Crypto Assets in Portugal

By Ricardo Chaves

What you need to know about crypto assets in Portugal and what changes from January 2023

The Portuguese Government introduced in the 2023 State Budget proposal the taxation of cryptoassets (this exceeds the concept of cryptocurrencies), and short-term capital gains (up to one year) with cryptocurrency transactions will be taxed at 28%, but not all gains are liable to tax. Please find here what are the proposed changes for 2023 and how these may affect you.

Up until the end of 2023, what was the tax regime applicable to Crypto?

There was no tax regime and no specific law for crypto currencies until now, wich made Portugal one of the most crypto-friendly countries.

Do I have to declare to the Portuguese tax authorities, that I own cryptocurrencies?

No, there is no wealth tax in Portugal, therefore you will only need to report income received from cryptocurrencies or gains made for the sale of these assets. The State Budget proposal now considers mining operations, as a business activity and the gains obtained with the sale of crypto are taxable at 28%, providing the crypto was bought less than a year ago.

I made a profit from selling cryptocurrencies I bought less than a year ago. Do I have to declare?

If the State Budget proposal for 2023 is approved, you will have to report the sale operations when submitting your Personal Income Tax and the gain obtained (difference between the market value at the date of sale and the acquisition value, net of necessary expenses and effectively caried out, inherent to acquisition and disposal) will be liable to tax.

How and when do I have to declare?

The tax year in Portugal is from January 1st to December 31st and the tax submission is normally available between April 1st and June 30th. When submitting the tax return – to be done mandatory online – you will have to include the crypto assets sales operations you had in the previous tax year.

How much tax will I pay for the gains I made from selling cryptocurrencies?

If you held the cryptocurrencies for a period of less than 365 days, and if you made capital gains, you will be subject to tax rate of 28%. If you aggregate this income to your others source of income, you will be taxed at the progressive tax rates and the tax rate will be the one corresponding to your income bracket.

Can I be punished if I don’t submit the tax return or do not include this information on my tax return?

Yes, failure to report income and or earnings or failure to submit the tax return constitutes an administrative offense, subject to penalties. The amounts of the fine depend on the specific situation. If there is a voluntary regularization, the waiver or reduction of fines may apply, depending, among other factors, on the date on which the fault committed is regularized, as well as whether or not a report was raised, a report or complaint was received or initiated tax inspection procedure.

Compensatory interest (at an annual rate of 4%) will also be payable on the missing tax.

How does the tax authorities know about my crypto assets?

In the proposed state budget, there is now a reporting obligation by intermediaries. Thus anyone who provides custody and administration services of crypto-assets on behalf of third parties or manage one or more crypto-assets trading platforms, must notify the Portuguese Tax Authorities, up to at the end of January of each year, for each taxable person, through an official model, the operations carried out with their intervention, in relation to crypto assets.

What can I offset against my gains on the sale of crypto?

In the case of the sale of crypto assets, the gain liable to tax is made “by the difference between the sale value and the acquisition value”, net of the necessary and effectively incurred expenses, related to the acquisition and disposal. For this purpose, the sale value correponds to the market value of the crypto assets at the date of sale.

What happens to cryptocurrencies I bought more than a year ago?

Capital gains related to cryptocurrencies held for a period equal to or greater than 365 days will be exempt from tax.

I have two units of the same cryptocurrency purchased at different times: one more than a year ago and the other less than a year ago. I made a profit on selling one of them, but I don’t know which one. Do I have to declare profit?

The PIT Code provides for the application of the FIFO method (First In, First Out) in the calculation of capital gains obtained from the sale of securities, according to which the securities sold are those acquired the longest. This rule has not undergone any change in the proposed State Budget for 2023, in order to ensure its application to the calculation of gains obtained from the sale of crypto-assets that do not constitute securities.

The value of my cryptocurrency portfolio increased last year, but I haven’t made any transactions. Do I have to declare?

