Regulation
Cryptocurrency Regulation in Portugal 2024
Portugal is one of the oldest European countries. It was founded as early as 1143. Lisbon is the capital of the country. It is a tourist and infrastructure hub. The economic status of the country is advanced. It is a highly developed nation in every sense. It has a significant reserve of gold and lithium. And it is an active exporter. Interestingly, the country is always eager to embrace new technologies and business possibilities. Surely, it is one of the reasons why it remains one of the most powerful economies in the world. Its attitude towards cryptocurrencies is also positive in nature. It is one of the most crypto-friendly nations in Europe. From liberal tax frameworks to crypto-friendly policies, the nation offers everything a crypto enthusiast aspires for. Interested? Read on!
1. Cryptocurrency Regulation in Portugal: An Overview
Currently, there is no specific cryptocurrency regulatory framework in Portugal. The main regulations that govern crypto activities in the country at the moment are Anti-Money Laundering (AML) and Counter-Terrorism (CFT). These regulations are actually driven by EU standards. Once the Markets in Crypto-Asset Regulation (MiCAR), an effort by the European Securities and Markets Authority to establish uniform EU market rules for cryptocurrencies, is completed, the country’s cryptocurrency regulatory framework will gain more clarity. The Portuguese legal environment has recently started to adapt to EU initiatives. The DLT Pilot Regime, which enables new market opportunities in trading and financial instruments on distributed ledger technology (DLT), has been incorporated into the Portuguese legal environment. In the country, crypto businesses must go through a registration process. Banco de Portugal is the one that manages this registration process and the compliance of registered companies with AML/CFT regulations. Any cryptographic translation above 1,000 euros is not possible for an entity unless the required formalities, including the identification process, are addressed. The full implementation of MiCAR is expected to be completed by the end of this year. Some sensitive areas, such as sales and promotion, will remain in the gray area until then.
1.1. Cryptocurrency Markets: Regulation by the European Securities and Markets Authority: Know it better
The Markets in Crypto-Assets Regulation (MiCA) is an important development in the European Union. It will be effective from June 2023. Its main objectives are to improve market integrity and financial stability. It considers the creation of policies for better regulation of the issuance and trading of crypto-assets as one of the main strategies to achieve this. It requires transparency, disclosure, authorization and supervision of transactions. The authority responsible for implementing MiCA is the European Securities and Markets Authority. Currently, ESMA is developing technical standards through public consultations. MiCA is expected to enter into force by the end of 2024.
2. Cryptocurrency Regulation in Portugal: What’s New
Here are the major developments in cryptocurrency regulation this year.
March 27, 2024: Worldcoin has been temporarily banned in Portugal due to data privacy concerns.
April 12, 2024: Nova SBE Blockchain Club organized the fourth Lisbon Blockchain Conference on April 24. The event explored the impact of blockchain technology on business and economy.
April 26, 2024: Operation Samourai led to the arrest of an American citizen in the Greater Lisbon area. He was suspected of co-founding the Bitcoin Mixer Samourai Wallet. The platform was allegedly involved in laundering over 100 million euros.
3. Explanation of the regulatory framework for cryptocurrency taxation in Portugal
Portugal is famous for its “tax-free” policy. No capital gains tax or VAT is applicable for Individual investors.
For professional cryptocurrency traders or frequent/short-term traders, the scene is slightly different. As of January 1, 2023, a new tax regime came into effect under the Portuguese Personal Income Tax Code. The code classifies cryptocurrency income into three distinct categories: capital income, capital gains, and self-employment income.
Capital Income means income from passive investments in cryptocurrencies, such as staking income. This income attracts about 28%.
Earnings apply if you sell cryptocurrencies held for less than a year. These gains are generally taxed at a flat rate of 28%. However, if your taxable income, including these gains, exceeds €78,834, the gains may be subject to progressive tax rates. These rates range between 14.5% and 53%.
Self-employment income means income from self-employment activities related to cryptocurrencies such as mining. This also attracts progressive rates between 14.5% and 53%.
For companiesIncome from cryptocurrency transactions is taxed as business income. If a business’s gross income from cryptocurrency transactions was less than EUR 200,000 in the previous year, 15% of that income is taxable at progressive rates after deductions.
A unique aspect of the Portuguese tax regime is the ‘Exit tax.’ If you cease to be a tax resident, a 28% tax is applied to the difference between the market value and the acquisition cost of your crypto assets. This is calculated using the First-In-First-Out (FIFO) method.
4. Cryptocurrency Mining in Portugal: What You Should Know
Cryptocurrency Mining It is not illegal in Portugal. Cryptocurrency mining in Portugal is subject to specific tax rules.
For individual miners, a flat rate of 5% of expenses is applied. If you earn 100 euros from mining, you are only taxed on 95 euros. But if you sell the mined cryptocurrency, you are taxed on 85% of the income.
For businesses, 95% of gross income from mining activities is subject to taxation at progressive rates.
5. Chronology of the evolution of cryptocurrency regulation in Portugal
2016: Cryptocurrencies are not considered legal tender and are therefore not taxable.
August 2017: Law no. 83/2017 established to combat money laundering and terrorist financing.
July 2018: Law No. 38/2018 adopted the MiFID II requirements for the sale and promotion of cryptocurrencies.
April 2020: Digital Transition Action Plan released, promoting digital empowerment, business transformation and flexible regulations for technology testing.
August 2020: Directive (EU) 2018/843 implemented in Law No. 83/2017, which strengthens the national regulatory framework for combating money laundering and terrorist financing.
August 2020: The Bank of Portugal has published a notice regulating registration for virtual asset service providers.
December 2024: MiCAR will have to be fully implemented.
Final note
With its progressive cryptocurrency regulatory framework and tax regime, Portugal stands out as a top destination for cryptocurrency enthusiasts. It is rightly celebrated as the most crypto-friendly country in Europe. The upcoming implementation of MiCAR promises to improve this already solid framework. It is expected to foster an even more favorable environment for cryptocurrency activities. However, some gray areas and tax concerns remain, although they are minor compared to other countries in the region. Portugal may address these issues in the coming years. Once it does, the country can become a leader in the global cryptocurrency market, taking on a more prominent role in the West.