Cryptoassets in Portugal: Tax Taxation (IRS, IRC and VAT)

If you're a cryptoasset investor in Portugal, it's essential to understand how your investments are taxed. As cryptocurrencies gain popularity, tax authorities are adjusting their policies to ensure proper taxation. In this article, we will explore in detail the tax system applicable to cryptoassets in Portugal, since the IRS, IRC and up to IVA, so that you can manage your investments in an informed and legal manner.

What are Cryptoassets?

According to Portuguese tax legislation, cryptoassets are defined by the Article 10(17) of the CIRS that, “For the purposes of this Code, a cryptoasset is any digital representation of value or rights that can be transferred or stored electronically using distributed ledger technology or similar.”

This legal definition covers all forms of digital financial assets, including virtual currencies such as Bitcoin, Ethereum, among others, as well as any other digital assets that can be used for investment, exchange or electronic transaction purposes.

IRS Tax Framework 📝

As far as the IRS is concerned, the taxation of crypto-assets follows the rules established for different categories of income:

• Category B (Business Income): If you operate with cryptoassets on a professional and regular basis, as a business activity, the income obtained is considered to be from category B. This income is subject to progressive taxation according to IRS rates. It is important to record all expenses related to the activity for tax deduction purposes.
• Category E (Capitals): If you earn income from holding cryptoassets, such as interest or dividends, this is considered to be income from the cryptoasset. category E. This income is also subject to taxation at progressive IRS rates. It is necessary to declare this income in the IRS Form 3.
• Category G (Capital Gains): Capital gains obtained from the sale of crypto-assets are taxed as capital gains. category G. The taxation of capital gains varies according to the length of time you hold the crypto-assets. If you hold the crypto-assets for less than 12 months, the capital gains are taxed at the standard IRS rate. On the other hand, if you hold the crypto assets for more than 12 months, you benefit from a reduced tax rate.

Note that...

The Article 43(5) of the CIRS, the new Article 63-D of the General Tax Law now includes transactions with cryptoassets, to the extent that losses calculated when the counterparty to the transaction is subject to a tax regime referred to in Article 63-D (1) or (5) of the General Tax Law (i.e. the so-called “tax havens”) are not relevant for calculating the positive or negative balance. In addition, point g) has been added to paragraph 6, which essentially establishes the following rule for cryptoassets first in first out (FIFO). In this context, it is foreseen that, if the crypto-assets are deposited in more than one credit institution, financial company or crypto-asset service provider, this rule is applied by reference to each of these entities, under the terms of the new wording of Article 43(7) of the CIRS.[6].

It is essential to keep detailed records of all transactions and activities related to cryptoassets, as this information will be required in the IRS Model 3 tax return. Failure to comply with these obligations may result in penalties from the tax authorities.

Corporate Income Tax 💼

For companies operating with cryptoassets, taxation takes place under the IRC. Operations with cryptoassets are treated as financial transactions and are subject to taxation, just like any other commercial activity. Capital gains obtained from trading cryptoassets are considered profits subject to IRC, while capital losses can be deducted for tax purposes.

Companies must keep accurate records of their activities related to cryptoassets and ensure compliance with all tax obligations established by the Tax and Customs Authority.

VAT tax framework 📊

With regard to IVA, in addition, cryptoasset transactions are subject to taxation in certain circumstances. For example, the provision of services related to cryptocurrencies may be subject to VAT, depending on the nature of the service and the client's place of residence.

It is crucial that companies operating with cryptocurrencies understand their VAT obligations and comply with established legal provisions. Non-compliance can result in financial penalties and legal complications. In addition, it is essential that investors and companies understand their tax obligations and comply with the legal provisions established by the Portuguese tax authorities.

If you're involved in the cryptocurrency world in Portugal, make sure you're up to date with the latest updates to ensure proper tax compliance. By staying informed and compliant, you can enjoy the benefits of cryptoassets safely and legally.