If you are involved in crypto and currently residing in Portugal or thinking about permanently relocating to this popular European holiday destination, you will need to consider the new crypto tax rules that just landed. For example, did you know that the non-habitual resident (NHR) regime that once allowed foreigners to pay a 20% flat rate on certain forms of income is being phased out? In fact, Portugal's Tax Authority is now pre-emptively rejecting all NHR applications.

But there are even more changes afoot. This article briefly overviews what tax obligations have changed in 2024 and what crypto investors and enthusiasts need to be mindful of. Of course, we highly recommend you speak with a professional before filing your tax returns to ensure reporting accuracy and compliance with the new regulations.

The different types of crypto income in Portugal

The Portuguese Personal Income Tax Code is now breaking crypto income into three distinct categories. Below is a snapshot of each income category and what you need to know.

Passive investments in crypto - Category E in IRS

interest payments in crypto or staking rewards of newly minted tokens are now subject to a flat tax rate of 28%.

However, it's important to remember that you can still receive crypto as payment if it's considered salary or self-employment income. In this case, it'll be taxed accordingly, usually at progressive tax rates.

There is one caveat, though: if this income qualifies as a salary or income from self-employment (i.e. falls into a different category), it will be taxed appropriately (and usually at a progressive tax rate, too).

Capital gains income - Category G in IRS

All digital assets holdings held for less than one year are taxable at a flat rate of 28%. If the holder decides to combine these gains, they will be subject to progressive tax rates ranging from 14.5% to 53%. It is important to note that "investment/security tokens" will be viewed as securities and taxed accordingly, regardless of the 365-day rule.

ICP Hub Portugal member and crypto tax advisor Thomas Maas left the following advice:

“You declare your taxable crypto capital gains in anex G of the Portuguese income taxes. Crypto capital gains that you sold after 365 days are reported in anex G1, which is a separate anex compared to G. In order to declare your tax-free capital gains in anex G1, you need the following details:

1) When did you buy crypto?
2) For how much did you buy?
3) When did you sell crypto?
4) For how much did you sell?
5) In what country did you sell your crypto?

Whenever you choose to leave Portugal, you are liable to pay the "Exit Tax," which amounts to 28% of your current digital asset holding. The due amount will be determined using the first-in-first-out (FIFO) accounting method. Basically, the government will tax you on paper like you sold all your assets upon leaving. Meaning if you held those capital gains for longer than 365 days, they are tax-free.”

Thomas is an industry vet in the world of crypto tax and is always sitting on the frontier to support our members in getting their taxes in order.

All Other Crypto Income, crypto operations and validation - Category B

This income category relates to activities not relating Capital Gains, staking newly minted tokens, interest, NFT flipping, to passive airdrops. Individuals who fall into this category can expect progressive tax rates between 14.5% and 53%. A 95% coefficient for mining is applied, meaning profit margin is 95% and 5% is left out to cover the cost. For other incomes its 15% will be considered profit margin and 85% costs.

Portugal crypto taxation guidelines for personal entity

Personnel dealing with crypto must pay taxes on their earnings as business income. Suppose you haven't made more than €200,000 in gross income in the previous fiscal year. In that case, 15% of the majority of its crypto earnings are taxable at progressive rates after factoring in any other deductions or costs. The maximum tax rate should be at 8% of their total earnings. For mining income, 95% of the gross earnings are subject to progressive tax rates.

Portugal's non-habitual residence (NHR)

Portugal's Non-Habitual Residence (NHR) program ended on December 31, 2023, which means residents can no longer apply. However, there's a small exception: if a resident began their residence visa application in 2023 and managed to secure a property, job, or school placement last year, they might still be eligible.

If an individual already has NHR status, they will enjoy the tax benefits until their 10-year term ends. After that, they will be subject to Portuguese taxes on their income and gains worldwide at regular rates, which can go up to 48% or 28% for investment income. Also, half of any property gains will be taxable.

If this exception applies to you, it is wise to make the most of the NHR benefits and reorganise your assets now to minimise your taxes after your NHR term ends. Don't leave it until the last minute – start planning well in advance.

The new regime replacing NHR applies to specific individuals, like 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 for ten years.

If you meet the criteria, you will enjoy a flat 20% tax rate on your employment or self-employment income. Plus, 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, Portugal's tax laws offer legal ways to enjoy significant investment tax advantages. Additionally, attractive tax options are available for residents who can cash in on their pensions, making them comparable to NHR benefits.

Portugal's new crypto tax calculation example

Below is a straightforward example of a crypto tax calculation for short-term capital gains under the new Portuguese tax system:

An investor buys €10,000 of BTC in January. In June, they sell this 1BTC for €15,000, a €5,000 profit. As we know, this €5,000 is subject to a flat tax rate of 28%

Tips to minimise crypto taxes in Portugal

To effectively reduce your cryptocurrency taxes in Portugal, using smart strategies to save you a lot on your tax bill is essential. Here are a couple of tips:

Hold your crypto Capital Gains for more than 1 year

Portugal's tax rules favour long-term holding. If you hold onto your cryptocurrency (including stablecoins) for over a year, you won't be liable to pay tax on the capital gains you make when you sell. This encourages a patient investment strategy, letting you make profits without worrying about paying taxes. It should be noted, that this only works on Capital Gains tax

Consider making donations - Category H

Donating cryptocurrency can also be tax-friendly. In Portugal, donating crypto comes with a lower stamp duty rate of 10%. And if you're giving to family members like your spouse, life partner, or direct ancestors or descendants, like parents to kids or grandkids, you might not have to pay any tax at all. Plus, donations under €500 are tax-free. By strategically giving away some of your crypto, you can cut down on your overall tax bill while helping out your loved ones or supporting causes you care about. While this will help decrease the tax burden, donations may still be taxed on the receiver side

These tactics comply with Portugal's current tax laws and encourage a more careful approach to handling cryptocurrency investments. Since tax laws can change, it's smart to keep yourself updated on the latest regulations. Getting advice from professionals can help you better manage your cryptocurrency transactions and make sure you're taking advantage of tax benefits effectively.

Tax planning for Portugal 2024

Portugal's online tax portal allows users to access the relevant crypto tax forms. Residents are required to file their returns by June 30.

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 specialised advice is increasingly important to fully take advantage of the benefits offered by the local tax system.

It's also wise to periodically reassess your financial planning to ensure it's tailored to your specific circumstances and aligned with your goals. How you structure your assets and wealth can greatly affect your tax bill.