Crypto regulation in Portugal

Already, some particular steps were taken in Portugal concerning the regularization of crypto-assets by the Central Bank and other authorities in line with the European legal framework, especially for AML measures, prevention of money-laundering and/or financing of crime.

VASP Regulation in Portugal

In such contexts, cryptocurrencies can be viewed as broadly defined as a «digital representation of value not issued by a central bank, credit institution, or e-commerce, which in some circumstances can be used as an alternative to money». This definition corresponds to that of the European Central Bank (ECB), which the Portuguese authorities have substantially subscribed to. Other regulations on crypto assets were devised by the European Securities and Markets Authority – ESMA in its recommendations on ICOs and crypto assets, dated January 2019.

Given the pace with which the Fintech industry is developing, blockchain technology in general and cryptocurrency in particular are currently being debated by the Portuguese government.

These technologies have been drawing public interest over the past few years due to the rise in prices of Bitcoins, increased interest in holding ICOs in Portugal and other countries, and their market capitalization.

In this country, cryptocurrencies are not legal tender and not considered fiat; they are neither «money» nor «electronic money». In any respect, EBA issued a statement in 2019. It indicated that there were limited circumstances where cryptocurrencies can be seen as «e-money» according to Directive 2009/110/EC (EMD2).

However, many consider cryptocurrencies as some alternative means of paying, contractual in their nature, and a product of a private agreement between participants of a cryptocurrency transaction with internal features that partly repeat the main features of traditional money: storage of value, unit of account, and medium of exchange.

Generally speaking, cryptocurrencies are not backed either by the Portuguese government or by the Central Bank, but they may be treated as financial instruments if such is the case.

Cryptocurrencies are also taken into consideration regarding functionality. The regulators deal with utility tokens and security tokens; the latter usually sold through ICOs. They can be distinguished by their distinctive function since the former, for the most part, is related to consumption while the latter is associated with investment.

That is why the issue of the regulation of these technologies has become one of the important topics for the attention of the relevant authorities, especially the Central Bank, the Portuguese Securities Office (CMVM) and the ASF. The CB issued several public statements and warnings regarding cryptocurrencies. This was in line with the regulatory practices of other eurozone central banks and European regulators such as the ECB and EBA.

If you plan to get a crypto license in Portugal, you should consider that the Central Bank has issued Notice 3/2021 relatively recently, through which the registration of virtual asset service providers operating in Portugal due to transposition of the EU Directive 2018/843 dated 30 May 2018 into Portuguese law, in particular under the Portuguese AML system adopted by Law 83/2017.

In counterpart, CMVM has done the opposite by issuing notices to investors about the risks involved in ICOs, so that those risks be better known. This is what happened on July 23, 2018, when CMVM made a formal notice to all ICO participants regarding the legal qualification of tokens.

The CMVM underlined that all ICO participants had to be aware of the legal nature of the tokens offered by the ICO, of their possible qualification as securities, and of the ensuing application of securities law. The CMVM mentioned, in this respect, that tokens can represent very different rights and credits and can be sold in organized markets.

In this way, if you plan to run an ICO in Portugal, it is worth considering that tokens may be treated as securities pursuant to the Portuguese law, as the definition of securities under the Securities Code is quite broad.

AML-requirements

Above service providers are subject to the general AML framework for non-financial organizations. Such entities shall, inter alia:

• Monitor the risks associated with money-laundering and the financing of terrorism as a result of the development or use of new technologies;
• Exercise due diligence in the customer’s business, non-recurring or ongoing transactions;
• Development and implementation of policies, procedures and controls to manage money-laundering risks;
• Customer and business owner identification, according to the KYC procedure;
• Collections and storing information about relationships with customers;
• Analyzing and monitoring of transactions in accordance with risk assessment;
• Reporting about suspicious transactions and cooperating with competent authorities.

A single set of indicators should be used to identify suspicious transactions. They include “red flags” proposed by FATF—the Financial Action Task Force on Money Laundering.

Among them are:

• Transaction-related indicators: size, frequency, and nature of transactions;
• Anonymity indicators;
• Sender and receiver indicators: customer data and discrepancies;
• Source of funds indicators;
• Geographical risk indicators: jurisdiction of counterparty.