If you did not carry out any transaction in the previous year, it means that you did not have any capital gains from the sale of cryptocurrencies, so you will have nothing to declare to the Tax Authorities, since the PIT one taxes realized gains.

I do mining of cryptocurrencies. Do I have to declare it? Is this a gain or a business activity income?

Cryptocurrency mining is now considered a commercial/industrial activity covered by the IRS under category B (self employment). The income obtained from the exercise of this activity will be liable to the IRS, and the taxable income will be taxed at the progressive tax rates.

The rule contained in the State Budget proposal for 2023 is not clear concerning the coefficient to be applied under the simplified regime, but it seems to imply that the taxable gain will correspond to 15% of the income obtained from the activity.

I received cryptocurrencies from a friend. Do I have to declare too?

In the case of a free transmission (for exemple, a donation of cryptocurrencies) there is a 10% Stamp Duty fee. Tis is not an income, so it won’t be reported in the tax return, only whe it is sold.

I received cryptocurrencies as part of my salary, how is this taxed?

The cash equivalence of income in kind will now apply in situations where the income takes form of crypto asset. This means that in case the crypto is received as a payment, then it will be taxed under the income category rules (salary if it refers to salary, business income if it refers to business, etc). These assets will only be liable for capital gain tax if they are sold within less then a year and if there is a gain.

In case I use crypto-assets to buy a house, how does the IMT apply?

The value of the crypto-assets given in eschange (determined under the Stamp Duty Code) must be considered for the purposes of calculating the deed value and therefore the IMT – Property Transfer Tax, will be based on this value.

My income comes from my activity of buying and selling cryptocurrencies. How do I declare?

If this is a repeated and continued practice, then you need to report this to the tax authorities and register your business activity, declaring the income as a sole trader.

Can I offset losses?

If you made losses the negative balance calculated in each year, related to the sale of crypto assets, can be carried forward for the following five years, if you opt for the inclusion of this income in category G and chose aggregating this income to your other income, in order to be taxed at the progressive tax rates.

Do Crypto Assest Pay Stamp Duty?

The State Budget for 2023 proposes to tax “free transmission of crypto assets, when they are deposited in institutions in Portugal or, if they are not deposited, if the author is domiciled in Portugal, in the case of inheritance by death, or if the beneficiary is domiciled in Portugal, in the case of other free transmission”. Stamp Duty will be applicable at a rate of 10%, of free transmission of crypto-assets, understanding as crypto-assets any digital representation of value or rights that can be transferred or stored electronically, using distributed ledger or similar technology.

What are the rules for determining the taxable value of crypto assest for Stamp Duty purposes?

It is expected that the valuation will be determined in accordance with the official quotation value, if any and this will be the value declared by the inheritor/beneficiary.

How are legacy crypto assets taxed?

As the stamp suty will only apply to crypto assets in Portugal, there is tax on inheritances by death when the author of the transfer is resident in he country. In the case of donations, it applies if the beneficiary is also domiciled in the national territory. In both cases the rate will be 10%. As is happens currently with shares or securitiesm the withdrawal of crypto-assets that have been subject of a free transmission cannot be authorized, without the respective Stamp Duty having been paid.

When is crypto-assets considered to be located in national territory?

In what concerns to residency rules, the State Budget 2023 determines that crypto-assets deposited in institutions with headquarters, effective management or permanent establishment in the national territory are considered situated in Portugal, or, in the case of non-deposited crypto-assets, in sucessions upon death, when the author of the transmission is domiciled in national territory; in other free transmissions, when the beneficiary is domiciled in national territory.

Do commisions charged for providing cryptocurrency services (so-called intermediaries) pay stamp duty?

The State Budget for 2023 includes the taxation of Stamp Duty, at 4%, in comissions and fees charged by or with the intermediation of crypto-asset service providers. This means that CASPs (Crypto Asset Services Providers) will have to pay stamp duty at a rate of 4% on the transactions they intermediate and on the comissions they charge.

