you can reduce your tax liability if you have a successful year in cryptocurrency by giving some of your winnings to loved ones.
Also, Portugal’s cryptocurrency taxes can be calculated using software or calculators available online.
Business taxes on cryptocurrency
Companies that make money from cryptocurrency operations will pay business income taxes.
After deducting any other expenses or deductions, 15% of the gross income from the majority of crypto-assets is subject to progressive taxation at rates if the taxpayers’ gross business income in the preceding fiscal year did not exceed €200,000.
Never should the effective tax rate go above 8% of gross revenues. The mining industry taxes 95% of its gross income at progressive rates.
We highly advise engaging with an expert to stay compliant in light of the significant adjustments Portugal will be making to its approach of crypto taxes in 2023.
Frequently Asked Questions
When should you pay Portugal’s cryptocurrency taxes?
Portugal has a pay-as-you-earn system that is modified for yearly tax returns. Refunds or additional payments are given in accordance with the filed tax returns.
Portuguese tax authorities shall provide the tax assessment by July 31 for electronic returns submitted by June 30. The deadline for paying these taxes is August 31. Should the assessment not be received by July 31st, payment must be made within a month following the assessment’s release.
When is Portugal’s tax deadline?
By June 30th, internet tax returns for Portugal must be submitted.
What occurs if I fail to submit my Portugal cryptocurrency taxes?
In Portugal, the amount of money fined for filing taxes beyond the deadline is between €200 and €2,500. Penalties for late payments range from 10% of the total amount owed in taxes to twice that amount, up to a maximum of €55,000 (plus interest).
Is it legal to use cryptocurrencies in Portugal?
Portugal has said that cryptocurrencies will be handled like any other money, not only an asset, and that it will abide by the EU’s regulations regarding the regulation of digital currencies.
How is cryptocurrency income taxed?
Crypto earnings are subject to capital income tax in Portugal when they fall within Category A of the PIT Code, which refers to salaries. Cryptocurrency is subject to self-employment income taxation when it falls within Category B of the PIT Code.
Where can I locate Portugal’s cryptocurrency regulations?
Portugal’s tax authorities are called Autoridade Tributária e Aduaneira. For convenience, they have a webpage in the English language.
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