Following the Government’s presentation of the Budget proposal for 2023, the latter proposes the inclusion, for the first time ever, of specific rules aimed at clarifying the taxation of income deriving from crypto assets.
Below is a brief highlight of the main changes proposed.
Crypto assets defined – “Any digital representation of value or rights that can be transferred or stored electronically using distributed ledger technology or similar”.
Mining & staking income – Taxable as category B income (as “professional or business income”) and subject to progressive tax rates, but with the possibility of enrolling in the simplified regime. Under this regime only 15% of the income from such operations are taxable at progressive rates (without accounting any other deductions / expenses) to the extent that taxpayers have not exceeded in the previous fiscal year €200,000 of gross annual amount of business income. Effective tax rate ranges up to 7% of gross proceeds.
For taxpayers above €200,000 threshold, the taxable base is determined in a similar way to a company, accounting for deductible expenses. Net income will then be taxed at progressive marginal tax rate up to 48% plus additional solidarity surtax of 2.5% on income between €80,000 and €250,000 and 5% on income exceeding €250,000.
Conversion gains – In the case of crypto assets which are not securities, gains from crypto to crypto and crypto to fiat conversions may be exempt provided that the assets have been held for a minimum period of 365 days; otherwise a flat rate of 28% could apply.
Crypto services – Fees charged by crypto services’ suppliers or intermediaries subject to Stamp Duty at a 4%.
Reporting – Entities, with or without legal personality, or individuals that supply custody and administration services in relation to crypto assets on behalf of third parties or that manage one or more crypto assets negotiation platforms, must report to the Portuguese tax authorities, by the end of January of each year, on a taxpayer by taxpayer basis, all the transactions involving crypto assets carried out with their intervention, according to an official form to be published.
Our view – Given that the current government has a majority in Parliament, it is highly likely that the fundamentals of the proposed framework are approved. We believe that these new rules are a step forward to clarify the tax treatment of certain crypto transactions. There are, however, certain potential taxable events, as well as definitions (i.e. crypto asset platform) that may require further clarification. All in all, the proposed framework will put Portugal at the forefront of the EU countries that welcome a friendly crypto ecosystem regime, and will thus likely continue to be attractive.
Please contact us at email@example.com for further information.