Source: TaxDAO

1. Introduction

In pursuit of lightness For tax-burdened digital nomads and businesses, Portugal is the ideal European destination. In Europe, Portugal used to be one of the countries that provided preferential tax systems for crypto assets, but with the 2023 tax update, Portugal also ended its relatively tax-free status for crypto asset transactions and began to tax crypto asset gains. According to Portuguese personal income tax law, income from crypto assets can be divided into three categories: capital (category E), capital gains (category G) or self-employment income (category B), and different tax systems are applicable according to different incomes. This article will provide a detailed analysis of Portugal’s tax and regulatory system.

2. Overview of Portugal’s basic tax system

2.1 Portuguese tax system

The Portuguese tax system consists of individuals Income tax, corporate income tax, value-added tax, etc. The social security fund is also an integral part of the Portuguese tax system. There are currently 7 categories of taxes in Portugal, namely: corporate income tax, personal income tax, value-added tax, real estate transaction tax, real estate tax, stamp duty and other taxes.

2.2 Main types of taxes

2.2.1 Corporate income tax

Enterprises engaged in commercial, industrial or agricultural activities in Portugal and registered in Portugal shall pay corporate income tax to the Portuguese tax authorities. The income tax rate for large enterprises (with a turnover of more than 50 million euros) is 21%; for small and medium-sized enterprises, the tax rate is 17% for the income part of less than 15,000 euros, and the tax rate for the income part of more than 15,000 euros is 21%. Starting from 2019, on the basis of the current surtax rate, for corporate annual profits between 1.5 million and 7.5 million euros, 7.5 million and 35 million euros, and more than 35 million euros, an additional 3%, 5%, and 9% will be added respectively. % additional tax.

2.2.2 Personal income tax

The personal income tax base of Portuguese residents includes domestic and overseas All personal income is taxed at a rate of 14.5% to 48%; non-Portuguese residents only use income obtained in Portugal as the tax base, and the unified tax rate is 25%. Personal income includes: salary, income from business operations or provision of services, capitalPrincipal income, rental income, investment income, pensions (the portion below 4,104 euros is tax-free), director’s fees, etc. Personal income tax is paid in gradient proportions based on the total annual income.

2.2.3 Value-added tax

VAT was introduced after Portugal joined the European Community in 1986 The type of tax that begins to be levied. All transactions in goods and services within Portugal, as well as goods imported from outside the EU, are subject to VAT. Portuguese VAT adopts three tax rates: general tax rate, preferential tax rate and most preferential tax rate. The general tax rate in mainland Portugal is 23%, the preferential tax rate is 13%, and the most preferential tax rate is 6%. In the Autonomous Region of Madeira, the figures are 22%, 12% and 5% respectively. The Azores Autonomous Region has 16%, 9% and 4% respectively.

2.2.4 Real estate transaction tax

When buying and selling all real estate and real estate in Portugal Real estate transaction tax is required, and the tax collection base is the higher of the real estate transaction price or the real estate registration price. For rural real estate, the transaction tax is 5% of the transaction price. For real estate located in towns, the transaction tax rate varies according to the transaction price: real estate transaction tax is exempted when the real estate sales contract amount is less than 92,407 euros; a floating tax rate of 2% to 8% is applied between 92,407 and 574,323 euros; if the real estate sales contract amount exceeds 574,323 euros, the real estate transaction tax The transaction tax rate is fixed at 6%. Real estate transaction tax is paid by the house buyer, usually at the same time as the house payment or on the first working day after the house payment is made. For real estate transactions conducted abroad, the tax must be paid within the next month after the real estate transaction.

2.2.5 Stamp tax

Stamp tax is based on various contracts signed in economic activities, The tax is levied on property transfer documents, business account books, books, etc. There are two ways to collect stamp duty in Portugal: one is a fixed tax rate, such as checks, business books, wills, real estate registration, etc., with the fee amount ranging from 5 cents to 25 euros; the other way is to charge a certain percentage of the total contract amount Stamp duty, the tax rate ranges from 0.04% to 10%. Such contracts include real estate sales, donations, letters of guarantee, mortgages, insurance policies, etc.

3. Portugal Crypto Taxation

3.1 Qualification of crypto assets

In Portugal, crypto assets Does not have legal tender status and is not classified as legal tender, norNot considered "currency" or "electronic money". However, a 2019 statement from the European Banking Authority (EBA) stated that crypto-assets can be considered “electronic money” in limited circumstances under Directive 2009/110/EC (EMD2)[1]. The definition of crypto-assets in the EU’s Markets in Crypto-Assets Regulation (MiCA) is stated as “any digital representation of value or rights that can be transferred or stored electronically using distributed ledger technology or similar technology” and does not include single encryption assets and non-fungible cryptoassets. Crypto-assets are largely viewed as an alternative payment method that is contractual in nature, the result of private agreements between participants in crypto-asset transactions, and to some extent has inherent characteristics that repeat the main characteristics of traditional currencies. : Store of value, unit of measurement, medium of exchange.

As far as personal income tax is concerned, according to the Portuguese Personal Income Tax Code (Código do Imposto sobre o Redimento das Pessoas Singulares (CIRS), gains from the disposal of crypto-assets shall be treated as capital gains, and the standard tax rate of 28% will apply to capital gains arising from the disposal of the above-mentioned assets, unless these assets are held for more than 365 days, in which case, Exemptions will be available (but not for cryptoassets classified as securities).

