2023 CRYPTOASSETS TAXATION IN PORTUGAL: WHAT YOU NEED TO KNOW ABOUT THE NEW CHANGES

The year 2023 brings a new reality in the field of cryptoasset taxation in Portugal. Until the 2023 State Budget was presented, discussed, and approved, cryptoassets did not have a specific tax regulation. As a result, for several years, Portugal was seen as a crypto-friendly country.

In terms of taxation, the only legal interpretations were based on two doctrinal papers where the Tax and Customs Authority clarified certain issues regarding these assets. However, these clarifications were never sufficient, as there were numerous unanswered questions.

Until December 31, 2022, most income from cryptoassets was exempt from personal income tax (IRS), both as capital income and capital gains. Only income from professional activities related to cryptoassets was subject to taxation under category B of IRS if it was the taxpayer’s habitual activity.

But during the past years, certain rules were applied based on the information disclosed by the Tax Authority. Regarding taxation, cryptoassets were exempt from personal income tax as capital income (category E) and as capital gains (category G). In terms of corporate income tax (IRC), since income needs to be accounted for, if it contributed to taxable profit, it was subject to this tax.

In terms of value-added tax (VAT), the definitions were slightly different. Income and exchanges involving cryptoassets fell under the scope of VAT legislation (CIVA – VAT Code). However, they were exempt from VAT.

However, after the approval of several measures provided in the 2023 State Budget concerning the taxation of cryptoassets, followed by some proposed changes by certain political parties, there are new rules regarding the taxation of cryptocurrencies, NFTs, and other cryptoassets, as well as activities associated with them, such as mining.

Therefore, let’s explore the changes in cryptoasset taxation in 2023.

THERE IS A TAX DEFINITION FOR CRYPTOASSETS IN 2023

Until the 2023 State Budget came into effect, there was no tax definition for cryptoassets. In most communications on this topic over the years, the Tax Authority referred to digital currencies or cryptocurrencies. However, the concept of cryptoassets is broader, as it can include NFTs and other assets.

Therefore, in 2023, “all digital representation of value or rights that can be transferred or stored electronically using distributed registration technology or similar” will be considered cryptoassets.

PROFESSIONAL ACTIVITIES ASSOCIATED WITH CRYPTOASSETS INCLUDED IN IRS CATEGORY B

As mentioned earlier, there were several doubts regarding professional activities associated with cryptoassets. This was because the Tax Authority’s doctrinal papers stated that taxation would only apply if such activities were the taxpayer’s habitual occupation.

However, the 2023 State Budget explains and defines what makes a professional activity involving cryptoassets fall under category B of IRS.

In simple terms, all commercial activities involving certain operations with cryptoassets are classified under category B of IRS.

In other words, a commercial activity that involves operations related to mining, validation of transactions through consensus mechanisms, or issuance of cryptoassets falls under Business and Professional Income in IRS if the activity is carried out by an independent worker or a sole trader.

SIMPLIFIED REGIME UNDER IRS AND IRC

One of the novelties introduced by the 2023 State Budget is the possibility of including cryptoassets sales under the simplified regime of IRS and IRC.

In the initial proposal of the State Budget, a coefficient of 0.15% was planned to be applied. This means that if the income does not exceed 200,000 euros, which is the maximum limit for the simplified regime, the taxable amount would be equivalent to only 0.15% of the income.

For example, if an activity involving cryptoassets generates an income of 100,000 euros, the taxable amount would be 15,000 euros. The applicable IRS or IRC rate would be calculated based on this amount.

However, after the discussion of the 2023 State Budget, this measure remains in effect but with a more penalizing coefficient for activities such as mining due to their significant environmental impacts resulting from energy consumption. Therefore, for mining income that does not exceed 200,000 euros, a coefficient of 0.95% is applied.

Using the same example, if the activity generates income of 100,000 euros, the taxable amount would be 95,000 euros, to which the applicable IRC or IRS rate would be applied.

CRYPTOASSET INCOME CONSIDERED AS CAPITAL GAINS WILL BE TAXED AT 28%

The most significant change in cryptoasset taxation is associated with capital gains. Since the implementation of the 2023 State Budget, gains from the onerous transfer of cryptoassets, provided they are not classified as income under category B, capital income, real estate income, or securities income, will be subject to taxation as capital gains.

It was expected that capital gains from cryptoassets would be taxed at a rate of 28%. After all, this is the rate applied to many investments, such as stocks. However, there is no longer a fiscal benefit for this type of investment.

However, the State Budget includes an exemption from capital gains tax if the assets are held for more than 1 year. As with other assets and rights subject to capital gains, it is possible to deduct necessary expenses incurred in the acquisition and disposal of cryptoassets.

But please note, this exemption does not apply when capital gains or transactions involving cryptoassets are associated with beneficiaries or payers of income in a tax haven. The same applies to all entities resident in countries with which Portugal does not have an information exchange agreement.

Furthermore, residents of tax havens cannot deduct any potential losses from cryptoassets.

NFTS ARE EXEMPT FROM TAXATION UNDER IRS AND STAMP DUTY

Although classified as cryptoassets, NFTs will benefit from exemption from taxation on gains obtained between NFTs and other cryptoassets. This is a significant fiscal benefit as it eliminates taxation under IRS. Additionally, these incomes are also exempt from Stamp Duty.

WHEN ARE CRYPTOASSETS CONSIDERED CAPITAL INCOME?

One of the major questions clarified by the new State Budget is regarding capital income associated with cryptoassets.

Since January 2023, delegated staking or off-chain operations are classified as capital income. Why? Because it is the service provider who engages in the validation activity and provides compensation to the holder of the cryptoassets. However, there is an exemption from withholding tax on capital income from cryptoassets.

DO YOU HAVE ANY DOUBTS REGARDING CRYPTOASSET TAXATION OR YOUR OBLIGATIONS?

It is normal to have many questions regarding the taxation of cryptoassets and the various obligations that have been implemented this year. Given that Mário Moura Contabilidade has been specializing in this matter, if you need clarification on your investments or the professional activities of your company, do not hesitate to contact us. After all, in recent years, we have been helping several Portuguese and foreign individuals fulfill their tax and reporting obligations related to cryptoassets.

To clarify all your doubts, simply contact us through the most convenient method for you.

see you soon,
Mário Moura Contabilidade