This means that CASPs domiciled in Portugal to will have to settle this tax. If the commisions are charged by service providers not domiciled in Portugal, this responsibility will fall on CASPs domiciled in the national territory that have intermediated the operations and on fiscal representatives who are mandatorily appointed in Portugal, if the operations have not had any intermediation in Portugal.

I bought NFT (non fungible token). Do these rules also apply?

Yes, an NFT is included in the definition of cryptocurrency provided for in the IRS code.

Do I also declare income with stacking (crypto interest)?

The proposed State Budget for 2023 did not establish any specific rule for this income, therefore this income will only be taxed if it results from business and professional income (taxed under category B – sole traders).

Brief overview of the asset in each country, type of taxation, and the applicable tax rate if, applicable.

Country Classification Type of tax Tax rate
Australia Property Progessive income tax
GST
19-45%
10%
Belarus Digital asset NA NA
Brazil Asset Capital gains tax 15%
Canada Asset Progressive income tax 15-33%
China Virtual commodity Progressive income tax (for international trading) 3-45%
Denmark Private money NA NA
France Property Capital gains tax 30-34%
Germany Private money Progressive income tax 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%
Malta Commodity NA NA
Netherlands Asset Income tax 30%
Panama Digital asset NA NA
Portugal NA NA NA
Russia Digital asset Income tax 13%
Singapore Property NA NA
Slovenia Movable property NA NA
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%
UAE NA NA NA
UK Private money or Asset Corporation tax
Progressive income tax
19%
0-45%
USa Property Capital gains
Progressive income tax
0-20%
10-37%
Source: https://3commas.io/blog/cryptocurrency-taxes-guide

Anti-inflation measures and how this will affect rentals in 2023

The Portuguese Government has launched an anti-inflation package and new rules will be applicable to the taxation of long term rentals in 2023, as a compensation for the limited established on the annual rent increases.

How much was the inflation in Portugal in September?

The Portuguese Statistics Institute (INE) has stated that the inflation in September 2022 will be 9.3%. This is an increase of 0.4% compared with August 2022 and is the highest inflation rate since October 1992. In the Eurozone the average inflation is currently 10%.

How much and when are the house rents updated?

As a rule, rents are updated annually, although there are cases in which this increase may not occur. It happens, for example, if there is an agreement between the tenant and the owner, which determines that there is no room for an increase. Even so, for leases after 1990, the most common is that this update is made every year and reflects the income update coefficient, whose value is defined by the Government based on the value of inflation. This coefficient is normally published in October each year.

What is the coefficient for 2023?

If the government would consider the inflation rate as of August 2022, like normally happens, the annual increase would be 5.43%. However, the Portuguese Government has established a limit of 2%, as a way of fighting inflation. This increase is applicable for both type of contracts: habitation and commercial.

How and when the rent increase come into effect?

If the rental contract allows for yearly rental updates, the landlord must inform the tenant by registered letter of the intention to increase the rent. This should be done after the publication of the law, which normally occurs each year in October and needs to be done with a minimum of 30 days’ notice. The new rent should start in January.

The first rent update should only be done after 1 year of contract.

The Government will create a tax relief, to compensate landlords for the low rent increase.

The Portuguese Government has informed that will publish a law to compensate the landlords. This compensation is only valid for contracts prior to 01-01-2022 and it means that for individual taxpayers, who normally are taxed at the rate of 28%, the taxable rental income will be 91%, instead of 100%.

This means that if you have a net rental income of 10.000€ in 2022 and the tax is 28%,this equates to 2.800€. The same rental income in 2023, will generate a tax bill of 2.548€. Obviously as this will only be effective in 2023, the tax is only submitted and paid in 2024.

Please note that this applies to long term rental contracts (category F) and not to touristic lettings which are a service and reported under category B.

What about the rental income received by companies?

This law will also benefit companies and in this case the coefficient to calculate the tax will be 0.87.

How can landlords save tax on rental income?

