Cryptocurrency is a decentralized currency, meaning they are not controlled nor emitted by any central bank, and instead of being controlled by its creators and/or users they are using a peer-to-peer system, and its transactions are saved in ledgers called a blockchain.
Ever since their creation in the last decade nature of cryptocurrency has been debated, is it a real currency, or is it a commodity? The EU central bank defines cryptocurrencies as “virtual currency is a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community”.
There are several cryptocurrencies around, and with different uses of their specific technology, the most well-known are Bitcoin (“BTC”), Bitcoin Cash (“BTH”) or Ethereum (“ETH”), but there are many more in the crypto world.
Since the value of Cryptocurrencies changes and can rise or fall depending on supply and demand, and since it is a finite resource, there is only “X” amount of “coins”, many individuals or corporations use them as i) deposit of value, to offset inflation for example, or ii) to trade and benefit from the capital gains when they sell it.
This activity when we sell an asset like cryptocurrencies has proven to be an issue in defining exactly what we are referring to and how to be taxed. The definition of what is cryptocurrency can still be quite different from institution to institution and even from country to country.
Cryptocurrencies are usually taxed as capital gains tax, income tax, or VAT (upon conversion to a current fiat currency.
From what has known the countries of Malta, Slovenia, Germany, and Portugal are the best places to be when we talk about the taxation of cryptocurrencies.
Portugal, as one of the best places to be in when we analyze the taxation of cryptocurrencies, is also one of the 7 EU states that, back in 2018, declared they wanted to promote the use of blockchain in their countries.
Unlike countries like Germany, where to exempt someone from taxation demands that the capital gain is lower than € 600 or it is held for more than one year to be exempted, in Portugal, there are no such requirements. However, not all is crystal clear, as we can see below.
You can find a non-verified table below*, with the characterization of the asset per each country, the type of taxation, and the applicable tax rate if, applicable.
This article was written in 2019/2020, and some information may not be fully updated. Due to the introduction of a legal definition and taxation on cryptocurrencies reality, and as is expected, the approval of the proposal of the General Budget of Portugal for 2023, the information provided in this post is only valid until 31st of December 2022.
|Country||Classification||Type of tax||Tax rate|
|Australia||Property||Progressive income tax GST||19-45% 10%|
|Brazil||Asset||Capital gains tax||15%|
|Canada||Asset||Progressive income tax||15-33%|
|China||Virtual commodity||Progressive income tax (for international trading)||3-45%|
|France||Property||Capital gains tax||30-34%|
|Germany||Private money||Progressive income tax (Exempt in case of holding for more than 365 days)||0%-45% |
|India||Digital asset||Progressive income tax GST||0-30% 18%|
|Israel||Digital asset||Progressive income tax VAT||10-50% 17%|
|Japan||Property||Progressive income tax Consumption tax||5-45% 8%|
|Russia||Digital asset||Income tax||13%|
|South Africa||Intangible asset||Progressive income tax||18-45%|
|South Korea||Property||Income tax VAT||20.9% 7%|
|Sweden||Digital asset||Progressive income tax||0-57%|
|Switzerland||Movable property||Progressive wealth tax Progressive income tax||0-0.67% 7-34%|
|Turkey||Commodity||Progressive income tax||15-35%|
|UK||Private money or Asset||Corporation tax Progressive income tax||19% 0-45%|
|USA||Property||Capital gains Progressive income tax||0-20% 10-37%|
As you can easily see after a quick analysis of the table above, Portugal is an extremely competitive country to hold and sell a substantial number of bitcoins, Ethereum, or other cryptocurrencies.
Taxation in Portugal
So, how does the Portuguese Tax Authority in Portugal treat the taxation of cryptocurrencies in Portugal? To analyze the taxation of cryptocurrencies in Portugal, we will analyze it from two perspectives, i) personal income tax (“IRS”) and ii) VAT (High value-added taxation):
Personal Income Tax ation in Portugal (IRS):
If you are considered a tax resident in Portugal you will need to define if and how to pay taxes on your gain on cryptocurrencies, especially when you sell them. Therefore, after a long discussion on the matter about the taxation of cryptocurrencies in IRS, the Portuguese Tax Authority decided in 2016 the following:
They only discussed the income sourced on the capital gain from buying and selling the crypto coins, so their first step was to understand what a cryptocurrency is exactly, and they have concluded that they are not technical “currency”, because they are not accepted in the current and normal market in Portugal or can be commonly accepted “as currency”.
The second step was to analyze if the Gain you earn from selling the cryptocurrencies fits in any of the income categories the Portuguese Tax Law compromises. To be easier, it could be one of the three income categories: Capital Yield (“E” type), Capital Gains (“G” type), or Self-employed Worker (“B Type”).
Category E (Capital Yields) – Cryptocurrencies do not fall into this category because the earnings come from selling the rights of ownership over the currency, not from capital application (similar applications here are interests you get from them).
An interesting discussion is to understand if you earn interest from investments in platforms like blockfi, where you deposit your bitcoins, and you earn a yield on it, if they are, or are not taxed as “E” Type.
Category G (Capital Gains) – For this purpose, it is considered capital gains the closed list that is established on the Personal Income Tax Code (Código do IRS), and since Cryptocurrency trading is not one of the events that Portuguese law considers to constitute capital gain, therefore is not taxed as if it were.
Category B (Self-Employed Worker) – However, if cryptocurrency trading is your main activity, either because it’s your i) recurring activity with the objective to generate ii) profits, you should open a professional activity and pay taxes on your profits.
A small note about profits tax (Corporate tax): If you hold your crypto on your Portuguese company, all the gains from cryptocurrency trading are taxed as any other company profit.
Value Added Tax ( “VAT” )
On the other hand, there were doubts if cryptocurrencies like Bitcoin, Ethereum, and so on were liable to VAT when we sell/buy it.
Regarding this matter, the Court of Justice of the European Union (“CJUE”) considered that cryptocurrencies are exempt of paying VAT. This happens because the CJUE, ruled that as cryptocurrencies are considered a currency, their only use is as a payment method, therefore a simple transfer of coins to another person does not constitute a taxable event.
In conclusion, cryptocurrencies in Portugal are only taxable if you do it as a professional trading activity and therefore you need to open an activity as a trader and pay taxes according to your profit, otherwise, they are considered non-taxable in Portugal due to being unable to fit in any category.
For the future, we should consider having a provision in our Portuguese tax code, for personal income, that gives a definition of what is a crypto asset and cryptocurrency and how it is taxed in Portugal, as well as consider a system like it is used in some of the countries that now have a clear regime of taxation which implies computing the total amount of fiat that was invested in Crypto and tax the difference between what fiat got in and what fiat “got out”/converted, it would make the life crypto of investors and traders much easier and an edge to Portugal as a Crypto Hub!
*1 content from the blog: https://3commas.io/blog/cryptocurrency-taxes-guide , where you can find information on crypto taxation regarding other countries.
This article is for informational purposes only and is not intended to be exhaustive in relation to the matters covered here. However, if you are still not completely clear and continue with doubts or if you want our help, do not hesitate to contact us through email@example.com.