New tax rules for crypto assets – final version applicable as of 01/01/2023
After much discussion the Portuguese Government has approved the final wording for the 2023 State Budget, which contains the long-awaited tax framework for crypto operations.
Below we highlight 5 key aspects of the new rules applicable to Portuguese-resident individuals involved in crypto operations.
- Definition of crypto assets
For Portuguese tax purposes, crypto assets include any digital representation of value or rights which may be transferred or stored electronically through distributed ledger technology or similar.
Moreover, the definition excludes single crypto assets and non-fungible crypto assets.
- Taxation of trading in crypto but exemption for assets held for more than 12 months
Capital gains from trading in crypto are now subject to general capital gains tax.
Under these rules, the net result of trading operations of the year are subject to a generally applicable tax rate of 28%.
Moreover, a full exemption on crypto assets held for more than 365 days (even if holding started before 01/01/2023) applies.
As before, if crypto trading operations are deemed to occur in the context of a business, such income is taxed as business income at the general tax rates but an 85% tax deduction on the net result of trading operations of the year applies (taxable income shall only be 15% of the year net result).
- Taxation of other crypto operations but tax deferral mechanism
Other than trading, other forms of income from validation operations are now also taxable.
In particular, the issuance, mining, staking or validation of crypto will now be regarded as business income and taxable as such.
However, except for mining where a 5% deduction on yearly income applies, only 15% of the income generated with the issuance, staking or validation operations will be effectively subject to taxes with a full exemption on the other 85%.
In any case, taxes only become due if and when the crypto assets are traded for fiat.
- Non-taxation of crypto for crypto exchanges
Despite the new tax regimes highlighted above, the tax implications mentioned on 2. and 3. above only apply to the extent the operation is made in consideration for fiat.
As such, in the case of transactions made in consideration for crypto assets, no taxation shall apply.
- Exit tax for crypto holders
Last, but not the least, the new law provides for an exit tax for crypto holders which renders any residency move as a disposal event.
In accordance, a Portuguese resident who moves away from Portugal will be required to pay capital gains tax (under the above rules) upon becoming a non-tax resident.
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[Photo by: Pierre Borthiry, available at unsplash.com]