Crypto regulation in Portugal

Crypto Regulation in PortugalPortugal is often called the most attractive country in Europe for working with cryptocurrency and digital assets. This status is influenced not only by the Government’s liberal policy on digital assets, but also by the overall economic and social development of the country.

The Central Bank and other authorities have already taken some specific measures to regulate crypto-assets in Portugal in accordance with the European legal framework, especially with regard to measures to protect against money-laundering (AML) and/or the financing of crime.

Framework

For such purposes, cryptocurrencies can be defined broadly 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 the classification of the European Central Bank (ECB), to which the Portuguese authorities have largely subscribed. Other regulations on crypto assets were developed by the European Securities and Markets Authority (ESMA) in its recommendations on ICOs and crypto assets (January 2019).

Due to the rapid development of the Fintech industry, blockchain technology in general and cryptocurrency in particular are the subject of discussion by the Portuguese government.

Over the past few years, these technologies have attracted public attention mainly because of the rising cost of Bitcoins, the increased interest in holding ICOs in Portugal and other countries, and their market capitalization.

In this country, cryptocurrencies do not have the status of legal tender and are not classified as fiat, nor are they considered as «money» or «electronic money». However, EBA issued a statement in 2019. It noted limited cases where cryptocurrencies can be considered «e-money» according to Directive 2009/110/EC (EMD2).

However, cryptocurrencies are largely seen as an alternative payment method with a contractual nature that is the result of a private agreement between cryptocurrency transaction participants, and with internal characteristics, which to some extent repeat the main features of traditional money:

  • Storage of value
  • Unit of account
  • Medium of exchange

In general, cryptocurrencies are not supported by the Portuguese government or the Central Bank, but are treated as financial instruments in certain cases.

Cryptocurrencies are also considered for their functionality. Regulators deal with utilite tokens and security tokens, which are usually sold through ICOs. They can be distinguished by their distinctive function, since the former are largely related to consumption and the latter to investment.

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

If you intend to obtain a crypto license in Portugal, it is important to bear in mind that the Central Bank has relatively recently issued Notice 3/2021, in which it regulates the registration of virtual asset service providers (VASP)that are operating in Portugal as a result of the transposition of EU Directive 2018/843 of 30 May 2018 into Portuguese law, in particular into the Portuguese AML system approved by Law 83/2017.

In turn, CMVM published warnings to investors about potential ICO risks to raise awareness of these risks. On July 23, 2018, CMVM issued a formal notice to all ICO participants regarding the legal qualification of tokens.

The CMVM stressed the need for all ICO participants to appreciate the legal nature of the tokens offered by the ICO, their possible qualification as securities, and the subsequent application of securities law. In this context, CMVM noted that tokens can represent very different rights and credits and can be sold in organized markets.

Therefore, if you intend to conduct an ICO in Portugal, it is worth taking into account that tokens can be classified as securities under Portuguese law, especially given the broad definition of securities under the Securities Code.

AML-requirements

The service providers listed above are subject to the general AML framework for non-financial organizations. Such actors should, inter alia:

  • To monitor the risks of money-laundering and the financing of terrorism arising from the development or use of new technologies;
  • Exercise due diligence in the client’s business, one-time or ongoing operations;
  • Develop and implement policies, procedures and controls to manage money-laundering risks;
  • Identify customers and business owners (through the KYC procedure);
  • Collect and store information on business relationships with customers;
  • Analyze and thoroughly check transactions based on risk assessment;
  • To report and cooperate with the competent authorities on suspicious transactions.

To identify suspicious transactions, you should use a common set of indicators (trigger events). In particular, we are talking about the «red flags» recommended by FATF (Financial Action Task Force on Money Laundering). Among them:

  • Transaction-related indicators: size, frequency and nature of transactions;
  • Indicators relating to anonymity;
  • Indicators on senders and receivers: namely, customer profiles and violations;
  • Indicators related to the origin of funds;
  • Indicators related to geographical risks (counterparty jurisdictions).

High AML-risks are traditionally associated with certain categories of persons:

  • persons and organizations working in offshore zones;
  • «politically significant persons» (including «close family members» and «persons with recognized and close relations of corporate or commercial character»);
  • individuals and organizations on sanctions lists of the UN Security Council, OFAC (Office for Foreign Assets Control of the US Ministry of Finance), the EU Council and so on;
  • Persons and entities designated in orders issued by sectoral authorities for enhanced precautionary measures.