If you are a landlord with rental income from category F, please be aware that the longer the contract, the lower the tax rate applicable to your net income and this is not new. What is new is that the government will include in this law reductions to the taxable income and these reductions will increase with the length of the contract, as per the image below:

Term of the contract Tax Rate Taxable income
Up tp 2 years 28% 91%
From 2 to 5 years 26% 90%
From 5 to 10 years 23% 89%
From 10 to 20 years 14% 79%
More than 20 years 10% 70%

This law that was proposed by the government will also include these new coefficients for contract renewals. For instance, a contract of 2 years when it’s renewed, will benefit from the tax at 24% and only 89% of the net rental income will be taxed.

Please feel free to send any tax questions you may have to info@allfinance.pt.

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By Ricardo Chaves

Capital Gain Tax on financial assets: what will change in 2023?

There are new rules applicable to the taxation of capital gains on financial assets, which will become effective in 2023.

What are the main changes?

The Portuguese State Budget for 2022, approved in the end of June includes an amendment to the Personal Income Tax Code (IRS) which will have an impact on the capital gains from financial assets, when the assets in question are held for a period of less than 365 days and the taxable person reaches an income taxable amount equal to or greater than the value of the last tax bracket, which currently is of 75,009 euros.

Currently when you make capital gains from financial assets, you may choose to aggregate this income to your overall income and be taxed at the progressive tax rates (which range from 14% to 48%) or be taxed at the autonomous rate of 28%. From 2023 onwards, if the assets are held for less than 365 days, the agregation is mandatory.

Is this change applicable to everyone?

No, firstly this is only applicable to tax residents who have an overall income (including all sources of income) greater than c and when the financial assets were held for less than 365 days. If you are not tax resident or if you are, but your overall income is lower than 75,009 euros, then the rule will not affect you.

Are all the financial assets included in this new law?

Regarding the capital gains arising from the redemption of units from investment funds, this new rule is not applicable and these can still be taxed at the autonomous rate of 28%. However, in relation to the income from the redemption of units of investment funds located outside the national territory, if the income from the redemption of units in investment funds foreign investments are not paid through entities with head office, effective management or permanent establishment in Portugal, such income, being qualified as capital gains under the terms provided for in the IRS Code, are likely to fall within the scope of application of the new rule and be subject to mandatory aggregation, once the other legal requirements have been verified.

When does this law come into effect?

Since the State Budget Law for 2022 did not establish any transitional rule, the (new) approved capital gains taxation regime can only be applied to the disposals of shares, securities, and other financial assets, that took place after 2023, since the relevant fact in the taxation of capital gains, for the determination of the applicable law, is the moment of disposal, that is, the moment when the transaction takes place.

This means that when you fill the Personal Income Tax Return (IRS) for 2023, which is submitted in 2024, this alteration will already be in place.

How much more tax can this represent?

Currently if your income is more than 75,009 euros and you own capital assets that are held for less than 365 days, you would pay 2.800€ of tax for each 10.000€ of gains. In the future the same gain will mean 4.800€ of tax.

If I am Non-Habitual Resident, will I also pay this tax?

This law is applicable to all residents and there is no special provision for those with the NHR status.

What happens to the tax I paid in the country of source, will I pay the same tax in Portugal again?

Like any other resident if the CGT is made in another country where you were also taxed, depending on the Double Tax Agreement with Portugal, you may be able to deduct the tax paid in the country of source. But please note that is in case of aggregation only.

Are there any ways of mitigating the tax to be paid?

If the market value of your shares at the end of the year is lower than the actual purchase price, you should consider the possibility of selling those shares before December 31st and then re-purchase them. The reason for this is that in case of realised losses, on the sale of shares, you can carry forward this loss for 5 years.

Also, in case you are considering becoming tax resident in Portugal and have substantial capital gains, you should consider selling those financial assets, prior to becoming tax resident in Portugal.

Please feel free to send any tax questions you may have to info@allfinance.pt.

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By Ricardo Chaves

Capital Gain Tax on rental properties: what has changed?

