The Legal Status and Regulation of Cryptocurrency in Portugal

The Legal Status and Regulation of Cryptocurrency in Portugal

Discover the current legal status, tax implications, and future of cryptocurrency in Portugal, a blockchain-friendly nation.

Key Takeaways

Portugal is considered a crypto-friendly nation with no restrictions on trading or holding cryptocurrencies.
Cryptocurrency is acknowledged as a viable form of investment, though it does not have legal tender status.
Recent changes introduced a 28% tax on short-term capital gains from crypto assets.
The regulatory landscape is evolving, with Portugal aligning its tax laws more closely with other European nations.
The future remains promising for crypto in Portugal, despite pending comprehensive regulations.

Is Cryptocurrency Legal in Portugal?

The legal status of cryptocurrencies often raises questions about how existing laws apply to emerging technologies. European regulators, including those in Portugal, have been increasingly proactive in addressing the complexities surrounding cryptocurrencies. While some countries create protective regulations to foster innovation, others approach cryptocurrencies with caution.

In Portugal, the government has historically taken a hands-off approach toward cryptocurrencies. There are no prohibitions or restrictions on trading or holding cryptocurrencies, which means they are regarded as legal within the country. This general acceptance has turned Portugal into a sought-after destination for investors, businesses, and crypto enthusiasts alike.

As it stands, cryptocurrency laws in Portugal do not place any legal barriers against the purchase, holding, or sale of cryptocurrencies. Rather, the government recognizes their potential as alternative payment and investment methods. However, it's important to note that cryptocurrencies do not hold legal tender status, meaning they are not classified as fiat money. Essentially, prior to 2022, specific legislative frameworks governing cryptocurrencies were not established in Portugal.

The absence of stringent regulations has attracted a lively cryptocurrency ecosystem in the country. Cities like Lisbon have emerged as thriving hubs for blockchain technology and cryptocurrency activity. Numerous exchanges and blockchain startups have sprung up, while various businesses have begun accepting cryptocurrency payments.

Portugal’s ambition to utilize cryptocurrency for economic growth is highlighted in its 2020 Digital Transition Action Plan, which includes initiatives to foster technological innovation through “Free Zones” for experimentation.

However, this does not imply that cryptocurrency businesses operate without oversight. The government has implemented regulations to ensure that all cryptocurrency activities comply with international Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) standards.

For those looking to establish a cryptocurrency company, registering a limited liability company in Portugal can be completed in just two weeks, although the licensing process from the Bank of Portugal as a virtual asset service provider (VASP) may take several months, emphasizing strict adherence to AML and CFT guidelines.

How is Cryptocurrency Regulated in Portugal?

The regulation of cryptocurrencies in Portugal currently resembles a patchwork of laws. Despite the lack of a comprehensive framework, there are specific regulations that align with international standards regarding the purchase and sale of digital assets.

The Bank of Portugal plays a crucial role as the supervisory and regulatory authority for cryptocurrency exchanges and wallet providers. They ensure compliance with AML and CFT requirements and have established registration and licensing obligations for operating within the cryptocurrency sector following the EU Directive 2018/843.

Additionally, the Portuguese Securities Market Commission (CMVM) regulates securities markets and investor protection, overseeing digital assets classified as securities, including tokens from initial coin offerings (ICOs) and security token offerings (STOs).

To prevent fraudulent activities, exchanges and wallet providers must comply with clear registration and licensing mandates designed to ensure transparency and security. This includes conducting customer due diligence and reporting suspicious transactions to the relevant authorities.

Prior to 2022, cryptocurrency transactions were exempt from capital gains tax and VAT, making Portugal particularly attractive for crypto investors. However, with the amendment of tax regulations, the government has implemented new rules that subject cryptocurrency gains to a 28% capital gains tax for individuals holding assets for less than one year. This aligns with regulations in other European countries and marks a significant shift regarding cryptocurrency taxation.

Can You Buy Cryptocurrency in Portugal?

For many interested in the crypto market, the process of purchasing Bitcoin or other cryptocurrencies in Portugal is of paramount importance. While regulations affect exchanges and service providers, there are no explicit barriers to buying or trading cryptocurrencies.

Several cryptocurrency exchanges, both local and international, operate in Portugal, allowing residents to access a variety of digital assets. It’s important to understand that these exchanges must adhere to local laws, particularly those concerning AML and CFT compliance.

In addition to centralized exchanges (CEXs), residents can explore decentralized exchanges (DEXs), which offer alternative trading options. While DEXs typically provide lower fees and increased privacy, they may face closer scrutiny from regulators due to potential concerns about illicit activities.

For those interested in mining cryptocurrencies rather than purchasing them, no restrictions currently exist in Portugal. However, recent tax reforms may apply to both individual miners and companies engaging in crypto mining activities.

Is Cryptocurrency Taxable in Portugal?

Historically, Portugal has been seen as a favorable jurisdiction for cryptocurrency taxation, with prior ambiguities creating an inviting environment for investors. However, the 2023 budget introduced a new tax framework that redefined the landscape, clarifying that gains from cryptocurrency transactions are now treated as capital gains for individual tax purposes.

Anyone selling digital assets held for less than a year will incur a 28% tax on any profits. However, assets held for longer than a year will remain exempt from this tax, aimed at encouraging longer-term investment. Furthermore, losses from cryptocurrency transactions can be carried forward for five years, providing some tax relief for investors.

Additionally, commissions charged by intermediaries in cryptocurrency transactions are subject to a 4% tax rate. Under this regime, both individuals and businesses should be mindful of their tax obligations when trading digital assets. Income generated from issuing cryptocurrencies, mining, and validation activities is also taxable, reflecting the evolving regulatory landscape.

Importantly, the new tax laws indicate that cryptocurrencies are not subject to VAT, and gifts or inheritances of crypto assets to direct descendants are exempt from taxation. Non-fungible tokens (NFTs) are also excluded from the new tax regime, along with certain types of securities.

The Future of Cryptocurrency in Portugal

Portugal has recently gained international recognition as a cryptocurrency-friendly nation, attracting foreign investors through initiatives like the Golden Visa program, which offers special tax exemptions and residency opportunities. The government’s proactive nature is further demonstrated by establishing platforms fostering collaboration in the blockchain sphere.

With recent regulatory changes, Portugal aims to eliminate past uncertainties surrounding cryptocurrency taxation while aligning its policies with those of other European nations. As the country navigates this evolving landscape, it seeks a balance between innovation and regulation to maintain its reputation as a crypto-friendly destination.

While awaiting comprehensive regulations, Portugal remains home to a dynamic cryptocurrency landscape, bolstered by its commitment to supporting technological disruption and growth in the digital asset sector.

Author: Alexandra Overgaag