High BFR risk is traditionally associated with the following categories of persons:

• Persons and organisations operating in offshore zones;
• “Politically significant persons” including “close family members” and “persons with recognised and close corporate or commercial relationships”;
• UN Security Council Sanctions lists, OFAC (Office of Foreign Assets Control of the US Treasury), EU Council, etc.
• Sectoral Regulations to enhance precautionary measures designations: Natural and legal persons.

ICO REGULATIONS

ICOs that aim to offer tokens that represent rights and/or economic interests in a predetermined enterprise, project, or company can potentially qualify as securities and, therefore, might fall under existing securities rules, mainly rules applicable to the public offering of securities and/or trading platforms. The launch of ICO in Portugal can be ruled by EU legislation, such as:

• Financial Instrument Markets Directive (MiFID II);
• market of the financial instruments regulation – Resolution 600/2014 and associated executive measures;
• Provisions concerning market abuse;
• Directive 2009/44/EC;
• Central Securities Depository Regulation;
• Investment Fund Management Directive (OIF).

CMVM said the token allows holders to participate in the development process of the virtual platform, through their participation in questionnaires and possibly the donation of tokens to the virtual platform does not constitute a finishing tool—that is, not a security token. The regulator detailed, in particular, emphasis on the features that, in abstract terms, can give cause for qualification of securities tokens as securities, namely:

• if they can be considered to be members of special economic rights;
• if market functions are similar to typical securities.

The CMVM also regulates that if the token has securities characteristics and the ICO is offered to investors from Portugal, such transactions should be regulated by national and EU laws that are related to:

• Issue, representation, and transfer of securities;
• Proposal to the public (if applicable);
• Marketing of financial instruments for the purposes of MiFID II;
• Quality requirements for information;
• Market abuse rules.

Lastly, where the ICO represents a public offer, the CIM provides that a prospectus needs to be drafted and filed together with any marketing material in respect of the relevant ICO for approval by the CIM, provided that there shall be no exemptions from the duty to draw up a prospectus.

VASP PROCEDURE

As mentioned, the Anti-Money Laundering Act made all the LCA activities subject to a registration requirement in Portugal. Establishment of a registration regime according to Article 112-A of the AML Act and Notice 3/2021 of 24 April 2021 of the Bank of Portugal.

The following types of entities conduct business on Portuguese soil:

• Portuguese companies – whose headquarters are registered in Portugal;
• Legal entities having permanent representation in Portugal; and
• Organizations that are under an obligation to operate under the control of the Portuguese tax authorities.
• The Central Bank is the competent authority to register crypto companies in Portugal and to verify compliance with applicable legal and regulatory provisions governing the use of the AML by the above-mentioned persons.

Whereby the use of new technologies or products promotes anonymity, the Portuguese Anti-Money Laundering Law requires that a general obligation shall be imposed in managing risks, and since VASP is now considered a ‘liability’. This means it is required by law that QSP must monitor, analyze, and document specific procedures to address any specific risks associated with money laundering and financing criminal activities. Besides, the procedures for identifying and properly screening clients by authorized persons shall be carried out for transactions involving more than 15,000 EUR, including enhancing its procedures of identification and due diligence of customers when they find an additional risk of money laundering or financing of business crimes.

TAXATION

There is no special regime in Portugal related to the tax regime of cryptocurrencies. Nevertheless, the tax authority has issued already three rules on cryptocurrencies. In the absence of other legislation that would shed light on the taxation of cryptocurrencies, these regulations become extremely relevant and will operate as case law with respect to how Portugal’s Tax Administration will view cryptocurrency and cryptocurrency-related events in applying the existing tax law provisions and determining whether certain events or transactions are subject to Portuguese taxation— including corporate, individual, VAT, or stamp duty.

Companies offering services related to cryptocurrency are levied capital gains ranging from 28 to 35%.

Our highly qualified and trustworthy lawyers will be happy to personally assist you in both registering with the Virtual Currency Register and in obtaining a crypto license in Portugal. Carefully following local legislation, we are thus well prepared for accompanying our clients effectively through every phase of the procedure.

