Portuguese finance minister, Fernando Medina, delivered his Draft State Budget for 2023 on 10 October. In terms of taxation, the focus was on cryptocurrencies and other related crypto assets and gains.
The Portuguese Draft State Budget for 2023 also includes some minor tax cuts. There will be increases to the income tax bands, personal tax deductions for dependents, 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 Transmissôes Onerosas de Imóveis).
As the Socialist Party, or Partido Socialista, have 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.
Portugal’s taxation of crypto
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.
A breakdown of these taxes is as follows:
When a tax resident of Portugal 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 in Portugal. 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.
Portuguese Draft State Budget – Income tax rates for 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:
|INCOME||TAX RATES||BAND||TAX ON BAND||CUMULATIVE TAX
|€0 to €7,479||14.5%||€7,479||€1,084||€1,084
|€7,479 to €11,284||23%||€3,805||€875||€1,959
|€11,284 to €15,992||26.5%||€4,708||€1,248||€3,207
|€15,992 to €20,700||28.5%||€4,708||€1,342||€4,549
|€20,700 to €26,355||35%||€5,655||€1,979||€6,528
|€26,355 to €38,632||37%||€12,277||€4,542||€11,070
|€38,632 to €50,483||43.5%||€11,851||€5,155||€16,225
|€50,483 to €78,834||45%||€28,351||€12,758||€28,983
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
For additional children (second child and subsequent others) under the age of six, the personal deduction will be increased to €300 (or €150 per parent in cases of shared custody) as of 31 December of the relevant tax year.
The budget included reductions for young people who have completed higher educations or doctorates between the ages of 18 and 30. The reductions can last for up to five years and range between 20% and 50% depending on how many years an individual has been benefiting from a reduced rate.
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, however, 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.
You can learn more about Portuguese taxation by downloading our free tax guide.
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. As each individual has a unique set of circumstances, seek personalised advice from cross-border specialists to ensure your assets and wealth are structured in the most tax-efficient way possible for Portugal.
Blevins Franks has been helping British expatriates relocate to Portugal and protect their wealth for more than 45 years. We have offices in the Algarve and Lisbon area and our advisers live locally, giving them a deep knowledge and understanding of the Portuguese tax regime.
Contact us today.