Crypto-currencies taxation

We’ve all heard of BitCoins or cryptocurrencies. New words, were recently introduced into our vocabulary.

Bitcoin is one of the hundreds of crypto-assets that exist in the virtual market today, the best known for being the first.

It appeared at the end of 2008, immediately after the financial crisis that affected the whole world economy, (leading to the failure of large banks and putting countries on the verge of bankruptcy), without however being able to establish any connection between both events.

When it appeared it was worth less than 0.001 cents, a value so small that it is difficult to understand. At the end of 2021, Bitcoins were exchanged for more than 57 thousand dollars and today it is worth around 17 thousand dollars.

First of all, it should be noted that crypto-currencies or “virtual currencies” are not technically considered “currency”, as they do not have legal tender or discharging power in Portugal. But Bitcoin’s importance is such that El Salvador and the Central African Republic have adopted it as their official currency.

Among us, there has always been an environment of tax exemption from crypto-asset trading income, solely due to the lack of inclusion in any income category.

Portugal was one of the EU last countries to include this income in the range of taxation.

And did it with a bang.

NEW FRAMEWORK RULES

Category G

The IRS Code underwent profound changes to accommodate the taxation of income resulting from the transaction of crypto-assets, namely article 10, with the introduction of numbers 17 to 22, and a surgical adjustment to article 5.

Always attentive to tax base expansion, Tax Authority (AT) began to expressly include gains from the sale of crypto assets in category G of the IRS (Wealth Increases).

This is important because the legislator, when constructing this norm of incidence, resorted to a closed typification, i.e. taxation is only levied on gains derived from the facts described therein.

With the changes to the State Budget for 2023, the IRS code now defines crypto-assets (article 10, paragraph 17) as “any digital representation of value or rights that can be transferred or stored electronically using distributed registration technology or similar”.

As in other European countries, gains relating to crypto-asset transactions held for a period equal to or greater than 365 days are excluded from taxation. This means that, in the 2023 IRS Model 3 income tax return, this income must be declared.

If positive, the balance of capital gains is subject to taxation at the autonomous rate of 28%, however, opting for aggregation is allowed.

If negative, if the opting for aggregation was adopted, it can be deducted in the following five years.

Category B

But mining activity also came under the umbrella, and those most knowledgeable in the field understand what this means.

This activity is now included in Category B (Business and Professional Income).

Under the simplified taxation regime, taxable income is determined by applying a coefficient of 0.15 to sales of crypto assets.

Final notes

Entities that provide crypto-asset custody and administration services on behalf of third parties or that manage one or more trading platforms must communicate to the AT, by the end of January each year, regarding each taxable person, through an official model, the operations carried out with its intervention, about crypto-assets.

You may also want to know that the negotiation and transmission of these assets are now subject to stamp duty, which is critical in inheritances and should therefore be included in the list of assets.