Establish a Crypto Company in Portugal

Two years ago, the Portuguese government announced the Digital Transition Action Plan, including technological free zones designed to allow experimentation with blockchain and other new technologies in space—that replicate the real world. Undoubtedly, such an approach makes Portugal one of the most crypto-friendly countries, so it should be noticed. Whatever your nationality and whatever your residence status is, you can create a crypto company in Portugal. Moreover, you can enjoy this business environment.

Main peculiarities of the Portuguese business landscape:

• Appealing tax incentives and opportunities for residents—for example, withholding tax is charged only from 50% of dividends of a resident;
• Appealing industry of tech with huge venture capital amounts;
• Portugal is an EU country, on the road to the European single market;
• Portugal stands in the 39th position out of 190 countries regarding the Ease of Doing Business 2019 ranking of the World Bank, reflecting a relatively favorable business climate considering ease of opening and financing a company and participating in economic activities;
• Portugal is ranked 31 out of 177 in the Economic Freedom Index 2022, for judicial efficiency, tax burden, regulatory efficiency, freedom of investment, etc.;
• Young but qualified, knowledgeable, and at the same time accessible talents, well supported by the Portuguese education system;
• Portugal is ranked sixth in the 2022 Global Peace Index, which reflects stability and a safe, sustainable environment;
• Lisbon is a host to one of the largest conferences in the world on technologies, called Web Summit, and numerous government and non-government initiatives contributing to the development of the blockchain sector.

Given initiatives: The main legislation governing companies in Portugal is the Comercial Company Act. It provides therein the types of incorporation, management, and shareholder rights.

This register is in the public domain, and the updates for commercial records and documents are kept by the Portuguese Commercial Registry, who issues the certificates of registration and dissolution.

The rule is that every company willing to start crypto-related activities in Portugal is considered a VASP and has to be licensed by the Banco de Portugal before starting business. It also gives mandates related to AML/CFT in response to the European Union’s directives.

Your company may also be obliged to register, for its operations in Portugal, with the Portuguese Securities Market Commission (CMVM), in cases when crypto activity covers cryptoassets legally qualified as securities or instruments equivalent to securities.

Tipo de entidades empresariais Portuguesas

In order to start a crypto company in Portugal, you can choose between two options: “Sociedade por Quotas” (Lda) – Private Limited Liability Company or “Sociedade Anónima” (SA) – Public Limited Company. Both types’ shareholders are liable only for the company obligations within the limit of their investments.

Documents required for establishing a limited cryptography company in Portugal:

• Articles of incorporation, written and having witness verification of founders’ signatures
• Business plan
• White paper
• Documented risk management policies and procedures (AML/CFT, data protection, etc.)
• Identity documents of shareholders, directors, and compliance officers
• Evidence of no criminal record from shareholders, directors, and supervisory officers, obtained within the last three months

The following general rules apply with respect to any company:

• Unless the contrary is provided by the charter, its duration shall be unlimited.
• Initial capital contributions prior to the signing of the Charter are required, unless cash contributions are deferred under conditions permitted by law;
• The value of the equity of the company shall be in euros, always expressed in legal tender in Portugal.
• Appointed Directors shall show willingness, technical capability, and knowledge of the company and the whole business model.

Regardless of the legal form, every crypto company is obliged to adhere to the following requirements:

• Development and implementation of internal AML/CFT procedures
• Recruit an anti-money laundering/terrorist financing officer

Private Limited Liability Company Lda

Private limited liability company Lda is among the most used forms of legal business structures in Portugal. With this type, since the transfer of shares is restricted, it is normally chosen for creating small and medium-sized businesses.

Other characteristics of the private limited liability company – Lda are:

• Free denomination linked to the respective business area, and the word Limitada or its abbreviation Lda
• At least two shareholders, natural or legal persons, with no requirement for residence
• At least one director who can be a shareholder; residential requirements are not necessary, but the Bank of Portugal considers that the directors should be resident in Portugal
• There is no need to appoint a board of directors
• An accountant who should fulfill the tax obligations
• The General Meeting as the governing body of the company, which includes at least one director and one accountant
• No capital requirements, but each quota must be at least 1 EUR
• Registered office is a precondition (in this case, Portuguese authorities will send notifications, invoices, and other official documents)

An annual audit of a company’s financial statements requires either an independent auditor or a review board if at least two of the following amounts have been exceeded for two consecutive years:

• Net revenue – 3 million EUR
• Balance sheet total – 1.5 million EUR
• Average number of employees – 50

Public Limited Company (SA)

Entrepreneurs who want to raise funds from the sale of shares to the public prefer this form of enterprise, allowing them to raise much more capital and establish businesses on a much larger scale than their private counterparts. State-owned companies, however are governed by a more rigorous set of regulations.

