Crypto Taxes in Portugal: A Comprehensive Guide
Up until last year, crypto taxes in Portugal were pretty much non-existent. But that is no longer the case. After the Portuguese State Budget for 2023, profits made from crypto within a year of its purchase are now subject to a flat 28% capital gains tax rate.
However, crypto taxation in Portugal is a bit more complex and nuanced than it may appear on the surface. If you’re a Portuguese resident or planning to move there for tax benefits, this guide is crucial for you.
In this guide, we’ll explain how the Portuguese Tax and Customs Authority views crypto for tax purposes, how crypto is taxed in Portugal in-depth, how to calculate your crypto taxes and much more.
But before that, let’s go over the history of crypto taxation in Portugal for context.
The History of Crypto Taxes in Portugal
Despite being a part of the European Union, Portugal had different policies on how they view and treat crypto for tax purposes.
How?
In a document published in 2016, the Portuguese Tax Authority clarified that, based on their interpretation and definition of cryptocurrencies, all capital gains and income earned through cryptocurrencies, including salaries paid in crypto, were exempt from taxation.
The only exception to this rule was if the capital gains were a result of a business or entrepreneurial activity, in which case, the individual would be taxed at personal income tax rates.
This attracted a lot of crypto investors and digital nomads from around the world to move to Portugal, making it one of the most crypto-friendly countries, which it still is. Portugal was even listed in our Top 10 Crypto Tax-Free Countries list.
However, all that changed following the approval of the Portuguese State Budget for 2023, initially drafted on October 17, 2022. The budget revised the previous interpretation and definition of cryptocurrencies to align it with the country’s tax guidelines.
How Does the Portuguese Tax and Customs Authority View Cryptocurrency?
After the revision, the Portugal Tax and Customs Authority now defines cryptocurrencies and other similar digital assets as “any digital representation of value or rights that can be transferred or stored electronically using distributed ledger technology or similar”.
Not only this definition is more comprehensive, but it covers almost all crypto and digital assets and aligns with how the European Union Parliament views and treats crypto.
How is Crypto Taxed in Portugal?
As we mentioned before, crypto taxes in Portugal are highly complicated and nuanced. But as always, we’ve laid out the complete tax framework for crypto transactions in Portugal in the simplest way possible, starting with capital gains.
Capital Gains
As per the new tax laws, if an asset is sold within 365 days of its purchase, it will be subjected to a flat tax rate of 28%. On the other hand, if the asset is held for more than 365 days, it will be exempted from all taxes. This is bad news for active traders but good news for HODLers.
Portuguese residents can choose between paying the flat tax rate or aggregating the amount and paying progressive tax rates, which range from 14.5% to 53%. If they choose to aggregate, they can also offset any capital losses against their gains for up to five years.
Note that digital assets classified as “Investment/security tokens” will be treated as securities and taxed accordingly, meaning the 365-day rule will not apply to such tokens.
Additionally, the 365-day rule will also not apply to residents residing outside the European Economic Area (EEA) or in any other country or state with which Portugal does not have a multilateral tax agreement or an agreement for sharing tax-related information.
Business Income
Income generated from crypto-related business and commercial activities is considered business income and will be subject to business income tax.
When accounting for business income taxes, bear in mind that only 15% of the total gross income from such activities will be taxed at progressive rates, excluding any deductions or business expenses. However, in the case of crypto mining, 95% of the total gross income will be taxed at progressive tax rates.
Other Taxes
Other than these basic tax frameworks, we must address a couple of additional tax guidelines and exceptions.
Firstly, the exit tax. When you stop being a resident of Portugal, you must pay a flat 28% capital gain tax on all your crypto holdings at their fair market value, even if you don’t sell them.
Secondly, profits made from selling NFTs are tax-free as long as you can prove it’s truly non-fungible and unique. Otherwise, you may be liable for taxes. We suggest you consult a tax professional.
How to Calculate Crypto Taxes in Portugal
Calculating crypto taxes in Portugal is fairly simple. Just subtract the acquisition cost (cost basis) from the sales price (or fair market value) to get the capital gain.
Cost Basis – Sales Price (FMV) = Capital Gain
And to calculate your cost basis in Portugal, you must use the First-In-First-Out (FIFO) accounting method. It assumes that the assets bought first are the first to get sold.
For example, let’s say you bought 5 BTC for $100 each and then purchased an additional 5 BTC for $200 each.