ICO regulations

ICOs that aim to offer tokens representing rights and/or economic interests in a predetermined enterprise, project or company can potentially qualify as securities and be subject to existing securities rules, primarily the rules applicable to public offerings of securities and/or trading platforms. The launch of the ICO in Portugal can be regulated by EU legislation such as:

  • Financial Instrument Markets Directive (MiFID II);
  • Regulation of the market of financial instruments (Regulation 600/2014) and relevant implementing acts;
  • Provisions on market abuse;
  • Directive 2009/44/EC;
  • Regulation on the Central Securities Depository;
  • Investment Fund Management Directive (AIFM).

CMVM stated that the token, which allows its users to participate in surveys related to the development of the online platform, as well as the further donation of tokens to the online platform, is not considered to be a finishing tool, that is, not a security token. The regulator has clarified the characteristics which, in an abstract form, may imply the qualification of securities tokens as securities, namely:

  • If they can be considered to represent special economic rights;
  • if the functions of the tokens are similar to typical securities.

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

  • issuing, presenting and transferring securities;
  • a proposal to the public (if applicable);
  • marketing of financial instruments for MiFID II purposes;
  • information quality requirements; and
  • market abuse rules.

Finally, if the ICO qualifies as a public offer, the CMVM further clarifies that the prospectus should be drafted and submitted together with any marketing material for the ICO for approval by the CMVM, provided that no exceptions apply to the obligation to draw a prospectus.

VASP procedure

As mentioned earlier, the AML Act introduced a mandatory registration requirement for all VASP’s activities in Portugal. The registration procedure must be established in accordance with Article 112-A of the AML Act and Notification Banco de Portugal 3/2021 of 24 April 2021.

The following organizations are considered to be active in the territory of Portugal:

  • Portuguese companies (registered in Portugal);
  • Legal entities with permanent representation in Portugal; and
  • Organizations that are obliged to operate under the supervision of the Portuguese tax authorities.
  • The Central Bank is the competent authority for the registration of crypto companies in Portugal and the verification of compliance with applicable legal and regulatory provisions governing the implementation of AML by the above-mentioned persons.

According to the Portuguese AML Act, since VASP is now considered to be «obligated persons”, a general obligation to manage risks when using new technologies or products that promote anonymity is mandatory. This means that VASP is required by law to monitor, analyze and document specific procedures to eliminate any specific risks of money laundering and the financing of criminal activities. In addition, the obliged persons must carry out procedures of identification and proper verification of clients for transactions of more than 15 thousand. EUR, as well as strengthen their procedures of identification and proper verification of customers, when they reveal an additional risk of money laundering or financing of crime in business.

Taxation

Portugal does not have a special regime concerning the tax regime of cryptocurrencies. However, the tax authority issued three regulations concerning cryptocurrencies. In the absence of other laws and regulations that could clarify the taxation regime of cryptocurrencies, these regulations are important and will work as precedents as to whether as the Portuguese Revenue Authority will consider cryptocurrency and cryptocurrency-related activities when interpreting existing tax provisions and deciding whether a certain fact or action should be taxed by the Portuguese (corporate, individual, VAT or stamp duty).

Companies that provide services related to cryptocurrency are taxed on capital gains at a rate of 28 to 35%.

Our highly experienced and trusted lawyers will be pleased to provide you with tailored support in registering with the Register of Virtual Currencies and in obtaining a crypto licence in Portugal. We closely monitor local regulations and are therefore well-prepared to guide our clients through every stage of the registration process in an efficient manner. 

Establish a Crypto Company in Portugal

Two years ago, the Portuguese government announced the Action Plan for Digital Transition that included Technological Free Zones, the purpose of which was to enable experimenting with blockchain and other new technologies in the spaces that replicate real-world conditions. Undoubtedly, such an approach makes Portugal one of the most crypto-friendly countries which is why it deserves your consideration. Irrespective of your nationality and residence status you can establish a crypto company in Portugal and take every advantage of this business environment.

