Taxation of cryptocurrencies – update 2022
After huge speculation (and study by the Portuguese Tax Authorities), finally the Portuguese State Budget (SB) Proposal for 2023 unveils what can be expected for the taxation of crypto assets in Portugal.
It should be remembered that, until now, the existing legal vacuum was being filled by attempts of the Portuguese Tax Authorities (PTA), in scarce Binding Information published on the matter, of classifying the income generated by these assets according to the existing Law.
The SB proposal now suggests a wide-ranging definition of crypto assets – “every digital representation of value or rights that may be transferred or stored electronically by means of distributed registry technology or similar” – which shall therefore include the immense world of NFTs (non-fungible tokens).
For Personal Income Tax purposes, the SB suggests taxing the income derived from the issuance (including mining) and validation of transactions of crypto assets, as well as of the capital gains resulting from their onerous sale.
In this context, while the income derived from the issuance and validation of transactions is deemed as resulting from a professional or business activity, and, as a result, taxed in the category B at the progressive Personal Income tax rates (in the simplified regime, the income is deemed to be 15% of the value received for these services); the capital gains for the sale of crypto assets may be taxed in category B at the already mentioned progressive rates, if allocated to a professional or business activity, or in category G at the rate of 28% (with the option for progressive taxation still available).
Regardless of the above, the SB proposal predicts an exemption for the taxation of these capital gains when derived from the sale of crypto assets held for at least 365 days (including the period before the SB entering into force). According to the Portuguese Secretary of State for Tax Affairs, this option, based on the PTA studies, follows the German example, and opposes to the cases of Luxembourg and Belgium, where that time period is shorter or nonexistent, respectively.
For Corporate Income Tax purposes, a tax that for companies that primarily perform activities of commercial, industrial or agricultural nature, applies, as a general rule, over all the profit and, as a result, by definition, already taxed the income derived from crypto assets, there was no need to introduce changes. Differently, for companies that do not primarily perform activities of commercial, industrial or agricultural nature, to whom the simplified regime applies, being taxed by the algebraic sum of the income predicted in the various categories of the Personal Income Tax Code, there has been the need of establishing that, similarly to that Code, the value to sum for tax profit assessment is of 15% of the value received for the services provided as regards crypto assets.
The SB proposal also suggests that the operations with crypto assets should be included in the reporting duties to the PTA (until the end of January of each year) by the entities which provide custody or administration services regarding crypto assets or manage crypto exchange platforms.
As regards Stamp Duty, it is expected the taxation of clients of crypto services, always that the provider and/or the client are domiciled in Portugal, at a rate of 4% over the commissions or consideration received. Although the Stamp Duty is supported by the client, its transfer to the State is a responsibility of the services provider (if domiciled in Portugal) or of the intermediary or nominated representative (in the remaining cases).
Gratuitous transfers of crypto assets are also expected to fall under the Stamp Duty taxation, if deposited in institutions with headquarters, effective direction or permanent establishment in Portugal, if inherited from a person domiciled in Portugal or, in any case, if the beneficiary is domiciled in Portugal.
For this purpose, the SB proposal suggests that the taxable value of crypto assets should be given (by this order) by the rules of Stamp Duty Code; by the official quotation, when available; or by the value declared by the beneficiary, that shall approximate as much as possible from its market value.
Finally, for Real Estate Transfer Tax purposes, it should be clarified that the value of the contract includes any crypto assets received in exchange for the property, being their value determined according to the Stamp Duty rules.
Summing up, it is welcomed the clarification of a subject that has long been raising doubts and, probably, injustice among the diverse crypto agents in Portugal, and especially the intent of exempting the capital gains regarding assets held for at least 365 days, which places Portugal in a competitive position among other European jurisdictions on this matter (contrary to what happens in the majority of other tax matters).
Regardless, there are still uncertainties expected in the practical implementation of this legislation, namely in what concerns the assessment of taxable/market values of these assets, the documentation required to support them or the identification/localization of the services providers and, especially, the intermediaries. This uncertainty may only give PTA two options – to go beyond what the legislator has said or to abstain, as until now, of auditing these matters.