Portuguese finance minister Fernando Medina delivered his Draft State Budget on October 10. In terms of taxation, the focus was on cryptocurrencies and other related crypto assets and gains.
The budget also includes some minor tax cuts. There will also be increases to the income tax bands, personal tax deductions for dependants, tax deductions for young people, increases to the threshold of taxable profits for small and medium-sized companies, and an increase to the tax bands of permanent residential properties in urban areas that will affect IMT (Imposto Municipal Sobre Transmissões Onerosas de Imóveis).
As the Socialist Party has an absolute majority in the Portuguese government, it is unlikely that any changes will be made to the draft budget as it passes through the usual parliamentary process.
Taxation of cryptocurrencies
Over recent years, Portugal has been considered a prime destination for crypto investors due to the lack of taxation on gains made on crypto assets such as NFTs, mining and trading. However, all this looks about to change.
As we enter 2023, crypto will be taxed in Portugal (presuming the measures are approved). This relates to all types of crypto coins, assets and other crypto-related activities where gains are achieved.
When a Portugal tax resident sells a crypto asset held for less than 12 months, any gains will be subject to a flat tax rate of 28%. These gains would not be taxable if the assets were held for over a year, which will likely discourage short-term trading in volatile marketplaces and steer people towards longer-term investments.
Any commercial activity involving crypto assets or crypto-related products, including mining, will be considered self-employment by the Portuguese government and, therefore, subject to income tax and social security.
- Stamp duty and Transfer Tax
Transfer of ownership for any crypto assets will be subject to stamp duty and IMT. IMT is a property transaction tax that is payable by the buyer for the transfer of the asset.
- Gifts, death and inheritances
In an unprecedented move, gifts and inheritances in the form of crypto will become subject to a 10% stamp duty if the amounts are deposited into a Portuguese bank or other investment institution in Portugal, are inherited from a deceased Portuguese tax resident, or on lifetime gifts of crypto assets for Portuguese tax residents.
The usual familial exemptions for gifts and inheritances will apply to crypto assets, giving exemptions for spouses and direct line descendants. Also, this change does not affect the territoriality of stamp duty for any other asset type.
However, those who opt into the ‘englobamento’ regime can carry forward any losses on crypto assets or investments to offset the tax applied to gains for the following five years.
Income tax rates 2023
The income tax bands have all increased, which will help reduce tax bills a little. The 2023 income tax scale rates are as follows:
€0 to €7,479 – 14.5%
€7,479 to €11,284 – 23%
€11,284 to €15,992 – 26.5%
€15,992 to €20,700 – 28.5%
€20,700 to €26,355 – 35%
€26,355 to €38,632 – 37%
€38,632 to €50,483 – 43.5%
€50,483 to €78,834 – 45%
Above €78,834 – 48%
As announced in the August 2022 budget, capital gains made on assets held for less than a year (usually taxed at a flat rate of 28%) will be taxed at the scale rates in 2023, where the total income is equal to or exceeds the top band (€78,834).
Reductions for children and students
The budget increases the personal deduction for additional children under the age of six to €300. Young people who have completed higher education or doctorates between the ages of 18 and 30 will benefit from reductions from 20% to 50%, potentially for up to five years.
Benefits for small and medium-sized companies
The first €25,000 in profits made by small to medium-sized companies currently benefit from the 17% reduced tax rate. In 2023, this threshold will be doubled to €50,000. This is probably a move to encourage investment into new and existing businesses to stimulate economic growth.
IMT – Property transaction tax
The tax bands for urban residential properties that are used as permanent places of residence will be increased by 4%. Consequently, IMT will only be applicable on property valued over €97,064.
What the Portuguese budget means for you
Unless you invest in cryptocurrencies, the budget does not include any significant tax reforms this year. Nonetheless, it is a good prompt to review your tax planning if you have not done so for a while. Seek personalised advice from cross-border specialists to ensure your assets and wealth are structured in the most tax-efficient way possible for Portugal.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
Sharon Farrell is a Partner of Blevins Franks in Portugal.