Article taken from Doutor Finanças on April 3, 2024
Do you own or sell cryptoassets? Find out how income obtained is taxed, and what you should do when declaring your Income Tax.
The Federal Revenue Code considers cryptoactive to be any digital representation of value or rights that can be transferred or stored electronically using distributed ledger technology or another similar technology (no. 17 of art. 10). Unique cryptoassets and non-fungible with other cryptoassets (NFTs) are excluded from this definition (no. 18 of art. 10).
Fungible cryptoassets are those that can be exchanged for identical ones, as is the case with cryptocurrencies and stablecoins.
Non-fungible cryptoassets (or NFTs – Non-Fungible Tokens) are property rights over unique and authentic, encrypted, irreplicable digital assets that cannot be exchanged or divided. Examples of NFTs are a work of digital art or a song registered on a blockchain platform.
Cryptoassets are often called “virtual currencies”. However, they cannot be considered currencies in the true sense, since they are not legal tender in Portugal, they are not guaranteed by the Bank of Portugal or any national or European authority, their value can fluctuate greatly in a short space of time and they do not There is legal protection for those who hold them, as occurs, for example, in the case of bank deposits with the Deposit Guarantee Fund.
IR taxation of cryptoassets
Cryptoassets are based on a peer-to-peer system, that is, transactions are carried out between members of a virtual community, without the intervention of a financial intermediary such as a bank, for example.
Portugal, until the end of 2022, did not have any fiscal regulations on the taxation of these operations. The State Budget Law of 2023 (Law no. 24-D/2022 of December 30) reversed this lack of rules, classifying gains from cryptoactives that are now taxed by the IRS.
For IR purposes, the law distinguishes two ways of obtaining income from cryptoassets:
Arising from personal operations;
Originating from business activity.
Income from crypto assets from personal operations
Income from operations relating to cryptoactives carried out by members of the virtual community (players), who do not make them a professional activity, can be classified as capital income or capital gains:
If these operations are carried out solely for the purpose of investing capital and this results in some remuneration, this falls into Category E, that is, Capital Revenue (al. u) of § 2 of art. 5th of the CIRS).
However, the most common thing is that this remuneration is also in cryptoassets and, in this case, it falls into Category G, being taxed as a capital gain when these cryptoassets are sold (§ 11 of art. 5 of the CIRS).
The value obtained from the sale of acquired or earned cryptoassets, held for less than 365 days, which are not securities, falls into Category G (al. k) of paragraph 1 of art. 10 of the CIRS).
Taxation is levied on the added value at the autonomous rate of 28% (al. c) of § 1 of art. 72 of the CIRS), with the option of aggregation according to the rules established in the IRS Code.
Note that, if the taxable income is higher than the last IRS bracket, the inclusion of capital gains is mandatory and the applicable rate is 48%.
To determine the capital gain, the value and acquisition date considered are those of the cryptoassets acquired the longest ago. This rule is based on the FIFO – First In First Out costing method, widely used in stock management in warehouses, which literally means “first in first out”. The disposal value is assumed to be the market value on the date of sale.
If you sell crypto assets (Bitcoin, for example) and in return receive crypto assets (Ethereum, for example), there is no taxation.
If no costly transfer of cryptoassets is made during the year and they appreciate in value, there is nothing to declare to the AT and there is no need to pay tax.
Income from crypto assets from business activities
For IRS purposes, commercial activities are considered to be those carried out in an individual name and which are related to the issuance of cryptoactives, including mining, or validation of transactions through consensus mechanisms such as PoW – Proof of Work and PoS – Proof of Stake (al. o) of § 1 of art. 4th of the CIRS).
Business or professional income related to cryptocurrency operations is Category B income and can be classified under the simplified regime or the organized accounting regime (in this case, taxable income is determined based on accounting and requires the hiring of accounting services). a Certified Public Accountant).
If the activity and is covered by the simplified regime, taxable income is determined based on the following coefficients (no. 1 of article 31 of the CIRS):
0.95 for income from cryptoactive mining;
0.15 for income from operations with crypto assets (trading).
In practice, the application of these coefficients works as the “profit” of the activity, that is, the portion of the income obtained considered for the purposes of calculating IR corresponds to 95% in mining and 15% in trading.
