Taxation and reporting of crypto investments

WHAT DO THEY MEAN BY CRYPTO?

For tax purposes, crypto assets are any digital representation of value or rights that can be transferred or stored electronically using stored electronically using distributed repository or similar technology, with the exclusion of unique/non-fungible crypto assets (such as NFTs) which are not taxed.

WHAT IS TAXED EXACTLY?

There are three main types of taxable income deriving from crypto asset investments:

Nature of the income	Covered transactions	Tax framework
Capital income	Remuneration received in fiat money* arising from passive investment in crypto assets that don’t imply its permanent transfer (e.g. staking delegation or off-chain, loan of crypto assets).	28% flat tax over the gross remuneration received (electable for taxation at progressive rates between 14,5% and 53%)
Capital gains	Short term (meaning crypto assets owned for less than 365 days) sale of crypto assets for fiat money**.	28% flat tax over the capital gain (sale value minus acquisition cost) (electable for taxation at progressive rates between 14,5% and 53%, 5 year tax loss carrying forward regime available)
Business income	Operations related to the issuance of crypto assets (e.g. mining and validation of crypto assets transactions through consensus mechanisms) when exchanged for fiat money. Any other transaction (including sale) if done as a business (as opposed to as a passive saving and investment transaction) when exchanged for fiat money.	Progressive taxation (14,5% to 53%) over the tax base (tax base will vary greatly depending on the chosen tax regime and actual nature of the income, can be as low as 15% of the gross income –e.g. staking on-chain -and as high as 95% of the gross income –e.g. mining)
* If the remuneration is received in crypto, then the taxation will be differed to the moment the crypto asset is sold for fiat money and will be taxed as capital gain. ** If the crypto is sold in exchange for other crypto assets (crypto for crypto exchange), then the taxation will be differed to the moment the crypto assets received are sold for fiat money (but the acquisition cost will not benefit from a step up, meaning that future capital gains will be computed using the historic acquisition cost of the original crypto sold –not the ones received in exchange). Note: Exchanges from crypto to fiat will follow a first-in-first-out (FIFO) rule per crypto-asset service provider, whereby the oldest crypto-assets purchased are the first crypto-assets deemed to have been sold.

ANY NUANCES I SHOULD BE ON THE
LOOK OUT FOR?

Topic	Nuance
Blacklisted countries	Crypto asset transactions with investors residing in blacklisted countries will generally be taxed regardless of whether they are short term or not, or whether they were exchanged for fiat money already or not. Also, tax losses transactions with investors residing in blacklisted countries will not be deductible against tax gains generated in the same year.
Exit tax	Departing tax residents will suffer an exit tax (28% flat rate – with option for progressive taxation) on all crypto assets held at the time. The taxable gain will be the difference between the market value on the date of loss of resident status and the acquisition value.
Reset to the holding period counter	It is still not clear whether crypto for crypto exchanges reset the 365 days of ownership exemption counter ^{(meaning if an investor holds for 7 months Bitcoin and the exchanges it for Ethereum for 7 more months and then exchanges it into fiat, should this be counted as a 14 month ownership or a 7 month ownership)}. Until this topic is clarified by the Tax Authorities, investors should assume that the counter resets on every crypto to crypto exchange.

HOW IS CRYPTO REPORTED FOR TAX PURPOSES?

Capital gains and capital income arising from crypto transactions are subject to annual report in the yearly Personal Income Tax (IRS) return, as follows:

Nature of the income

Explanation

Capital income

Crypto related capital income is only reportable if received in fiat (meaning capital income received in crypto is not reportable).

When reportable, crypto related capital income is reported with the following data:

(i) Country of source;

(ii) Gross income;

(iii) Tax paid abroad.

Capital gains

Crypto exchanges are only reportable when the exchange was done in fiat (meaning exchanges from crypto to crypto are not reportable).

When reportable, crypto exchanges are reported with the following data:

(i) Country of source;

(ii) Date of purchase (year, month day);

(iii) Purchase cost;

(iv) Date of exchange (year, month day);

(v) Exchange value (in euros);

(vi) Expenses and charges (incurred in the acquisition and disposal of cryptoassets);

(vii) Tax paid abroad;

(viii) Country of the counterparty to the exchange.

Note: cryto assets held for more than than 365 days at the time of exchange are reported in a separate table of exempt exchanges.

How can we help?

We are a law firm based in Portugal, specialising in Portuguese tax and customs law.

Request Info

WHAT DO THEY MEAN BY CRYPTO?

WHAT IS TAXED EXACTLY?

ANY NUANCES I SHOULD BE ON THE LOOK OUT FOR?

HOW IS CRYPTO REPORTED FOR TAX PURPOSES?

How can we help?

ANY NUANCES I SHOULD BE ON THE
LOOK OUT FOR?