Notable characteristics of the Portuguese business environment:

  • Attractive tax incentives and reliefs for residents (e.g. the Dividends Withholding Tax is levied only on 50% of the resident’s dividends)
  • Thriving tech industry that attracts significant venture capital investments
  • Portugal is a member of the EU which makes it a pathway into the European single market
  • Portugal ranks 39th out of 190 countries in the World Bank Ease of Doing Business 2019 which is an indication of fairly favourable conditions for businesses (based on the ease of opening and funding a company and engaging in economic activities)
  • Portugal ranks 31st out of 177 countries in the 2022 Index of Economic Freedom, the measures of which are judicial effectiveness, tax burden, regulatory efficiency, investment freedom, etc.
  • Young but qualified and knowledgeable and yet affordable talent pool, well supported by the Portuguese education system
  • Portugal ranks 6th in the Global Peace Index 2022 which is an indication of stability and a safe, sustainable environment
  • Lisbon is home to the Web Summit, one of the biggest global tech conferences, as well as various governmental and non-governmental initiatives helping the blockchain industry grow

The main piece of legislation governing companies in Portugal is the Commercial Company Act. It covers such areas as the incorporation of various types of entities, management and shareholder rights.

The public register of Portuguese companies is maintained by the Portuguese Commercial Registry who’s also responsible for the updates of commercial records and documents, certificates of registration and dissolution.

Every company intending to start crypto-related activities in Portugal is classified as a virtual asset service provider (VASP) which must obtain a licence from the Banco de Portugal prior to commencing business. The authority is responsible for enforcing AML/CFT regulations in line with the EU’s directives.

To operate in Portugal, your company may also have to register with the Portuguese Securities Market Commission (CMVM) which supervises companies whose crypto activities are related to cryptoassets that legally qualify as securities or instruments equivalent to them.

Types of Portuguese Business Entities

To establish a crypto company in Portugal, you can choose either a  Private Limited Liability Company (Lda) or a Public Limited Company (SA). Their shareholders are only liable for the company’s obligations to the extent of their investment.

Documents required to establish a limited crypto company in Portugal:

  • Articles of Association (must be put in writing and the signatures of the founders must be verified by a witness)
  • A business plan
  • A whitepaper
  • Documented risk management policies and procedures (AML/CFT, data protection, etc.)
  • Identity documents of shareholders, directors and compliance officers
  • Proof of no criminal record from shareholders, directors and compliance officers (obtained within the last three months)

The following general rules are applicable to a company of any structure:

  • The company shall have an indefinite duration whenever its duration isn’t established in the Articles of Association
  • Initial capital contributions should be made prior to signing the Articles of Association unless the contributions in cash are deferred under the terms permitted by law
  • The value of a company’s share capital must always be expressed in euros, Portugal’s legal tender
  • The appointed directors must display willingness, technical competence and an understanding of the company’s activities and the entire business model

Irrespective of legal business structure, every crypto company must fulfil the following conditions:

  • Design and implement internal AML/CFT procedures
  • Hire an AML/CFT officer

Private Limited Liability Company (Lda)

A Private Limited Liability Company (Lda) is among the most frequently used legal business structures in Portugal. Since the transfer of shares is restricted, this structure is usually chosen to establish small and medium size businesses.

Other features of a Private Limited Liability Company (Lda):

  • The name of the company consists of the freely chosen part, reference to the relevant business area and the word Limitada or its abbreviation Lda
  • At least two shareholders (natural or legal persons, no residence requirements)
  • At least one director (can be a shareholder, no residence requirements but the Banco de Portugal expects that the director will be a resident of Portugal)
  • No obligation to appoint a board of directors
  • An accountant who must fulfil tax-related obligations
  • The general meeting is the company’s governing body that consists of at least one director and an accountant
  • No capital requirements but each quota must be of at least 1 EUR
  • A registered office is a prerequisite (this is where Portuguese authorities will send notices, bills and other official documents)

Either an independent auditor or a supervisory board is required to audit the company’s financial statements annually if at least two of the below amounts are exceeded during two consecutive years:

  • Net revenue – 3 mill. EUR
  • Total balance sheet – 1,5 mill. EUR
  • The average number of employees – 50

Public Limited Company (SA)

This type of business entity is selected by entrepreneurs planning to raise funds by offering shares to the general public which allows them to accumulate much more capital and build a business on a bigger scale compared to private companies. Public companies, on the other hand, are subject to stricter regulatory requirements.