The main features of the joint-stock company (SA):

• The name of the company consists of a freely selected part, a link to the respective field of activity and should end with SA
• At least five shareholders (if one is a State, only two shareholders are required)
• One director if the share capital does not exceed 200000 EUR
• Minimum equity – EUR 50,000 (70% of cash contributions can be deferred for up to five years)
• Minimum nominal value of the share – 0.01 EUR
• General meetings are required regardless of the type of management structure

The management of a SA can take the following form

One of the following:

• Board of Directors or one Director if the share capital is below EUR 200,000 and a statutory audit board of at least three members or an independent auditor,
• Board of Directors, three-member audit committee and independent auditor
• Board of Directors or one director if the share capital is below EUR 200,000, General Supervisory Board and independent auditor

Every public company, regardless of the size, has a duty to make at least one annual audit. Such companies shall appoint one auditor that can either be the sole supervisor of the company or, if another form of management exists, a partner of the company’s board of supervision. The auditor may be a natural person or another company and must be registered with the Portuguese Professional Association of Chartered Accountants.

Crypto regulation in Portugal overview

What you need to do

The Portuguese limited liability company could be registered within two weeks, but the licensing process could take several months.

To create a cryptocurrency company in Portugal, take the following steps:

• Check and reserve the appropriate name (submit three options) before registering
• Prepare the necessary documents
• Office rental for legal business address and local staff
• Open a Portuguese bank account
• Transfer equity
• Pay company registration fee
• Regular registration – 475 EUR
• Accelerated registration 950 EUR
• Submit an application for registration of the company together with the necessary documents to the Portuguese Trade Register
• Apply for a cryptography license at the Bank of Portugal
• Apply for registration with CMVM if your proposed activity includes cryptoassets that qualify as securities
• Submission of the final declaration of beneficial ownership (CBO) to the Central Register of Beneficial Ownership
• Recruitment of personnel in accordance with the law
• Registration as a taxpayer with the Tax and Customs Board
• Registration of employees in the social security system
• Obtaining a company seal when the certificate of registration is issued

Each crypto company needs to get a full license from Banco de Portugal as VASP before the economic activities happen. Compliance with AML/CFT is key to successful licensing.

Taxation of Crypto Companies in Portugal

Taxes in Portugal are collected and administered by the Tax and Customs Authority, which doesn’t consider cryptocurrencies to be legal tender but does recognize that they can be profitably exchanged for hard currency through intermediary platforms, underlining that their value is determined by online demand.

All cryptocurrency transactions shall be duly recorded and declared for tax purposes in Portugal’s legal tender, the euro.

The following taxes are paid in Portugal by crypto companies:

• Corporation tax – 21% (for the first 15,000 EUR of profit – 17%)
• Value-added tax (VAT) – 23%
• Social security – 23.75%
• Municipal business – up to 1.5%
• Dividend withholding tax – 28%

In cases where one or more shareholders are not residents in Portugal, the assignment of a NIPC/NIF number in Portugal is requested. If the shareholders reside outside the European Union, the designation of a Tax Representative resident in Portugal is compulsory.

Reporting requirements

All crypto companies are required to submit audited annual and other financial statements to the Portuguese Trade Register.

In addition, all the following documents shall be made available upon request of any interested party, both on the website and at its registered office:

• Annual report
• Audit report
• Opinion of the Supervisory Board, in the cases provided for by law or by the articles of association

As a rule, the annual report and the financial statements are to be provided for consideration by the relevant bodies within three months from the end of the financial year. In case the first financial year differs from the calendar year, the financial year should be between 6 and 18 months.

