Cryptocurrencies in Portugal

Virtual currencies have been increasingly sought after, especially in Portugal, which is one of the countries in Europe that most trades in cryptocurrencies, as legislation still does not provide, in some cases, the payment of taxes for the purchase and sale of these assets.

What are cryptocurrencies?

Digital currencies, or cryptocurrencies, are digital representations of value, meaning they do not physically exist. Their transaction and issuance does not depend on any bank or central entity. Decentralisation is one of the fundamental concepts of cryptocurrencies, as there is no control over their activity. In a traditional financial system, when making a bank transfer, for example, there is a bank that intermediates and supervises the transaction. In the case of cryptocurrencies, there is no need for any kind of intermediary. This is made possible by the Blockchain technology that serves as the basis for crypto-currencies. In short, the Blockchain enables chain transactions to be recorded by creating a unique code shared by all participants, and this code cannot be manipulated, making the transaction very secure. This promises to revolutionise various sectors of activity, as it allows processes to be streamlined and does away with intermediaries.

Pros and cons of cryptocurrencies

As with all investments, cryptocurrencies have pros and cons that should be kept in mind before deciding to invest in these assets.

Regarding cons, the Bank of Portugal warns that there is no legal protection that guarantees rights or reimbursements to consumers who use virtual assets to make payments, unlike what happens in traditional means. The CMVM warns of the high volatility of these currencies, which can even reach 100%, unlike shares, which as a rule vary between 20% and 30%. The same entity warns of the liquidity risk, as investors may not be able to sell the coins they have bought and also warns of the risk of fraud, as the complexity of the area makes it difficult for investors to understand its purpose.

As far as the advantages are concerned, one of the most attractive factors is the fact that there are no commissions and fees associated with the transactions carried out. Another important benefit is the security associated with crypto coins, as only the holder of the crypto coins has access to their “coin wallet”, as they are not housed in any central bank. Resistance to inflation is also a point that speaks in favour of cryptocurrencies.

What does the Portuguese Law say?

At this moment, Portuguese law does not provide that gains from the purchase and sale of virtual currencies are taxed under IRS, except if the taxpayer exercises the activity of buying and selling cryptocurrencies on a professional basis. There will only be taxation “when, due to its habitualness, it constitutes a professional or business activity of the taxpayer, in which case it will be taxed under Category B”. Therefore, we can conclude, through the binding information of the AT, that the gains obtained with the purchase and sale of cryptocurrencies are not taxed in Portugal, assuming that the taxpayer’s professional or business activity is not involved.

However, it is estimated that this scenario will not be the case for much longer. There are already European countries creating specific laws for cryptocurrency-related activities, for example, Germany. It is also known that the European Union is preparing a standard to regulate crypto-asset markets, the MICA (Markets in Crypto-Assets), which will most likely bring major changes when it comes to the regulation of cryptocurrencies.

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