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Taxation of Cryptoassets – State Budget 2023

The draft State Budget 2023, released last Monday, aims to regulate the activity of buying and selling cryptoassets, but not only that. This change was long anticipated and it looks like it will be put into practice as early as next year.

Taxation of Cryptoassets

As already anticipated, everything indicates that Portugal will start taxing some income related to crypto-assets, namely, capital gains obtained through the sale of virtual currencies, and mining activities, similarly to some European countries. Note that the proposal is based on operations involving crypto-assets, not just cryptocurrencies.

However, some exemptions are foreseen, in order to maintain the country’s competitiveness in this sector, which has so far been quite sought after by investors, precisely because of the absence of taxation.

It is important to note that it is not necessary to declare to the AT that you own cryptoassets, because the obligation is to declare capital gains or income obtained through operations carried out, such as the sale, for example.

In this article, we will explain the changes and implications of this new measure.

What will change?

If the proposal does indeed go ahead, capital gains obtained through operations such as the sale of cryptocurrencies will be taxed at 28% (unless one opts for aggregation) if they have been acquired less than 1 year before the sale, thus putting an end to the exemption of profits obtained through the purchase and sale of cryptocurrencies. The amount subject to the 28% rate is the profit made, i.e. the difference between the sale value and the acquisition value.

Nonetheless, it is important to keep in mind that capital gains from the sale of cryptocurrencies is not the only income that will be taxed. The mining activity, or other activity of issuing crypto-activities, will also be subject to taxation, since it will be, as of next year, considered a commercial/industrial activity covered by Category B of the IRS. The coefficient to be applied to income from this activity will be 15%, however, there is still no certainty as to the exact amount.

Free transfers of crypto-assets will also be subject to taxation, namely Stamp Duty at 4%, just like other financial transactions.

Exemption cases

As a way to maintain the country’s competitiveness in the cryptocurrency sector, there are some exemptions foreseen in the presented proposal. As for example in the case of capital gains obtained through the sale of crypto assets held for a period of 1 year or more. That is, capital gains obtained through the sale of crypto assets that have been possessed for 1 year or longer, are not subject to the payment of taxes.

In addition, the valuations of cryptoactive portfolios will also not be subject to fees, as taxation is applied only on realized capital gains (profit through sale).

Are NFT’s considered cryptoassets?

In Portugal, NFT’s (non fungible token) also fall under the definition of cryptoassets, so they will be subject to the same rules as cryptocurrencies. This means that if you get a capital gain from selling an NFT that you have held for less than a year, it will be subject to 28% tax.

If you wish to obtain more information, please contact us.