Introduction
Portugal is an ideal destination in Europe for digital nomads and businesses seeking a light tax burden. Among European countries, Portugal used to be one of the nations offering favorable tax systems for crypto assets, but with the tax policy update in 2023, Portugal also ended its relatively tax-free status for crypto asset transactions and began taxing crypto asset gains. According to Portugal’s personal income tax law, income from crypto assets can be divided into three categories: capital (Class E), capital gains (Class G), or self-employment income (Class B), each subject to different tax regimes. This article will provide a detailed analysis of Portugal’s taxation and regulatory system.
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Overview of Portugal’s Basic Tax System
2.1 Portugal’s Tax System
Portugal’s tax system consists of personal income tax, corporate income tax, value-added tax (VAT), and social security contributions are also part of Portugal’s tax system. The current tax types in Portugal are sevenfold, namely: corporate income tax, personal income tax, VAT, real estate transfer tax, property tax, stamp duty, and other taxes.
2.2 Main Types of Taxes
2.2.1 Corporate Income Tax
Enterprises engaged in commercial, industrial, or agricultural activities in Portugal and registered in Portugal should pay corporate income tax to the Portuguese tax authorities. The tax rate for large enterprises (with a turnover of more than 50 million euros) is 21%; for small and medium-sized enterprises, the tax rate is 17% on income up to 15,000 euros and 21% on income above 15,000 euros. Since 2019, an additional national surtax has been imposed on corporate annual profits of 1.5 to 7.5 million euros, 7.5 to 35 million euros, and over 35 million euros, at rates of 3%, 5%, and 9%, respectively.
2.2.2 Personal Income Tax
The tax base for personal income tax in Portugal includes all personal income from both within and outside Portugal for residents, taxed at a rate of 14.5% to 48%; non-residents are taxed only on income earned in Portugal at a flat rate of 25%. Personal income includes: wages, income from business operations or services, capital gains, rental income, investment income, pensions (exempt for portions up to 4,104 euros), director’s fees, etc. Personal income tax is paid according to a progressive scale based on annual income.
2.2.3 Value-Added Tax (VAT)
VAT was introduced in Portugal after joining the European Community in 1986. All transactions of goods and services within Portugal, as well as goods imported from outside the EU, are subject to VAT. Portugal’s VAT system has three rates: standard rate, reduced rate, and super reduced rate. The standard VAT rate in mainland Portugal is 23%, the reduced rate is 13%, and the super reduced rate is 6%. For the Madeira Autonomous Region, the rates are 22%, 12%, and 5%, respectively. For the Azores Autonomous Region, the rates are 16%, 9%, and 4%, respectively.
2.2.4 Real Estate Transfer Tax
All properties and lands in Portugal are subject to real estate transfer tax when bought or sold, with the tax base being the higher of the transaction price or the registered price of the property. For rural properties, the transfer tax is 5% of the transaction price. For urban properties, the transfer tax rate varies according to the transaction price: no real estate transfer tax is charged for contracts up to 92,407 euros; a sliding scale of 2% to 8% for amounts between 92,407 and 574,323 euros; and a fixed rate of 6% for amounts over 574,323 euros. The real estate transfer tax is paid by the property buyer, usually at the time of payment or on the first working day after the payment, and for property transactions conducted abroad, the tax must be paid within the next month following the transaction.
2.2.5 Stamp Duty
Stamp duty is levied on various contracts, property transfer documents, business books, and other records in economic activities. There are two methods for stamp duty collection in Portugal: one is a fixed rate, such as for checks, commercial books, wills, real estate registration, etc., with fees ranging from 0.05 to 25 euros; the other method is to charge stamp duty as a percentage of the contract amount, with rates varying from 0.04% to 10%, including contracts for real estate sales, donations, guarantees, mortgages, insurance policies, etc.
Portugal’s Crypto Tax Policy
3.1 Qualification of Crypto Assets
In Portugal, crypto assets do not have the status of legal tender, are not classified as legal currency, and are not considered “money” or “electronic money.” However, a statement by the European Banking Authority (EBA) in 2019 indicated that, according to Directive 2009/110/EC (EMD2) , crypto assets can be considered “electronic money” in limited circumstances. The definition of crypto assets in the EU’s Markets in Crypto Assets (MiCA) regulation is expressed as “any digital representation of value or rights that can be transferred or stored electronically using distributed ledger technology or similar technology,” excluding single crypto assets and non-fungible crypto assets. Crypto assets are largely seen as an alternative payment method, essentially contractual, the result of private agreements between crypto asset transaction participants, and to some extent possess intrinsic characteristics that replicate the main features of traditional currency: store of value, unit of account, and medium of exchange.
For personal income tax purposes, according to Portugal’s Personal Income Tax Code (Código do Imposto sobre o Rendimento das Pessoas Singulares,CIRS), gains from the disposal of crypto assets should be considered capital gains, and a standard tax rate of 28% will apply to capital gains arising from the disposal of the aforementioned assets, unless these assets are held for more than 365 days, in which case an exemption will be granted (but not for crypto assets classified as securities).
