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 of the word. 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 opportunities. This is certainly one of the reasons why it remains one of the most powerful economies in the world. Its attitude towards crypto 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. Interesting? Read on!
1. Cryptocurrency regulation in Portugal: an overview
Currently, there is no specific regulatory framework for cryptocurrencies in Portugal. Anti-Money Laundering (AML) and Anti-Terrorist Financing (CFT) regulations are the main ones that regulate cryptocurrency activities in the country at present. These regulations are actually guided by EU standards. Once the implementation of the Markets in Crypto-Assets Regulation (MiCAR) – an effort by the European Securities and Markets Authority to establish uniform EU market rules for crypto-assets – is completed, the country’s cryptocurrency regulatory framework will be clearer. The Portuguese legal environment has recently started to adapt to EU initiatives. The DLT pilot regime, which opens up new market opportunities in trading and financial instruments on distributed ledger technology (DLT), has been integrated into the Portuguese legal environment. In the country, cryptocurrency businesses must follow a registration process. The Bank of Portugal is the one that manages this registration process as well as the compliance of registered companies with AML/CFT regulations. Any crypto conversion above 1,000 euros is not possible for an entity, unless the required formalities, including the identification process, are met. The full implementation of MiCAR is expected to be completed by the end of the year. Some sensitive areas, such as sales and promotion, will remain in the gray area until then.
1.1. Regulation of crypto-asset markets by the European Securities and Markets Authority: knowing it better
The Markets in Crypto-Assets Regulation (MiCA) is a significant development in the European Union. It will enter into force in June 2023. Its main objectives are to strengthen market integrity and financial stability. It considers the creation of policies to better regulate the issuance and trading of crypto-assets as one of the main strategies to achieve this. It imposes 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 the cryptocurrency regulatory landscape this year.
March 27, 2024: Worldcoin faced a temporary ban in Portugal due to data privacy concerns.
April 12, 2024: Nova SBE Blockchain Club hosted the fourth Lisbon Blockchain Conference on April 24. The event explored the impact of blockchain technology on business and the economy.
April 26, 2024: Operation Samurai led to the arrest of an American national in the Greater Lisbon region. He was suspected of co-founding the Bitcoin Mixer Samourai Wallet. The platform was allegedly involved in the laundering of more than 100 million euros.
3. Explanation of the tax framework for cryptocurrencies in Portugal
Portugal is known for its “tax-free” policy. No capital gains tax or VAT is applicable for individual investors.
For professional crypto traders For frequent/short-term traders, the situation is slightly different. As of January 1, 2023, a new tax regime is in place under the Portuguese Personal Income Tax Code. The code classifies crypto income into three distinct categories: capital income, capital gains, and self-employment income.
Capital income refers to income from passive crypto investments, such as staking income. This income represents approximately 28%.
Capital gains 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 from 14.5% to 53%.
Income from self-employment refers to income from self-employment activities related to cryptocurrency, such as mining. This also carries progressive rates ranging from 14.5% to 53%.
For companiesIncome from cryptocurrency operations is taxed as business income. If a company’s gross income from cryptocurrency operations 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 Portugal’s 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 calculation is done using the first-in, first-out (FIFO) method.
4. Cryptocurrency Mining in Portugal: What You Need to Know
Cryptocurrency mining is not illegal in Portugal. Cryptocurrency mining in Portugal is subject to specific tax rules.
For individual miners, a fixed presumption 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 is taxable 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 aimed at combating money laundering and the financing of terrorism.
July 2018: Law No. 38/2018 adopted the MiFID II requirements for the sale and promotion of crypto assets.
April 2020: Publication of the Action Plan for Digital Transition, promoting digital empowerment, business transformation and flexible regulations for technology testing.
August 2020: Directive (EU) 2018/843 incorporated into Law No. 83/2017, strengthening the country’s anti-money laundering and counter-terrorism financing framework.
August 2020: The Bank of Portugal has published a notice ordering the registration of virtual asset service providers.
December 2024: MiCAR must be fully implemented.
Endnote
With its progressive crypto regulatory framework and tax regime, Portugal stands out as a top destination for crypto enthusiasts. It is rightly considered the most crypto-friendly country in Europe. The upcoming implementation of MiCAR promises to improve this already strong framework. It is expected to foster an even more favorable environment for crypto activities. However, some gray areas and tax concerns remain, albeit minor compared to other countries in the region. Portugal could address these issues in the coming years. Once this is done, the country can become a leader in the global crypto market, assuming a more prominent role in the West.