According to the FIFO method, if you sell 150 BTC, it would assume that the first 100 BTC were the ones bought for $100 each, and then the remaining 50 BTC would be assumed to be the ones bought for $200 each.
This is important as the cost basis would directly affect the capital gain you incur, which will decide how much tax you pay.
Manually calculating your capital gains from various wallets and exchanges, determining the cost basis, and keeping track of all transactions can be a daunting task. Not to mention, it’s also a huge waste of your time.
A more efficient solution is to use a crypto tax tool, like Bitcoin.Tax, which seamlessly integrates with all your exchanges and wallets and automatically performs the calculations for you. This tool will save you the headache of manual calculations, making the process quick and easy.
Crypto Taxable Events in Portugal
Navigating different crypto transactions and their tax implications based on the framework provided above can be confusing and time-consuming for some people. Hence, the following are the most common crypto-taxable events and their tax consequences.
Selling or Spending Crypto
Selling crypto in Portugal and incurring capital gains will subject you to a flat 29% capital gain tax rate or 14.5% to 53% progressive tax rate if you’re a Portuguese resident and choose to aggregate the amount.
Getting Paid in Crypto
Based on our interpretation of the 2023 Portuguese State Budget, getting paid in crypto will trigger a tax event. So, you must pay capital gains tax rate of 28% (or 14.5% to 53% progressive tax rate if you choose to aggregate it) on its fair market value at the time of acquisition.
Staking or Lending Rewards
There are no official guidelines on how the Portugal Tax and Customs Authority will treat staking and lending rewards. But based on the existing framework, our best guess is it would be treated as income. Therefore, capital gain taxes.
Mining Crypto
In Portugal, you’ll pay business income taxes on 95% of the total gross income generated from mining crypto.
Airdrops & Hard forks
There are no official guidelines on how the Portugal Tax and Customs Authority will treat airdrops and hard forks. But much like staking and lending rewards, our best guess is it would be treated as income. Therefore, capital gain taxes. However, it’s best to consult a local tax expert.
Crypto Donations & Gifting Crypto
Donations are taxed at 10% in stamp duty. The only two exceptions when donating or gifting crypto is tax-free is if you gift crypto to spouses, life partners or descendants/ascendants or the gift amount is under €500.
Tax-Free Crypto Transactions in Portugal
The following are some crypto transactions that don’t trigger any tax events and are totally tax-free.
Swapping Crypto
Based on our interpretation of the Portuguese State Budget for 2023, it seems that swapping crypto isn’t considered a taxable event. Hence, it’s tax-free to exchange one crypto for another, given some conditions are met. However, we would highly suggest you consult a local tax expert just to be sure.
Buying and Holding Crypto
As long as you’re not selling (or disposing of) your crypto or receiving crypto as compensation for any services or goods you provide, it’s not considered a taxable event. Therefore, buying and holding crypto in Portugal is tax-free.
Transferring Crypto Between Personal Wallets
Transferring crypto between wallets is not a disposal event. Therefore, it’s tax-free.
How to Avoid Crypto Taxes in Portugal
Firstly, a disclaimer – avoiding taxes you owe to the government is a form of a criminal offense for which you may go to jail or pay hefty penalties. So, you can’t totally avoid your taxes. What you can do, however, is deploy some tax-saving strategies to lower or reduce your tax bill.
The first and easiest way to avoid crypto taxes in Portugal is to hold your crypto asset for more than 365 days, as any capital gain incurred after that is tax-free.
Secondly, if you’re a Portuguese resident and choose to aggregate your taxes, you can use the tax-loss harvesting method to utilize non-performing crypto assets to reduce your tax bill.
Other than that, since gifting crypto to spouses and partners in Portugal is tax-free, that is also a great way to dispose of your assets without triggering a tax event.
The best course of action would be to consult a local tax professional who can create a custom, tailor-fit strategy unique to your situation and needs.
How to Report Crypto Taxes in Portugal
In Portugal, the tax year runs from January 1st to December 31st, and the deadline for filing and paying taxes is August 31st. You can file your tax return using this online portal.
Make sure you keep all records, like transaction history, acquisition costs, expenses, selling price, etc.
You should use a crypto tax tool, like Bitcoin.Tax, for this, as it can simplify the process and ensure accuracy in the calculations. It can automatically calculate all your gains and taxes and create a tax report that you can directly file in the online portal.