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How gains from cryptocurrency are taxed in Portugal?

How gains from cryptocurrency are taxed in Portugal?

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Crypto heaven in Portugal is still a relatively new phenomenon, so we tried to explain everything you need to learn about it so far.

Cryptocurrency is a decentralized currency. It means they are not controlled or emitted under a centralized control entity’s jurisdiction, such as a Central Bank. In practice, Cryptocurrency realized in computer code lines. When a certain value is assigned, it starts to be controlled by an interconnected database system (peer-to-peer network) keeping a permanent transaction log (blockchain). Blockchain protects the cryptocurrency from falsification, as well as the identity of its holder.

According to the European Central Bank, cryptocurrencies are a type of digital money, not yet regulated or linked to any Central Bank. So, they are not issued and generally controlled by any bank systems and used and accepted among members of a specific virtual community. 

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

Cryptocurrencies, especially Bitcoin, are increasingly being used as investments by individuals who seek high returns. However, since there is no concrete legal framework for cryptocurrencies in Portugal, many queries have been raised concerning their legal framework, in particular regarding their taxation in Portugal.

Gains from the sale of these cryptocurrencies in Portugal, like any other income, may be subject to tax in the beneficiary’s country of residence. In Portugal, all Portuguese tax residents are subject to tax on their worldwide income, meaning that all income they receive must be declared to the Portuguese Tax Authority and may be subject to tax.

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But how the Portuguese Tax Authority treats gains derived from cryptocurrency?

Under a general rule, gains derived from the sale of assets are treated as capital gains and taxed as such. However, capital gains are a closed category of income and only those specifically comprised in the tax law can be subject to tax (as gains from the sale of real estate and securities). 

The Portuguese tax law on capital gains does not include gains derived from the sale of cryptocurrencies. At least from now, these gains are not taxed in Portugal. 

However, gains from cryptocurrencies could fall under other categories of income, such as investment income. Investment income or professional income are both open income categories and call fall into this rule. 

Tax Authority Interpretation

The Portuguese Tax Authority has already issued one binding ruling on the subject. The rule binds only the taxpayer who has requested it but can demonstrate this Authority’s understanding. 

According to this binding ruling, income derived from the sale of cryptocurrencies is not considered as capital gains since they are not comprised in the Portuguese tax law. Consequently, these gains are not taxed.

However, if the sale of cryptocurrencies constitutes a professional activity of the beneficiary, the income would be treated and taxed as professional income. According to the Tax Authority, these gains would only be taxed when, by its habitual, it constitutes a professional or business activity of the taxpayer, in which case it will be taxed in category B (i.e., professional income).

If the sale of cryptocurrencies constitutes a professional activity, the professional income would be taxed in Portugal according to the progressive rates which vary between 14,5% to 48% (an additional surcharge of 2,5% on income higher than € 80.000 and lower than € 250.000; and 5% on income higher than € 250.000 may apply). 

Would like to compare Portugal and Spanish regulations on cryptocurrency?

Read the article by Spanish Tax Specialist

Conclusion 

There have been many interpretations of the taxation of gains derived from cryptocurrencies in the absence of any tax law on the matter. However, it is expected that these gains will be regulated next year, a moment in which we will know if these gains will be treated as capital gains or investment income. 

For now, the only tax framework is the opinion issued by the Portuguese Tax Authority through which the services have concluded that unless the taxpayer develops a professional or business activity of investments in cryptocurrency, no taxation shall be due. 

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