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Tax Framework for Cryptocurrencies in Portugal: Detailed Analysis for 2024

Legal Definition of Crypto Assets

According to Law No. 24-D/2022 (State Budget Law for 2023), a crypto asset is defined as “any digital representation of value or rights that can be transferred or stored electronically using distributed ledger technology or similar.” It’s important to note that this definition excludes explicitly unique and non-fungible crypto assets (NFTs).

With this passing by and Portugal becoming a global crypto hub, things are getting cleared for crypto taxation purposes in Portugal.

Technical Characteristics of Virtual Currencies

According to the binding information, virtual currencies have the following fundamental characteristics:

  1. They consist of an electronic record that can be stored on computer media
  2. They have a unique encrypted code containing references to all transactions made
  3. The code is changed with each transaction to prevent duplication
  4. They can be stored by the holder or in virtual wallets managed by third parties
  5. They are convertible into fiat currency through specialized companies

Personal Income Tax Treatment

1. Category B – Business Income

The law considers as commercial activities:

  • Operations related to crypto asset issuance (launching tokens)
  • Mining
  • Transaction validation through consensus mechanisms

Practical Example: A miner who obtains monthly income through block validation must:

  • Register under Category B
  • Issue an invoice or equivalent document for each transaction
  • Declare the income obtained through IRS Annex B

2. Category E – Capital Income

Considered as capital income:

  • Any form of remuneration from crypto asset operations
  • If income is received in crypto assets, it’s taxed as capital gains only at the time of disposal

Practical Example: An investor receiving Bitcoin interest for lending their crypto assets:

Taxation occurs only when converting this interest to euros or other fiat currency

Interest is considered capital income

3. Category G – Capital Gains

Key aspects:

  • Covers gains from onerous disposal of crypto assets that are not securities
  • Important exemption for assets held for more than 365 days
  • Exemption applies only to transactions between EU/EEA residents or countries with tax information exchange agreements

Practical Example: An investor who:

Sells after 400 days for €40,000 → The €10,000 gain is exempt for exceeding the 365-day period

Buys 1 Bitcoin for €30,000

VAT Treatment

Exchange Operations Exemption

Based on the European Court of Justice ruling (Case C-264/14):

  1. Cryptocurrencies are considered “non-traditional currencies”
  2. Exchange operations are considered financial services
  3. They benefit from VAT exemption, according to Article 9 of the VAT Code

Specific Case of Intermediaries

For companies acting as intermediaries:

  1. No need to charge VAT on their commissions
  2. If operating exclusively with exempt operations:
    • May be exempt from issuing invoices to EU business clients
    • Must maintain supplier invoices according to country of origin rules
  3. Can deduct VAT if clients are outside the EU

Practical Example: A Portuguese exchange that:

  • Receives €1,000 in trading commissions
  • Doesn’t need to add VAT to this amount
  • Must maintain transaction records for tax purposes

Receiving Services in Cryptocurrencies

For professionals accepting cryptocurrency payments:

  1. Mandatory issuance of invoice/receipt in official model
  2. Need to convert to euros at the time of transaction
  3. Application of in-kind income monetary equivalence rules (Article 24 of IRS Code)

Practical Example: A freelancer who:

  • Receives 0.1 Bitcoin for a service
  • Must issue an invoice-receipt for the corresponding euro value
  • Needs to declare the income under Category B of IRS

Documentary Obligations

Taxpayers must:

  1. Maintain detailed records of all transactions
  2. Keep documentation proving acquisition dates
  3. Keep proof of purchase and sale values
  4. For companies, maintain records of VAT-exempt operations

Important Considerations

  1. The holding period for crypto assets acquired before Law 24-D/2022 counts towards the 365-day exemption
  2. Companies operating exclusively with exempt operations have special treatment in terms of invoicing
  3. VAT deduction is limited to operations with clients outside the EU
  4. Maintaining detailed records is crucial to prove the holding period for exemption benefit

This framework demonstrates the evolution of cryptocurrency tax treatment in Portugal, offering greater clarity for both individual investors and companies in the sector.

As Portugal’s crypto tax policies continue to evolve, investors must stay informed about the latest updates. The requirement to report both short-term and long-term holdings reflects a balanced approach to regulatory oversight. Whether you are a short-term or long-term crypto investor, understanding and adhering to the revised reporting guidelines is crucial for navigating Portugal’s dynamic crypto tax landscape effectively. Seek professional advice to ensure compliance and make informed decisions in this ever-changing regulatory environment.

This summary is not binding in any way, has been written as an article of analysis and opinion, and does not dispense with consultation of the Law, as well as advice regarding existing obligations. We recommend that you seek appropriate legal advice.

If you still have any questions, please do not hesitate to contact us at: rjs@fslegal.pt

Rodolfo José Santos

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