3.2 Crypto-asset tax system

Portugal’s Personal Income Tax Code will be implemented in 2023 Revised to include crypto assets within tax scope. A 28% capital gains tax (CGT) is levied on short-term holdings of cryptoassets (less than one year). Cryptoassets held for a long period of time (more than one year) are exempt from tax. In addition, non-fungible tokens (NFTs) are excluded from taxation and enjoy tax exemption. Portugal has a progressive tax system with tax rates ranging from 14.5% to 53%, depending on the income category. Under the revisions, income from crypto assets is classified into the following three types: capital (Category E), capital gains (Category G) or self-employment income (Category B).

(1) Capital income: PIT category E

Category E refers to capital income Taxes conducted by (Rendimentos de Capitais). For crypto-assets, this category of tax mainly applies to passive income, such as investment income. Additionally, physical crypto payments (such as using crypto assets to pay for goods or services) should also be taxed accordingly.

(2)Capital gains income: PIT category G

Category G refers to the income obtained from buying and selling crypto assets, which is applicable to the income obtained from selling crypto assets after holding them for less than 365 days. Capital Gains. If held for more than 365 days, capital gains on the sale are tax-free (still required to be reported). Gains from the sale of crypto assets held for less than 365 days are subject to a flat tax rate of 28%. However, investors can also choose to include these gains as general taxable income and then be taxed at progressive rates ranging from 14.5% to 53% based on total income. There are exceptions: certain cryptoassets are considered securities and are subject to tax regardless of the holding period.

(3) Self-employment income: PIT category B

From crypto asset issuance business ( For example, income from mining or verifying crypto transactions) falls under category B. These incomes are taxed at progressive rates ranging from 14.5% to 53%. For professional traders, cryptocurrency profits are generally considered self-employment income and taxed accordingly.

The main features of the tax system include: 1. Individual investors do not need to bear the burden as long as they do not engage in professional activities related to crypto assets and hold them for more than 365 days. Capital gains tax. This means that income from buying and selling cryptoassets for personal investment is generally not subject to taxation. 2. If these transactions are not commercial activities, value-added tax and income tax are not applicable to crypto-asset transactions. 3. Taxation of professional activities: Income from crypto-asset-related activities that are considered professional or entrepreneurial activities may be taxed according to the general provisions of income tax.

4. Establishment and improvement of Portugal’s crypto regulatory framework

The Portuguese Securities Market Commission (CMVM) and the Bank of Portugal (Banco de Portugal) are the main regulatory agencies responsible for supervision Activities such as virtual asset exchange, custodial services, and prevention of money laundering and terrorist financing.

Portuguese regulators have enacted regulations classifying crypto-asset exchanges under a licensing system operated by the central bank. CMVM is responsible for directly overseeing the “tokenized” asset market, which is the digital representation of stocks or bonds, etc., in a decentralized database through encrypted assets. The Bank of Portugal, as the main enforcement agency for anti-money laundering (AML) and counter-terrorism financing (CFT), has implemented strict regulations on crypto-asset exchanges. In 2022, the Economic and Monetary Affairs Committee of the European Parliament approved the provisions of the Crypto-Asset Market Act (MiCA), which will be submitted to the European Parliament and EU member states for a vote. MiCA's regulations should come into effect by the end of 2024 andDesigned to provide legal clarity, prevent the misuse of crypto-assets, and encourage the development of crypto-asset innovation. Currently, MiCA also has certain limitations. For example, it does not include decentralized finance (DeFi) and non-fungible tokens (NFT).

In terms of compliance requirements, digital asset exchanges operating in Portugal must be registered with the Bank of Portugal to ensure compliance with legal standards and increase market transparency. Cryptoasset businesses in Portugal are required to comply with AML/CFT rules in line with EU directives, which include certification, verification, creditworthiness and reliability assessment of customers. In addition, cryptoasset service providers (CASPs) that engage in the following activities will need to obtain a cryptoasset license: exchange cryptoassets for another cryptoasset or fiat currency and vice versa; provide convenient cryptoasset addresses or cryptoasset wallets; Transfer services between; provide and maintain crypto asset wallets. The typical application time is five months.

5. Summary and Outlook

Portugal has a relatively open attitude towards crypto-assets and has adopted a balanced strategy in taxation and supervision of crypto-assets to protect investors. interests, prevent illegal financial activities, and promote the healthy development of the market. As cryptoassets continue to grow in popularity and adoption around the world, Portugal’s cryptoasset market is also booming. There are 108 companies in Portugal that accept crypto-assets, showing the market’s friendly attitude towards crypto-assets. In 2023, Portugal will bring crypto assets into the scope of taxation, ending the status of a "tax-free" zone for crypto assets. The short-term capital gains tax is as high as 28%, but relatively favorable conditions are provided for long-term investors to encourage more more long-term investment, thereby promoting the stable development of the market. Regarding MiCA’s regulations, one of the important changes is the emphasis on environmental responsibility, which requires crypto-asset companies to be responsible for reducing the high carbon emissions of crypto-assets. Significant cryptoasset service providers are required to publish energy consumption on their websites and share this information with authorities. Another change is that the regulation of stablecoins will be handed over to the European Banking Authority (EBA). For stablecoin issuers operating in the EU, they are required to establish sufficient reserves with a reserve ratio of 1:1, part of which is in the form of deposits. These reserves ensure that all stablecoin holders can make claims against the issuer at any time and for free.

As the global crypto asset market continues to evolve, Portugal may continue to adjust its taxation and regulation to adapt to new market conditions and international standards.

References

[1]. Portugal Budget 2023: The End of the Crypto El Dorado ? (2024)TaxDAO.

[2].Crypto Taxes in Portugal 2024: Your Complete Guide for Hassle-Free Compliance. https://mcs.pt/crypto-taxes -in-portugal-2024/

[3].https://www.internationaltaxreview.com/article/2b3n19bqkr4qdpq7jdm2o/sponsored/2023-portuguese-state-budget-the-end-of-crypto-el-dorado

[4].https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32009L0110