Key features of a Public Limited Company (SA):

  • The name of the company consists of the freely chosen part, reference to the relevant business area and must end with a SA
  • At least five shareholders (if one of them is the state, only two shareholders are required)
  • One director if share capital doesn’t exceed 200,000 EUR
  • Minimum share capital – 50,000 EUR (the payment of 70% of monetary contributions may be deferred for up to five years)
  • The minimum nominal value per share – 0,01 EUR
  • General meetings are required regardless of the type of the management structure

A Public Limited Company (SA) can have one of the following governance structures:

  • A board of directors or one director if share capital is below 200,000 EUR and a statutory audit board of at least three members or an independent auditor
  • A board of directors, an audit committee of at least three members and an independent auditor
  • A board of directors or one director if share capital is below 200,000 EUR, a general supervisory board and an independent auditor

An annual audit is mandatory for every public company regardless of its size. Such companies must appoint an auditor who can act either as a sole supervisor of the company or partner with the company’s supervisory board depending on the governance structure. An auditor can be an individual or a company registered with the Portuguese Chartered Accountants Professional Association (OROC).

What You Need to Do

A Portuguese limited company can be incorporated within two weeks, however, the licensing process may take several months.

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

  • Verify and reserve a compliant name (submit three options) prior to the registration
  • Prepare required documents
  • Rent an office for the purposes of the legal business address and employment of local staff
  • Open a Portuguese bank account
  • Transfer share capital
  • Settle company registration fees
    • Regular registration – 475 EUR
    • Accelerated registration 950 EUR
  • Submit an application for company registration along with required documents to the Portuguese Commercial Registry
  • Submit a crypto licence application to the Banco de Portugal
  • Apply for registration with the CMVM if your intended activities involve cryptoassets that qualify as securities
  • Submit an Ultimate Beneficial Owner (UBO) declaration to the Central Registry of Beneficial Ownership
  • Hire staff required by law
  • Register as a taxpayer with the Tax and Customs Authority
  • Register employees with the Social Security
  • Obtain a company seal when the incorporation certificate is issued

Every crypto company must be fully licensed by the Banco de Portugal as a VASP before the start of economic activities. The key to successfully getting a licence is compliance with AML/CFT regulations.

Taxation of Crypto Companies in Portugal

Portuguese taxes are collected and administered by the Tax and Customs authority which doesn’t consider cryptocurrencies legal tender but admits that they can be profitably exchanged for fiat money via intermediary platforms and highlights that the value of cryptocurrencies is determined by online demand.

For tax purposes, all cryptocurrency transactions must be duly recorded and reported in Portugal’s legal tender which is the euro.

In Portugal, crypto companies are obligated to pay the following taxes:

  • Corporation Tax – 21% (for the first 15,000 EUR of profit – 17%)
  • Value Added Tax (VAT) – 23%
  • Social Security – 23,75%
  • Municipal Business Tax – up to 1,5%
  • Dividends Withholding Tax – 28%

If shareholders are non-residents of Portugal, the company must apply for a Portuguese Taxpayer Number (NIPC/NIF). If the shareholders are non-EU residents, it’s mandatory to appoint a tax representative who’s a resident of Portugal (either a company or an individual).

Reporting requirements

Every crypto company is obligated to file approved annual and other financial statements with the Portuguese Commercial Registry.

Furthermore, every company must make the following documents available upon the request of interested parties (on the website and at its registered office):

  • Annual report
  • Audit and audit report
  • Opinion by the supervisory board, if applicable

Generally, the annual report and the financial statements must be submitted to the relevant authorities for review within three months following the end of the financial year. If the first financial year differs from the calendar year, the duration of such a financial year must be 6-18 months.

The annual report must contain at least one clear and transparent analysis of the state and progress of the company’s activities, its performance and market position, as well as a description of the main risks and uncertainties which the company might be exposed to. It must include the description of financial, labour, environmental and other relevant issues and references to the reported amounts.

The report must describe the following:

  • How different areas of the business activities evolved over the period with regard to the market conditions, initial capital contributions, costs, profits and R&D activities
  • Material events occurring after the end of the financial year
  • Forecasts and prospects of the company
  • If applicable, the number and the nominal value of quotas or own shares bought back or sold during the period, the reason for such purchase or sale and the respective price, as well as the total number and nominal value of any quotas or own shares held at the end of the financial year
  • The authorisations granted pursuant to Art. 397 for transactions between the directors and the company
  • A proposal for the application of profits
  • Review of corporate branches
  • Review of internal policies and objectives pertaining to the management of financial risk

If you envisage your crypto company’s future in Portugal, our trusted and dynamic team of Regulated United Europe (RUE) will be delighted to support you at every stage. We provide comprehensive legal advice on company formation, crypto licensing and taxation. Moreover, we’ll be more than happy to step in if you’re in need of financial accounting services. Contact our dedicated experts today for a tailored consultation.

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