Exclusions from taxation on transactions with cryptoassets
There is a transitional rule that safeguards cryptoassets acquired before the entry into force of the 2023 OE Law and numbers 18 to 20 of article 10 of the CIRS provide for the following taxation exclusions:
NFTs, which are not considered cryptoassets for IRS purposes;
Gains obtained and losses incurred from operations with cryptoassets held for a period equal to or greater than 365 days. For cryptoassets acquired before the law came into force, the date of acquisition is considered to count the 365 days;
Disposals of cryptoassets whose payment is also made with cryptoassets. This situation is considered a mere exchange, attributing to the cryptoassets received the acquisition value of the cryptoassets delivered.
Anti-Abuse Measure
There are two exceptions to the taxation exclusions that were added to article 10 of the CIRS (nos. 21 and 22) as an anti-abuse measure.
Thus, regardless of whether cryptoassets have been held for more than 365 days and the disposals have cryptoassets as counterpart, they are subject to taxation:
Income earned by citizens who are not tax residents in another Member State of the European Union, in the European Economic Area or in another State with which Portugal has an international double taxation convention or agreement that provides for the exchange of tax information;
The loss of resident status in Portuguese territory, which is equated to a costly disposal of the crypto-assets held.
Annexes to the Income Tax Declaration to be submitted related to cryptoassets
Category E Income
For capital income related to cryptoassets, you must submit Schedule E.
Complete Table 4 A – Income subject to special rates, indicating code E21 for income.
When opting for inclusion, choose the situation that is most favorable to you.
Category G Income
For capital gains obtained from operations with crypto assets, you must submit Annex G.
Complete Table 18 A if you sold non-securities cryptoassets held for a period of less than 365 days.
Complete Table 18 B if you sold cryptoassets that do not constitute securities and lost your resident status in Portuguese territory.
In the “Administrator” column you must enter the CNPJ (CPF) of the person, company, body or entity that provides cryptoasset custody and administration services on behalf of third parties or manages one or more cryptoasset trading platforms.
In Table 15 you must indicate whether or not you opt for inclusion. Choose the situation that is most favorable to you.
Category B Income
For professional income obtained with cryptoactives, you must submit Annex B.
In Table 3 A you must indicate the activity code.
The issue of the activity code has raised many doubts since the activity table in art. 151 of the CIRS in force at the time of this article does not yet include the code “1338 – Providers of services related to cryptoactives”, which is expected to be added in a future Ordinance.
The current Portuguese classification of economic activities (CAE-Revision 3) also does not include a specific code for activities related to cryptoassets, so that, in their declarative obligations, entrepreneurs have resorted to already existing codes, such as:
66300 Fund management – to declare cryptocurrency management activity;
63110 Data processing activities, information domicile and related activities;
64190 – Other monetary intermediation;
66190 – Other activities auxiliary to financial services.
In any case, the CAE to be indicated in Annex B must correspond to what appears in the declaration of beginning of activity and its registration information in AT.
The fields to be filled in in Table 4 A are:
419 – Revenue from operations with cryptoassets, where you must indicate the total gross value obtained from trading;
422 – Income from cryptoactive mining, where you must indicate the total gross value obtained from mining.
You must also fill in the fields in Table 13 G, indicating whether or not you carried out transactions related to cryptoassets and whether or not you lost your status as a resident in Portuguese territory in the year to which the IRS declaration refers.
Supporting documentation and evidence
Legislation related to cryptoassets is recent and there are still practical issues that need clarification, such as what can be accepted as documentation to support operations and as evidence. For now, and until these aspects are clarified, in the absence of other documentation, print screens of cryptoactive sales will serve as supporting documentation.
In addition, blockchain records, as they are dated, secure, transparent, immutable and remain in the blockchain, may also, in the future, be accepted as a means of proof.
Additional obligations
The Income Tax code also provides for a declaratory obligation, to be fulfilled by the end of January of each year, for individuals who provide custody and administration services for crypto assets on behalf of third parties or manage one or more crypto-asset platforms. trading of cryptoassets (art. 124-A).
The way in which this communication will be carried out still needs clarification from Finance, but an AT Order of February 18, 2022 refers to “Model Declaration 59 – Declaration of Communication of Operations with Cryptoassets” as the model to be used.