The annual report shall contain at least one analysis, clear and transparent about the status and progress of the company, its activities, and market position, describing the main risks and uncertainties that the company is exposed to. This shall be done by describing financial, labor, environmental, and any other relevant issues, referring to amounts reported.

The report shall indicate the following:

• Changes in different business areas during the period concerning market position, invested capital, costs, profits and R&D performed
• Significant events after the close of the financial period
• Future prospects of the group and parent company
• If applicable, the number and nominal value of quotas or equity shares redeemed or sold during this period, the reason for such purchase or sale and the appropriate price, as well as the total number and face value of any quotas or equity, balance at the end of the financial year
• Authorizations issued under art. 397 for transactions between directors and company
• Profit proposal
• Corporate Affiliates Review
• Review of internal policies and objectives regarding financial risk management

If you believe in the future of your crypto company in Portugal, then our trusted and dynamic team at Regulated United Europe (RUE) will be happy to assist at each point. We give a wide range of legal advice on setting up the company, crypto-licensing, and taxation. Besides that, financial accounting services are also going to be our pleasure. Contact our specialists today for a consultation.

Crypto Regulation in Portugal 2023

In 2023, Portugal is still relatively lax and open to innovation but has simultaneously started providing a much clearer set of rules for the cryptocurrency sector that should mean better security for investors. The country will also continue to be aligned with the improvements in regulations at the EU level, which hone international rules concerning cryptocurrency and other blockchain-based businesses with the aim of market stabilization, besides promoting innovative solutions.

New EU-wide Crypto Rules

This year, crypto businesses in Europe should focus on getting ready for the new requirements that will demand greater responsibility from Portugal’s crypto entrepreneurs. In 2022, the Markets in Crypto-Assets (MiCA) regulation was approved by the Economic and Monetary Affairs Committee for a vote by the European Parliament and the EU member countries. The provisions under MiCA will enter into force before the end of 2024 and were supposed to bring legal certainty, prevent cryptoasset abuses, while also promoting innovation in crypto at the same time. For now, MiCA itself has its deficiencies: it does not cover DeFi and NFTs.

The key changes include environmental responsibilities that will enable crypto enterprises to contribute to bringing down high carbon emissions resulting from cryptocurrencies. In a nutshell, all major crypto asset service providers will be under obligation to indicate on their websites the levels of their energy use and also communicate the same to national authorities.

The second amendment regards oversight over stablecoins. This responsibility will be given to the European Banking Authority. Among the obligations of the issuers of stablecoins under EU law would be the maintenance of a liquid reserve corresponding fully to 1:1, partly in deposit form. The reserve shall be to enable the possibility to grant any holder of a stablecoin a claim at any given moment and free of charge.

Regarding the supervision of non-compliant CASPs, the EBA will maintain a public register and will also conduct enhanced AML/CFT controls of entities rated as non-compliant CASPs. These are those crypto businesses whose parent companies have registered in countries which the EU perceives as third countries presenting a high risk in relation to anti-money laundering activities or as non-cooperative jurisdictions for tax purposes. Besides that, it is expected that a single pan-EU AML authority may be given by the EU in the coming years, which would finally harmonize the AML regulatory framework.

In that respect, all those EU standards require further effort from Portuguese crypto businesses in optimizing their business operations for MiCA-in other words, the competence and means to counteract market abuse and manipulation, avoid conflicts of interest, and establish processes that avoid proprietary trading. Generally speaking, it will be the minimum standard to prove stability, soundness, and competence concerning adherence to legislation and regulations.

EU-wide Regulatory Sandbox

The EU in 2022 concluded the guidance on the Pilot DLT Market Infrastructure Regulation (PDMIR). The pilot will take effect from March 2023 and provide a legal regime for the trading and settlement of transactions in cryptoassets that, by Markets in Financial Instruments Directive 2 (MiFID 2), are said to be financial instruments. The DLT Pilot is similar to a regulatory sandbox in that it will offer the opportunity for such businesses that are eligible to experiment with the use of blockchain-based trading facilities and settlement systems for financial instruments. It would also allow operation of a trading and settlement facility combined.

