As cryptocurrencies like Bitcoin gain traction in Portugal and globally, the Portuguese tax authorities have adapted the legislation to include these digital assets. With the introduction of new rules starting in 2024, taxpayers must declare earnings from cryptocurrency transactions on their annual tax returns. Let’s break down the details.
A Legal Framework for Cryptocurrency Taxation
Until the end of 2022, there was no specific fiscal regulation addressing the taxation of cryptocurrency transactions in Portugal. This changed with the approval of the 2023 State Budget Law (Lei n.º 24-D/2022, dated December 30), which introduced new provisions for crypto taxation.
The law classifies gains from cryptocurrency transactions as taxable income under Category G of the Portuguese Personal Income Tax (IRS), which covers capital gains. However, taxpayers have the option to include these earnings in their overall income calculation if it is more advantageous for them.
How to Declare Cryptocurrency Income
Capital Gains
If you earn profits from the sale of cryptocurrencies, these must be declared under Category G of the IRS. The standard tax rate for capital gains is 28%, but you can choose to include these gains in your taxable income to potentially benefit from a lower tax rate, depending on your overall income.
Professional Activity Income
If your cryptocurrency transactions qualify as a professional activity, you must declare these earnings under Annex B of the IRS. This classification applies when cryptocurrency dealings meet the conditions set by Portuguese law for professional activity.
Tax Rates Based on Activity Type
The applicable tax rate varies depending on how you declare your cryptocurrency income:
Capital Gains (Category G): 28% (autonomous rate or integrated into overall income).
Professional Activities (excluding mining): 15% on earnings.
Mining Activities: 95% on earnings.
Key Exceptions
Despite the comprehensive taxation framework, some exceptions exist:
Non-Fungible Tokens (NFTs): NFTs are not classified as cryptocurrencies for IRS purposes and are therefore excluded.
Long-Term Holdings: Gains or losses from cryptocurrency transactions are tax-exempt if the assets are held for at least 365 days. For cryptocurrencies acquired before the new law’s implementation, the 365-day period is calculated from the original acquisition date.
Crypto-to-Crypto Transactions: If you exchange one cryptocurrency for another, the transaction is treated as a swap, and the value of the received cryptocurrency is equal to the acquisition cost of the traded cryptocurrency. No immediate taxable event occurs.
Stamp Duty and Reporting Obligations
In addition to income taxes, cryptocurrency transactions may also be subject to stamp duty under certain conditions. Earnings from cryptocurrency sales must be reported in the tax return filed the year following the transactions.
Preparing for Tax Season
For individuals actively trading or investing in cryptocurrencies, it is crucial to maintain detailed records of all transactions, including dates, acquisition costs, sale values, and holding periods. This documentation ensures accurate reporting and compliance with Portuguese tax laws.
Final Thoughts
The introduction of cryptocurrency taxation in Portugal reflects the growing importance of digital assets in the financial ecosystem. While the framework is comprehensive, it also provides some flexibility for taxpayers, such as exemptions for long-term holdings and crypto-to-crypto trades. By staying informed and organized, you can navigate these regulations smoothly and avoid unnecessary complications.
Whether you are a casual investor or a professional trader, understanding these rules is essential to ensuring compliance and making the most of the available tax options. If in doubt, consult a tax professional to optimize your reporting and avoid potential penalties.
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