Crypto license in Portugal

To date, no specific legislation in Portugal regulates the tax environment for cryptocurrencies. It raises a lot of questions and uncertainty.

The Tax Authority of Portugal (Autoridade Tributária) set out all the information about the taxation of cryptocurrencies in two doctrines: No 14910 and case No 5717.

Tax regulation for cryptocurrency companies can be divided into three sections: IRS tax environment, IRC tax environment, and VAT.

Tax environment at the IRS

There are three categories of income in the IRS tax environment generated by virtual currencies at tax return levels:

• Category B – income from corporate or professional activities;
• Category E – income from capital;
• Category G – capital gains.

Since 2016, the Autoridade Tributária (Portugal tax authority) has not changed its position regarding paying cryptocurrency taxes. Income received by individuals from the sale of cryptocurrencies is not taxable either as income tax or under category E (capital gains) or category G (increase in equity).

However, if sales income becomes regular, it will be treated as professional or business income and taxed at a progressive tax rate. In such a case, the income will be taxed as income in category B.

What to do about income from capital in category E? Taxation that falls into this category corresponds to a situation where we regularly buy or sell cryptocurrencies and receive income from the sale of property rights.

Corporate or professional income in category B is declared only if virtual asset sales occur in the ordinary course of business. In this category, income will always be taxed as a function of doing business, not on a means of payment basis.

You do not need to worry about the tax base if you sell cryptocurrencies outside your main professional activity. However, if cryptocurrencies are your primary business, you must comply with declarative obligations. It is crucial to understand that, in this case, you must always issue invoices or receipts for each sale or service. In this case, your activity should be taxed by the law specified for category B.

Tax environment in the IRC

When there is no information on the taxation of cryptocurrencies in Portugal for the IRC category, we can refer to article 1717 CHC, which regulates all the points provided by the government in the direction of taxable income.

In this regard, it must be considered that the taxation of profits is defined as the algebraic sum of net income for the period, and positive and negative changes are not considered.

These factors are determined on an accounting basis and may be adjusted by the CIRC.

Based on this information, we can conclude that any income the company receives must be recorded in financial accounting. This means that a portion of your taxable income must also be paid under the IRC, as these are part of your taxable income.

VAT

Understanding a few details regarding regulating value-added tax (VAT) on cryptocurrencies is essential. A reward in the form of a cryptocurrency is considered a service, which, although subject to VAT, is not yet subject to this tax.

For example, when you exchange cryptocurrencies for euros (or other currencies), this is considered a service. Still, it is exempt from VAT since subparagraph D of paragraph 27 of Article CIVA establishes this feature. In this regard, when accounting for cryptocurrencies in a fiscal environment, you should consider these details.

While the Portuguese government and the Central Bank of Portugal do not support virtual currencies, regulating their functionality in the country recognizes other types of tokens, such as utility and security tokens, often sold through ICOs.

Commercial activities related to the issuance and trading of virtual currencies in Portugal are not prohibited. However, all transactions with crypto assets are monitored to prevent money laundering and terrorist financing.

An interesting fact is that the Portuguese government itself issued its own GOVTECH token in 2018. This token was used to vote between competing government-backed projects to determine the best project in a technology competition.

On March 5, 2020, the Portuguese government took an important step toward creating favorable conditions for the development of cryptocurrency startups. Framework principles have been established to make the Portuguese Regulatory Sandbox, which gives FinTech legal entities developing new products the opportunity to test them in a limited environment without the risk of violating applicable laws.

However, the most crucial turning point in the state regulation of the crypto business in Portugal was implementing national legislation of the Fifth EU Directive 2018/843 on combating money laundering and terrorist financing in the crypto assets ecosystem. As a result of the adoption of Law No. 58/2020, Law No. 83/2017 of August 18, 2020, known as the “Law on Combating Money Laundering and Terrorist Financing” (AML / CFT Law), as amended, which made it possible to transfer the requirements of the Fifth Directive to the national legislation.

Today, cryptocurrencies in Portugal are not considered a means of payment but are still controlled to prevent money laundering and terrorist financing. Banco de Portugal and other regulators continue to tighten their grip on the cryptocurrency market in the country, allowing for a more precise definition of rules.