There are new rules applicable to the taxation of capital gains, on properties that are registered for Local Lodging activity. These new rules can be more beneficial for some but can also be more penalising for others. It’s important to understand what the implications are and what you intend to do with your property in the future, to make the most sensible choice.

Please note that the taxpayers must choose between the old and new regime and this choice can only be made in this year’s tax return (IRS).

What are the main changes?

When you register for a Rental License (AL) you also register your business activity with the tax office. As this activity is carried out in your property, it means that you are transferring the property from your personal sphere into your business sphere. This transfer is virtual and up until 2021 could trigger capital gain taxes.

For instance, if you wanted to stop the activity and there was a capital gain on the property, it meant that simply because you were stopping the activity and transferring back to your personal sphere, you could be liable for a capital gains tax.

Now this problem does not exist anymore, with the new regime there is no capital gain tax due when transferring the property from or into the personal sphere neither there is capital gain taxes when stopping the activity.

Does it mean that in the old regime I would pay capital gain tax twice?

Not necessary and that is why tax planning is critical. When registering the activity and reporting the value of the virtual transfer, this should be done in a way that if the activity stops, there is no capital gain tax liability (or at least would be minimal) and this would only exist when the property was sold. But not always was possible and this regime was more penalising for those that were resident and had for instance inherited a property.

Does this affect all the properties in AL?

No, all those that registered for the AL business after January 2021 will only be able to choose the new rules. Also, this is only applicable to those owners that explore the properties directly, in other words, when they are cumulative the property owners, the holders of the Rental License and the beneficiaries of the rental income. If for instance the license is owned by a third party, a rental agent, or a relative, etc this is not a problem. Also, if you are not renting as a business, but declare it as rental income (paying the higher 28% tax rate) then this problem also does not exist.

Is the new regime better for future CGT calculation?

If for instance you stop the rental activity for 3 years before selling the property, this regime is a lot easier. Because if the property is sold 3 years after the date of cancellation of activity, capital gain is calculated as if the property was never under a business and all rules of private sale of property apply.

However, if you decide to stop the activity this year and sell in 2023, then if you are resident, it should be better to do it under the old regime, because under the new regime the capital gain tax will be levied on 95% on the gain, even when you are resident. But with the old regime only 50% of the gain would be taxed in case you were resident.

So which regime should I chose?

The decision depends on your personal circumstances and what you intend to do with the property in the future. Are you planning to stop your activity and put your house in the market? Are you planning to become tax resident in Portugal and live in that property to later sell it? Did you made considerable refurbishments to the property, during your AL activity?
Depending on the answers to these and other questions, it may be better to choose one or the other regime.

Examples of the CGT in the new regime:

Robert had a property on the local lodging activity from 2018, until 2022. The property costed him 250.000€ and he stopped the activity so he can sell it in 2023 for 300.000€.

Normally his gain would be 50.000€, however as the property was in the AL business, he will have to add 1.5% of 250k for the 5 years that he had the property in the AL business. This means that the Capital Gain is calculated not on 50.000€, but 68.780€.

Robert decided that he wants to stop the activity in his name and register the activity in the name of his rental agent. He will now pay more rental tax, but then if he decides to sell the property in the future, providing he does it later than 3 years from now, then the normal CGT rules apply and he will pay tax on 50.000€ of gain.

It is important that you plan, as you can’t afford any tax surprises. Please feel free to ask us for assistance, but please allow some time for a reply, due to the high level of enquiries received and the tax season.

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By Ricardo Chaves

Capital Gain Tax: what you should know before deciding to sell your property

A capital gain occurs when you sell something for more than you spent to acquire it. This happens a lot with investments, but it applies to personal property too. Are you planning to sell your home? Find out what tax you will have to pay and how to reduce this liability.

You can’t hide from the tax department

Any property transaction performed in Portugal must be reported to the Tax Authorities by the notary that executes the deed. This means that when you declare the sale on your tax return, the tax authorities already know of it, so if you fail to include this on your declaration, the taxman will be after you.