3.2 Crypto Asset Tax System
Portugal’s Personal Income Tax Code was revised in 2023 to include crypto assets within the scope of taxation. A 28% capital gains tax (CGT) is levied on short-term holdings of crypto assets (held for less than one year). Long-term holdings of crypto assets (over one year) are tax-exempt. Additionally, non-fungible tokens (NFTs) are excluded from taxation and enjoy tax exemption. Portugal practices a progressive tax system with rates ranging from 14.5% to 53%, depending on the category of income. According to the revision, income from crypto assets is classified into the following three types: capital (Class E), capital gains (Class G), or self-employment income (Class B).
（1）Capital Income: PIT Class E
Class E refers to the taxation of capital income (Rendimentos de Capitais). For crypto assets, this category of taxation mainly applies to passive income, such as investment returns. Additionally, physical crypto payments (e.g., using crypto assets to pay for goods or services) should also be taxed accordingly.
（2） Capital Gains Income: PIT Class G
Class G refers to the profits obtained from the buying and selling of crypto assets, applicable to capital gains obtained from the sale of crypto assets held for less than 365 days. If the holding period exceeds 365 days, the capital gains from the sale are tax-exempt (but still need to be reported). The sale of crypto assets held for less than 365 days is subject to a flat tax rate of 28%. However, investors can also choose to include these profits in their general taxable income and then be taxed at a progressive rate of 14.5% to 53% based on total income. There are exceptions: certain crypto assets are considered securities and are subject to tax regardless of the holding period.
（3）Self-Employment Income: PIT Class B
Income from crypto asset issuance activities (e.g., mining or validating crypto transactions) falls under Class B. These incomes are taxed at a progressive rate of 14.5% to 53%. For professional traders, profits from cryptocurrencies are generally considered self-employment income and are taxed accordingly.
The main features of the tax system include: First, individual investors are not subject to capital gains tax as long as they do not engage in professional activities related to crypto assets and hold the assets for more than 365 days. This means that income from personal investment in buying and selling crypto assets is generally not affected by taxation. Second, if these transactions are not commercial activities, VAT and income tax do not apply to crypto asset transactions. Third, taxation of professional activities: income derived from activities related to crypto assets that are considered professional or entrepreneurial may be taxed according to the general provisions of income tax.
Building and Improving Portugal’s Crypto Regulatory Framework
The Portuguese Securities Market Commission (CMVM) and the Bank of Portugal are the main regulatory bodies responsible for overseeing virtual asset exchanges, custody services, and preventing money laundering and terrorist financing activities.
Portuguese regulatory authorities have established relevant regulations classifying crypto asset exchanges as a licensing system operated by the central bank. The CMVM is responsible for directly supervising “tokenized” asset markets, i.e., the digital representation of stocks or bonds, etc., through crypto assets in a decentralized database. The Bank of Portugal, as the main enforcement agency for Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT), has implemented strict regulations on crypto asset exchanges. In 2022, the European Parliament’s Committee on Economic and Monetary Affairs approved the provisions of the Markets in Crypto Assets (MiCA) regulation, which will be submitted to the European Parliament and EU member states for a vote. The MiCA provisions should come into effect by the end of 2024 and aim to provide legal clarity, prevent the misuse of crypto assets, and encourage the development of crypto asset innovation. Currently, MiCA has certain limitations, such as not including Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs).
In terms of compliance requirements, digital asset exchanges operating in Portugal must register with the Bank of Portugal to ensure compliance with legal standards and increase market transparency. Crypto asset businesses in Portugal need to comply with AML/CFT rules in line with EU directives, which include the authentication, verification, and assessment of the credibility and reliability of customers. Additionally, crypto asset service providers (CASPs) engaged in the following activities need to obtain a crypto asset license: exchanging crypto assets for another crypto asset or fiat currency, and vice versa; providing convenient transfer services between crypto asset addresses or crypto asset wallets; providing and maintaining crypto asset wallets. The usual application time is five months.
Summary and Outlook
The Portuguese government has a relatively open attitude towards crypto assets, adopting a balanced strategy in taxation and regulation to protect investor interests, prevent illegal financial activities, and promote the healthy development of the market. With the continuous popularity and adoption of crypto assets globally, Portugal’s crypto asset market is also booming. There are 108 companies in Portugal that accept crypto assets, showing the market’s friendly attitude towards crypto assets. In 2023, Portugal included crypto assets in its tax scope, ending the previous status as a “tax-free” zone for crypto assets, with a short-term capital gains tax as high as 28%, but offering relatively favorable conditions for long-term investors to encourage more long-term investments, thereby promoting the stable development of the market. Regarding the MiCA regulations, one important change is the emphasis on environmental responsibility, requiring crypto asset companies to reduce the high carbon emissions of crypto assets. Important crypto asset service providers need to publish their energy consumption on their websites and share this information with national authorities. Another change is the regulation of stablecoins, which is the responsibility of the European Banking Authority (EBA). For stablecoin issuers operating in the EU, it is required to establish sufficient reserves in a 1:1 ratio, partly in the form of deposits. These reserves ensure that all stablecoin holders can make claims to the issuer at any time, free of charge.
As the global crypto asset market continues to evolve, Portugal may continue to adjust its tax and regulatory policies to adapt to new market conditions and international standards.