Regulation
Cryptocurrency Tax Laws in Portugal in 2024: What You Need to Know
If you are involved in the cryptocurrency industry and currently reside in Portugal or are considering a permanent move to this popular European tourist destination, you will need to consider the new cryptocurrency tax rules that have just been introduced. For example, did you know that the Non-Habitual Residency Scheme (NHR), which once allowed foreigners to pay a flat rate of 20% on certain forms of income, will be phased out? Indeed, the Portuguese tax authority is now pre-emptively rejecting all NHR requests.
But there are even more changes afoot. This article offers a brief overview of what tax obligations have changed in 2024 and what cryptocurrency investors and enthusiasts need to be aware of. Of course, we strongly recommend that you speak to a professional before filing your tax return to ensure reporting accuracy and compliance with new regulations.
The different types of crypto income in Portugal
The Portuguese Personal Income Tax Code now divides income from cryptocurrencies into three distinct categories. Below is a snapshot of each income category and what you need to know.
Passive Cryptocurrency Investments – Category E in the IRS
Cryptocurrency interest payments or staking rewards from newly minted tokens are now subject to a flat rate of 28%.
However, it is important to remember that you can still receive cryptocurrency as payment if it is considered a salary or self-employment income. In this case, you will be taxed accordingly, usually at progressive tax rates.
There is a caveat, however: if this income qualifies as salary or self-employment income (i.e. falls into a different category), it will be taxed appropriately (and usually at a progressive tax rate as well).
Capital Gains Income – Category G in the IRS
All digital asset holdings held for less than one year are taxable at a flat rate of 28%. If the owner decides to accumulate such capital gains, they will be subject to progressive tax rates ranging from 14.5% to 53%. It is important to note that “investment tokens/securities” will be considered securities and taxed accordingly, regardless of the 365 day rule.
Member of ICP Hub Portugal and cryptocurrency tax advisor Thomas Maas left the following advice:
“You declare your taxable capital gains in cryptocurrencies in Schedule G of the Portuguese income taxes. Capital gains from cryptocurrencies sold after 365 days are reported on Schedule G1, which is a separate anex to G. To report tax-free capital gains on Schedule G1, the following details are needed:
1) When did you purchase cryptocurrencies?
2) How much did you buy for?
3) When did you sell cryptocurrencies?
4) How much did you sell for?
5) In which country did you sell your cryptocurrencies?
Every time you choose to leave Portugal, you are required to pay the “exit tax”, which amounts to 28% of your current digital wealth. The amount due will be determined using the first-in-first-out method (FIFO) accounting method. Basically, the government will tax you on paper as if you sold all your assets upon departure. This means that if you hold those capital gains for more than 365 days, they are tax-free.
Thomas is an industry veteran in the world of cryptocurrency taxation and is always on the cutting edge of supporting our members in getting their taxes in order.
All other crypto proceeds, crypto operations and validation – Category B
This income category refers to activities that do not involve capital gains, staking newly minted tokens, interest, NFT launches, and passive airdrops. Individuals who fall into this category can expect progressive tax rates of between 14.5% and 53%. A 95% ratio is applied for mining, meaning the profit margin is 95% and 5% is left out to cover costs. For other incomes 15% will be considered profit margin and 85% costs.
Portuguese Guidelines on Cryptocurrency Taxation for Personal Entities
Personnel dealing with cryptocurrencies must pay tax on their earnings as business income. Let’s say you earned no more than $200,000 in gross income in the previous tax year. In that case, 15% of most of your cryptocurrency earnings are taxable at progressive rates after taking into account any other deductions or costs. The maximum tax rate should be 8% of their total income. For mining income, 95% of gross earnings are subject to progressive tax rates.
Non-habitual residence in Portugal (NHR)
Non-habitual residence in Portugal (NHR) the program ended on December 31, 2023, meaning residents can no longer apply. However, there is one small exception: if a resident started applying for a residency visa in 2023 and managed to secure a property, job or educational placement last year, they may still be eligible.
If an individual already has NHR status, he or she will enjoy tax benefits until his or her 10-year tenure expires. Thereafter, they will be subject to Portuguese taxes on their worldwide income and gains at regular rates, which can be as high as 48% or 28% for investment income. Additionally, half of your real estate earnings will be taxable.
If this exception applies to you, it is wise to make the most of your NHR benefits and reorganize your assets now to minimize taxes when your NHR term ends. Don’t wait until the last minute – start planning well in advance.
The new regime replacing the NHR applies to specific individuals, such as those working in higher education, scientific research, technology, and startups. To qualify, you must not have lived in Portugal for the past five years and your status lasts ten years.
If you meet the criteria, you will benefit from a flat tax rate of 20% on your income from employment or self-employment. Additionally, you will be exempt from taxes on foreign income, such as earnings from employment, rent and dividends.
With expert cross-border guidance and careful planning, Portuguese tax laws offer legal ways to enjoy significant investment tax advantages. Additionally, attractive tax options are available for residents to cash in on their pensions, making them comparable to NHR benefits.
The new example of calculating Portugal’s cryptocurrency tax
Below is a simple example of crypto tax calculation for short-term capital gains under the new Portuguese tax system:
An investor purchases €10,000 of BTC in January. In June they sell this 1BTC for 15,000 euros, with a profit of 5,000 euros. As we know, these 5,000 euros are subject to a fixed rate of 28%.
Tips for Minimizing Cryptocurrency Taxes in Portugal
To effectively reduce cryptocurrency taxes in Portugal, it is essential to use smart strategies to save a lot on taxes. Here are a couple of suggestions:
Hold your crypto capital gains for more than 1 year
Portuguese tax rules favor long-term holding. If you hold your cryptocurrency (including stablecoins) for more than a year, you will not be subject to paying taxes on the capital gains you realize when you sell. This encourages a patient investment strategy, which allows you to make profits without worrying about paying taxes. It should be noted that this only works with capital gains tax
Consider making donations – Category H
Donating cryptocurrency can also be tax-advantaged. In Portugal, donating cryptocurrencies comes with a lower stamp duty rate of 10%. And if you give to family members such as your spouse, life partner, or ancestors or direct descendants, such as parents to children or grandchildren, you may not have to pay any taxes. Furthermore, donations under 500 euros are tax-free. By strategically giving away some of your cryptocurrency, you can reduce your overall taxes while helping your loved ones or supporting causes you care about. While this will help reduce your tax burden, donations may still be taxed on the recipient’s end
These tactics comply with Portugal’s current tax laws and encourage a more careful approach to managing cryptocurrency investments. Because tax laws can change, it’s smart to keep up to date on the latest regulations. Getting advice from professionals can help you better manage your cryptocurrency transactions and ensure you take advantage of tax benefits effectively.
Tax planning for Portugal 2024
Portugal is online tax portal allows users to access relevant crypto tax forms. Residents are required to submit the declaration by June 30th.
However, we strongly recommend that you contact a tax specialist to prepare a return on your behalf. While Portugal remains a tax-friendly destination, seeking specialist advice is increasingly important to take full advantage of the benefits offered by the local tax system.
It is also wise to periodically re-evaluate your financial planning to ensure it is tailored to your specific circumstances and aligned with your goals. How you structure your assets and wealth can greatly affect your tax bill.
Disclaimer:
The opinions expressed on this page are those of the author and not of The Portugal News.