It’s mandatory to file a tax return every time you sell a Portuguese property

Irrespective of your tax domicile, if you sold a property located in Portugal, this means that you need to declare it in your tax return in Portugal. Regardless if there was a gain or not, it’s mandatory to make this declaration, which happens normally in May of the year following to the sale, in case of individual ownership, or within 30 days after the sale, in case of corporate ownership (companies without activity).

Declaring the sale doesn’t mean you need to pay tax

You only pay tax, if you had a gain on the transaction. So if you sell something for more than the purchase price, then the difference is a capital gain and that is reported on your taxes. Please note that the value you paid for the property needs to be adjusted, according to the inflation coefficient, applicable to the year of purchase. This means that the purchase value will increase for the capital gains calculation. Also, some expenses will be included in the tax return and deducted from any gain obtained.

In which cases your sale is tax exempt

It is possible to be exempt from tax in certain situations. For example if the property was acquired prior to 1989, it’s not liable to any CGT. Nevertheless, taxpayers will still have to declare these operations. But this is not the only tax exemption on capital gains from the sale of a property. The law provides, for example, that if you use the full amount of the sale of a property to buy another home (only applicable to tax residents and only in the sale of their primary residence), to build a home or purchase of land intended for the construction, you don’t pay tax on capital gains. Please note that this reinvestment of the gains, needs to happen within 36 months and can be done in any EU country.

Expenses allowed to deduct your capital gains

From the sale of your property you can deduct, the costs incurred with the purchase operation and sale of the property (eg IMT and registers on the purchase, real estate commission on the sale, etc). Taxpayers can also deduct costs incurred in property over the past twelve years, such as property refurbishments or other money spent to increase the value of the asset, including the cost of the energy certification.

 

Residents vs Non-residents individual ownership

If you are non-resident for tax purposes, the tax applicable to your capital gain, will be 28%. If however you are resident, the tax will be levied only on 50% of the gain and you will be taxed according to the tax bracket applicable to your overall income.

However, please note that is possible to contest the tax bill and challenge the tax authorities, so that a non-resident can also be taxed only on 50% of the gain. This would mean paying 14%, but it requires some time and additional work to challenge the tax bill, which initially will be on the full gain. This is due to the fact that many taxpayers have taken the tax authorities to court and won their cases.

Please note even when a non-resident is taxed under the same rules as a resident, as this is not his primary residence, the gains cannot be rolled over if he buys another property, that will only be available for those residents, that sell their main residence and buy another property which will be their main residency.

 

How does the reinvestment work?

If you are resident and this is your primary residence, you can reinvest the proceedings of the sale on another purchase within the EU. This needs to be done on a purchase made between 24 months prior and 36 months after the sale. If the reinvestment in the new property is lower than the total sale, than the tax will be calculated pro-rata.

If you do not wish to reinvest into another property, please note that you can make the reinvestment in a financial product. Provided that the taxpayer is demonstrably in retirement, or has, 65 years of age, he can choose to purchase an insurance contract or an individual membership of an open pension fund or contribution to the public funded scheme. To make this possible the purchase of this product must be made within six months from the date of sale of the property.

There is no benefit for the exclusion of capital gains tax if the reinvestment is not made within the referred six-month period, or if, in any year, the value of the benefits received exceeds the limit of 7.5% of the invested amount. In our opinion it is possible for both reinvestment options to be done together, partially in a new property, part in an insurance contract.

Please note that if you fail to meet the reinvestment declared on your tax return or reinvest a lower amount, the tax will be re-assessed, and you will pay interest.

Even if you do not plan to sell your home for now, it is important that you keep all supporting charges and make sure the invoices include your name and fiscal number and very important: the correct address of the property. The repayment of mortgage loans, incurred to purchase the property, will also be taken into consideration, when calculating the tax return.

It is important that you plan ahead, as you can’t afford any tax surprises. Please feel free to ask us for a capital gain tax simulation on your property. If you fear that you may be liable for a big capital gain tax bill, then let’s study your case, we may encounter a way of substantially reduce this tax burden.

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