Crypto tax in Portugal - Current and future prospects
In recent years, and despite the current legal vacuum at regulatory and fiscal level, many crypto assets investors have shifted their tax residence to Portugal, making cashouts by converting their portfolio of crypto assets into legal tender.
In our understanding, the different types of crypto assets (e.g. cryptocurrencies, NFTs), are assets in kind and may correspond to a capital convertible into a monetary amount that reveals the contribution capacity of the portfolio holders.
Thus, is there a legal basis for the taxation of crypto assets in Portugal?
Is income from crypto assets taxed in Portugal?
In the case of legal entities, the taxation of income from crypto assets investments seems clearer: all income must be considered in the taxable income of the entity and be subject to corporate income tax (see corporate income tax in Portugal).
On the other hand, the taxation of income from investments in crypto assets earned by individuals requires a more careful analysis. Personal income tax in Portugal (IRS) has different income categories and each type of crypto assets asset can potentially generate different types of income subject to taxation.
Currently, income from the use of crypto assets may in fact fall under any of the income categories of the IRS, as they can be used as payments in kind of income with the respective characteristics.
Thus, (i) the original acquisition of crypto assets (through mining), (ii) investment in crypto assets (e.g. purchase and sale of NFTs) or (iii) the receipt of crypto assets as payment for a good or service or through a donation, may, in the abstract, be transactions susceptible to generate income taxable under IRS.
Taxation of cryptocurrencies in Portugal
In parallel, there are investors who believe in the existence of a binding position of the Portuguese Tax Authority (AT) applicable to all situations relating to investment in crypto assets. However, it should be stressed that the AT has only taken a position regarding a certain type of transactions: the purchase and sale of cryptocurrencies. According to the position taken in this understanding, gains derived from the purchase and sale of cryptocurrencies can only be taxed if they arise from a business or professional activity ("Category B")
However, due to the difficulties in assessing whether the purchase and sale of cryptocurrencies effectively falls within a business or professional activity (due to the absence of, for example, specific reporting obligations adapted to this new reality and the difficulties in assessing habitualness), Portugal has been seen as a refuge for investors in these assets.
Portugal has been seen as a refuge for investors in crypto assets.
Taxation of crypto assets in Portugal - future prospects
Given the current regulatory vagueness, the creation of a specific legal-tax framework will be welcome, as the absence of regulation has not been beneficial for taxpayers nor for the Tax Authority, increasing the risk of present and future litigiousness.
Nevertheless, this absence of legal-tax regulation at this level should be overcome soon, through the ongoing work and studies already announced by the Secretary of State for Tax Affairs. However, it would be preferable to implement a concerted solution at the level of the European Union, as the adoption of unilateral solutions may generate competitive distortions and increase legal insecurity.