The DLT Pilot will be reviewed in 2026. In the meantime, ESMA continues to monitor whether the RTS drafted under MiFIR require any amendments with a view to their effective application to securities issued, traded, and recorded on DLT. To date, therefore, ESMA continued to consult on draft guidelines in an effort to establish standard formats and templates for application to the DLT, and are now holding Q&A sessions to assist with implementation.

Legislation Nacional in Portugal

While crypto businesses are, in general, unregulated in Portugal, due to the absence of a strong crypto regulatory framework and not treated as legal tender, general legislation may still be applicable. In any event, however, every case requires a specific analysis with regard to its purpose and its characteristics when considering a certain cryptocurrency. Above all, it would be important to establish whether it is a utility token or a security token.

In general, utility tokens confer rights of access to a non-financial use of blockchain technology and fall, as such, under consumer protection legislation.

Security Tokens Security tokens are also called investment tokens since they are combined with a securities offering and establish an entitlement to a share in the issuing company. To the extent such tokens are subject to complex securities regulations.

Cryptocurrency License in Portugal 2023

The Central Bank (Banco de Portugal) is still in charge of applying the AML/CFT laws in correspondence with the EU’s orders and issues a license for cryptocurrency activity to any crypto company in case it corresponds to specific criteria. If all the documents, submitted are correct the consideration of an application takes up to five months, which is usually the term required for the verification process.

The following activities are included in the perimeter, hence crypto license shall be applied, if CASPs:

• Are engaged in the exchange of cryptocurrency into another cryptocurrency or fiat currency and vice versa;
• Provide services of transfer of crypto assets between addresses or crypto wallets;
• Provide and maintain crypto wallets.

Main applicant’s requirements:

• Incorporation of a new Portuguese company;
• A complete business plan including the description of AML/CFT and any other policy which is legally required;
• A resident company director;
• Certificate of no criminal conviction of the owner and director;
• Registration with the Portuguese tax authorities.

Open a Crypto Company in Portugal

The first step for opening a company in Portugal means determining what kind of legal structure will suit your cryptocurrency business idea. One can choose between two types: Private Limited Liability Company – Lda – and Public Limited Company – SA, both of them having their advantages and requirements.

This basically means renting a local office, opening a local corporate bank account, hiring local staff, and paying the company registration fee in the amount of regular – 475 EUR or accelerated – 950 EUR. It goes without saying that the speed of the company establishment will depend on the quality of the documents, and our dedicated experts will be happy to help you with this.

Taxes on Cryptocurrencies in Portugal, 2023

The treatment of cryptocurrencies for the purposes of taxation is set to change in the year 2023. The government of Portugal has stated new rules in the country’s budget plan for the year 2023 and intends to initiate the treating of crypto activities as one full-fledged industry with clearly transparent taxation.

The changes do not include VAT, already explained by the CJEU, which is not charged on cryptocurrencies because they represent the same concept as fiat money for the purposes of VAT. Gifts and inheritances in cryptoassets will not be subject to taxation, under the terms that they are transferred to spouses or descendants in a direct line.

More importantly, though, while cryptocurrencies held for more than a year will not be subject to any taxation, the gains accruing from cryptoassets held for less than one year will be liable for the standard Capital Gains Tax at the rate of 28%. The issuance of cryptocurrencies and mining operations will also fall within the ambit of tax.

Also, it is intended to tax 4% on any free crypto transfer. For the cases of transfer of ownership for any cryptoassets, the Stamp Duty will be also applicable at a rate of 0.8%. Such economic activities as sale of crypto-related products and mining will be treated as self-employment and will fall under the Personal Income Tax (14.5-48%) and Social Security (11%).

Other standard tax rates that may be applicable to crypto businesses in 2023:

• Corporate Income Tax – 21%, paid by the companies resident for tax purposes in the Mainland Portugal, and the Portuguese Permanent Establishments of foreign entities
• Value-Added Tax – 23%, paid by Portuguese businesses, which during the previous year have earned a turnover of more than 10,000 EUR on taxable products and services
• Withholding Tax – 25% levied on dividends, interests, royalties, bank deposits, property incomes, and service charges payable to non-residents. Salaries paid to board members are levied only at 21.5%

Also, lawyers from Regulated United Europe offer services of legal consulting on the process of getting the Lithuanian crypto license.