The creation of a new tax framework applied to crypto-assets is one of the new features of the State Budget for 2023 (OE2023). This new crypto-asset taxation regime will cover both the IRS income tax and Heritage Tax (IMP) and, according to the proposal delivered to Parliament, it promotes the “security and legal certainty” of these businesses.
According to a report by idelaista/news, the Government’s idea is to create a “broad and adequate” tax framework that is applicable to crypto-assets, in terms of income and property taxation. This legislative initiative by the Socialist Executive will completely change the world of business in digital assets since, until now, investors' gains were not subject to any taxation.
“In terms of the IRS, it is proposed to tax income from operations with crypto-assets as business and professional income (in the case, for example, of issuing crypto-assets, such as through mining activity) or as an increase in equity, without prejudice to the classification in the other categories, depending on the case”, says the report of the OE 2023 proposal.
Business and Professional Income (Category B of the IRS): operations related to the issuance of crypto-assets are now considered commercial and industrial activities, taxable in category B of the IRS. Issuing digital assets means validating cryptocurrency transactions and mining. “Within the scope of the simplified taxation regime, taxable income is calculated by applying a coefficient of 0.15 to sales of crypto assets”, according to PwC and reported by idealista/news.
Equity increase or capital gains (Category G of the IRS): the gain on capital gains is calculated by the difference between the realisation value (which is assumed to be the market value at the date of sale) and the acquisition value, being that expenses associated with the business are deductible. “For capital gains referring to crypto-assets held for a period of less than one year, a rate of 28 percent is applied (without prejudice to the option of aggregation), with capital gains referring to crypto-assets held for more than 365 days exempt from taxation” . As for the timing, it is anticipated that crypto assets purchased before January 1, 2023 will be taken into account. “The losses determined in these operations, in a given year, may be deducted in the following five years, when the taxable person opts for their aggregation”, explains PwC.
Still on income taxation, the proposal also provides for a simplified regime for crypto-assets in terms of IRC. According to the PwC experts, “the inclusion of income from crypto-assets (which are not considered income from capital and do not result from the positive balance of capital gains and losses and other equity increases) is foreseen in the determination of the taxable income of the simplified regime with the application of a coefficient of 0.15”.
“In terms of assets, it is expressly provided for the taxation of free transfers of crypto-assets, as well as the levy of Stamp Duty on commissions charged in the intermediation of transactions related to crypto-assets, subject to a rate of 4 percent (in in line with most financial operations)”, explains the OE2023 proposal.
In other words, the value of crypto-assets is part of the taxable base of the Municipal Tax on Onerous Property Transfers (IMT). And to determine the taxable basis of IMT, the value of the act or contract is considered to be the value of the crypto-assets given in exchange, determined in accordance with the Stamp Duty Code.
The OE2023 also proposes the taxation of crypto-assets in Stamp Duty, at the rate of 10%. The idea is to tax “free transmissions of crypto-assets, when they are deposited in institutions in Portugal or, if not deposited, if the author is domiciled in Portugal, in the case of inheritance by death, or if the beneficiary is domiciled in Portugal”, the case of other free broadcasts”, explain from PwC.
As in most financial transactions, investors who use intermediation and brokerage services will be required to pay an 4% Stamp Duty. Therefore, “taxation at the rate of 4% of commissions and considerations charged by or with the intermediation of crypto-asset service providers is at issue, when the provider or the customer is domiciled in Portugal, with the charge of the tax being imputed to the customer”.
When the service provider is outside Portugal, the intermediary in Portugal must pay the tax. But if there is no intermediary, who has to settle the tax is a representative appointed by the service provider.
Selling houses in cryptocurrencies
To improve communication and transparency of cryptocurrency operations, the Government also wants those involved in these deals to be obliged to report them to the Tax Authorities.
“Natural or legal persons, bodies and other entities without legal personality that provide custody and administration services for crypto-assets on behalf of third parties or manage one or more crypto-asset trading platforms are required to submit a model declaration official to the AT, until the end of January of each year, for each taxable person, communicating the operations carried out with its intervention in relation to crypto assets”, explain the PwC lawyers.
About time too! Capital gains from crypto should be taxed like any other gain on a financial asset. Pity the government took so long to get round to this, but better late than never.
By Billy Bissett from Porto on 13 Oct 2022, 16:50