CRYPTOCURRENCY TAXATION IN PORTUGAL

Introduction

Cryptocurrency is a decentralized currency, meaning they are not controlled nor emitted by any central bank, and instead of being controlled by their creators and/or users they are using a peer-to-peer system and its transactions saved in ledgers called a blockchain.

Ever since their creation in the last decade nature of cryptocurrency has been debated, is it a real currency, or is it a commodity? The EU central bank defines cryptocurrencies as “virtual currency is a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community”.

There are several cryptocurrencies around, and with different uses of their specific technology, the most well-known are Bitcoin (“BTC”), Bitcoin Cash (“BTH”) or Ethereum  (“ETH”),  but there are many more in the crypto world.

Since the value of the Cryptocurrencies change and can rise or fall depending to the supply and demand, and since it is a finite resource, there is only “X” amount of “coins”, many individuals, or corporations use them as i) deposit of value, to offset inflation for example, or ii) to trade and benefit from the capital gains when they sell it.

This activity when we sell an asset like cryptocurrencies has proven to be an issue to define exactly what we are referring to, and how to be taxed. The definition of what is a cryptocurrency can still be quite different from institution to institution, and even from country to country.

Cryptocurrencies are usually taxed as capital gains tax, income tax, or VAT (upon conversion to a current fiat currency.

From what has known the countries of Malta, Slovenia, Germany, and Portugal are the best places to be when we are talking about the taxation of cryptocurrencies.

Portugal as one of the best places to be in, when we analyze the taxation of cryptocurrencies, is also one the 7 EU states that back in 2018  declared they wanted to promote the use of blockchain in their countries.

Unlike countries like Germany that to exempt someone from taxation, demands that the capital gain is lower than € 600 or it is held for more than one year to be exempted, in Portugal, there are no such requirements. However, not all is crystal clear as we can see below.

You can find a non-verified table below*, with the characterization of the asset per each country, type of taxation, and the applicable tax rate if, applicable.

Brief overview 

CountryClassificationType of taxTax rate
AustraliaPropertyProgressive income tax GST19-45% 10%
BelarusDigital asset NANA
BrazilAssetCapital gains tax15%
CanadaAssetProgressive income tax15-33% 
ChinaVirtual commodityProgressive income tax (for international trading)3-45%
DenmarkPrivate moneyNANA
FrancePropertyCapital gains tax30-34%
GermanyPrivate moneyProgressive income tax0%-45%
IndiaDigital asset Progressive income tax GST0-30% 18%
IsraelDigital assetProgressive income tax VAT10-50% 17%
JapanPropertyProgressive income tax Consumption tax5-45% 8%
MaltaCommodityNANA
Netherlands AssetIncome tax30%
PanamaDigital assetNANA
PortugalNANANA
RussiaDigital asset Income tax13%
SingaporePropertyNANA
SloveniaMovable propertyNANA
South AfricaIntangible assetProgressive income tax 18-45%
South KoreaPropertyIncome tax  VAT20.9% 7%
SwedenDigital assetProgressive income tax0-57%
SwitzerlandMovable propertyProgressive wealth tax Progressive income tax0-0.67% 7-34%
TurkeyCommodityProgressive income tax15-35%
UAENANANA
UKPrivate money or AssetCorporation tax Progressive income tax 19% 0-45%
USAPropertyCapital gains Progressive income tax0-20% 10-37%
https://3commas.io/blog/cryptocurrency-taxes-guide

As you can easily see after a quick analysis of the table above, Portugal is an extremely competitive country to hold and sell a substantial number of bitcoins, Ethereum or other cryptocurrencies.

Taxation in Portugal

So, how does the Portuguese Tax Authority in Portugal treat the taxation of cryptocurrencies in Portugal? To analyze the taxation of cryptocurrencies in Portugal we will analyze it from two perspectives, i) personal income tax (“IRS”) and ii) VAT (High value-added taxation):

Personal Income Taxation in Portugal (IRS):

If you are considered a tax resident in Portugal you will need to define if and how to pay taxes on your gain on cryptocurrencies, especially when you sell them. Therefore, after a long discussion on the matter about the taxation of cryptocurrencies in IRS, the Portuguese Tax Authority decided in 2016 the following:

They only discussed the income sourced on the capital gain from buying and selling the crypto coins, so their first step was to understand what a cryptocurrency is exactly, and they have concluded that they are not technical “currency”, because they are not accepted in the current and normal market in Portugal or can be commonly accepted “as currency”.

The second step was to analyze if the Gain you earn from selling the cryptocurrencies fits in any of the income categories the Portuguese Tax Law compromises. To be easier it could be one of the three income categories: Capital Yield (“E” type), Capital Gains (“G” type), or Self-employed Worker (“B Type”).

Category E (Capital Yields) – Cryptocurrencies do not fall into this category because the earnings come from selling the a rights of ownership over the currency, not from capital application (similar applications here are interests you get from the ).

An interesting discussion is to understand if you earn interests from investments in platforms like blockfi , where you deposit your bitcoins and you earn a yield on it, if they are, or are not taxed as “E” Type.

Category G (Capital Gains) – For this purposes, it is considered capital gains the closed list that is established on the Personal Income Tax Code (Código do IRS), and since Cryptocurrency trading is not one of the events that the Portuguese law considers to constitute capital gain, therefore is not taxed as if it were.

Category B (Self-Employed Worker) – However, if cryptocurrency trading is your main activity, either because it’s your i) recurring activity with the objective to generate ii) profits, you should open a professional activity and pay taxes on your profits.

A small note about profits tax (Corporate tax): If you hold your crypto on your Portuguese company, all the gains from cryptocurrency trading are taxed as any other profit the company had.  

Value Added Tax ( “VAT” )

On other hand, there were doubts if cryptocurrencies like Bitcoin, Ethereum, and so on, were liable to VAT when we sell/buy it.

Regarding this matter, the Court of Justice of the European Union (“CJUE”)  considered that cryptocurrencies are exempt of paying VAT. This happens because the CJUE, ruled that as cryptocurrencies are considered a currency, their only use is as a payment method, therefore a simple transfer of coins to another person does not constitute a taxable event.a

Conclusion

In conclusion, cryptocurrencies in Portugal are only taxable if you do it as a professional trading activity and therefore you need to open an activity as a trader and pay taxes according to your profit, otherwise they are considered non-taxable in Portugal due being unable to fit in any category.

*1 content from the blog: https://3commas.io/blog/cryptocurrency-taxes-guide , where you can find information on crypto taxation regarding other countries.

This article is for informational purposes only and is not intended to be exhaustive in relation to the matters covered here. However, if you are still not completely clear and continue with doubts or if you want our help, do not hesitate to contact us through geral@fslegal.pt.