Crypto regulation in Portugal

Portugal 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.

AML-requirements

The above service providers are subject to the general AML framework for non-financial organizations. Such entities should, 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 client’s business, non-recurrent or ongoing operations;
• Development and implementation of policies, procedures and controls to manage money-laundering risks;
• Identification of customers and business owners (according to the KYC procedure);
• Collection and storage of customer relationship information;
• Analyse and scrutinize transactions based on risk assessment;
• Report suspicious transactions and cooperate with competent authorities.

A common set of indicators (trigger events) should be used to identify suspicious transactions. These include the «red flags» recommended by FATF (Financial Action Task Force on Money Laundering). Among them are:

• Transaction-related indicators: size, frequency and nature of transactions;
• Anonymity indicators;
• Indicators by sender and receiver: data on customers and irregularities;
• Indicators on the origin of funds;
• Indicators on geographical risks (counterparty jurisdiction).

High BFR risk is 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 corporate or commercial relationships»);
• Individuals and entities on the United Nations Security Council sanctions lists, OFAC (Office of Foreign Assets Control of the US Treasury), the EU Council, etc.;
• Natural and legal persons designated in sectoral regulations to enhance precautionary measures.

VASP PROCEDURE

As mentioned above, the Anti-Money Laundering Act introduced a mandatory registration requirement for all LCA activities in Portugal. The registration procedure must be established in accordance with Article 112-A of the AML Act and Notice 3/2021 of 24 April 2021 of the Bank of Portugal.

The following organizations operate in Portuguese territory:

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

According to the Portuguese Anti-Money Laundering Law, since VASP is now considered a ‘liability'”, the general obligation to manage risks when using new technologies or products that promote anonymity is mandatory. This means that QSP is required by law to monitor, analyse and document specific procedures to address any specific risks associated with money laundering and the financing of criminal activities. In addition, authorized persons must carry out procedures to identify and properly screen clients for transactions involving more than 15,000. EUR, as well as strengthen its procedures of identification and due diligence of customers when they find an additional risk of money laundering or financing of business crimes.

TAXATION

Portugal does not have a special regime regarding the tax regime of cryptocurrencies. However, the tax authority has issued three rules regarding cryptocurrencies. In the absence of other laws and regulations that could clarify the tax regime of cryptocurrencies, these rules are important and will work as precedents on whether Portugal’s Tax Administration will consider cryptocurrency and cryptocurrency-In interpreting the existing tax provisions and deciding whether certain facts or acts are subject to Portuguese taxation (corporate, individual, VAT or stamp duty).

Companies that provide services related to cryptocurrency are taxed on capital gains of between 28 and 35%.

Our highly qualified and reliable lawyers will be happy to provide you with individual support in registering with the Virtual Currency Register and in obtaining a cryptographic license in Portugal. We closely follow local regulations and are therefore well prepared to effectively guide our customers at every stage of the registration process.

Types of Portuguese Business Entities

To create a crypto company in Portugal, you can choose either Private Limited Liability Company (Lda) or Public Limited Company (SA). Their shareholders are responsible only for the company’s obligations within the limits of their investments.

Documents required to establish a limited cryptography company in Portugal:

• Charter (should be in writing and signatures of founders should be verified by a witness)
• 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 to any company:

• The company shall have an indefinite term of validity if its term is not determined by the charter
• Initial capital contributions must be made prior to the signing of the Charter, unless cash contributions are deferred under conditions permitted by law
• The value of the company’s equity must always be expressed in euros, the legal tender of Portugal
• Appointed Directors must demonstrate readiness, technical competence and understanding of the company and the entire business model

Regardless of the legal structure of the business, each crypto company must comply with the following conditions:

• 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 one of the most commonly used legal business structures in Portugal. Since the transfer of shares is limited, this structure is usually chosen to create small and medium-sized businesses.

Other features of a private limited liability company (Lda):

• The name of the company consists of a freely selected part, a link to the respective business area and the word Limitada or its abbreviation Lda
• At least two shareholders (natural or legal persons, no residence requirement)
• At least one director (may be a shareholder, no residential requirements, but the Bank of Portugal expects the director to be a resident of Portugal)
• No obligation to appoint a board of directors
• An accountant who has to fulfill tax obligations;
• The General Meeting is the governing body of the company, consisting of at least one director and 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 mill. EUR
• Total balance sheet – 1,5 mill. EUR
• The average number of employees – 50

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 cryptographic company must be fully licensed by Banco de Portugal as VASP before economic activities begin. Compliance with AML/CFT rules is the key to successful licensing.

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).

Crypto Regulation in Portugal 2023

In 2023, Portugal remains fairly relaxed and open to innovation but has also begun to provide a clearer set of rules for the cryptocurrency sector, which should offer better security for investors. The country will continue to stay aligned with the EU’s regulatory improvements that are honing international rules related to cryptocurrency and other blockchain-based businesses with the aim to stabilise the market, as well as foster innovative solutions.

New EU-wide Crypto Rules

This year, European crypto businesses, including Portugal’s crypto entrepreneurs, should work on preparing for the new requirements that will demand greater responsibility. 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. MiCA’s regulations should come into force before the end of 2024 and are designed to provide legal clarity, prevent misuse of cryptoassets, as well as encourage the development of crypto-based innovations. However, at the moment MiCA also has certain limitations as it excludes decentralised finance (DeFi) and non-fungible tokens (NFTs).

Among the essential changes are environmental responsibilities that will allow cryptocurrency businesses to contribute to the reduction of the high carbon footprint of cryptocurrencies.  In essence, significant crypto asset service providers (CASPs) will be required to publish the levels of their energy consumption on their websites and share this information with national authorities.

Another change is related to the supervision of stablecoins. This responsibility will be assigned to the European Banking Authority (EBA). One of the requirements for the issuers of stablecoins operating within the EU will be to build up a sufficient liquid reserve with a 1:1 ratio and partly in the form of deposits. This reserve will allow all stablecoin holders to be offered a claim by the issuer at any time and free of charge.

When it comes to the monitoring of non-compliant CASPs, the European Banking Authority (EBA) will maintain a public register and conduct enhanced AML/CFT checks of businesses classified as non-compliant CASPs which are crypto businesses whose parent companies are registered in countries that the EU considers third countries posing high-risk in relation to anti-money laundering activities, or non-cooperative jurisdictions for tax purposes. Moreover, the EU may introduce a single pan-EU AML authority in the future, which will ultimately harmonise the AML regulatory framework.

To meet all the EU standards, Portuguese cryptocurrency businesses should invest more efforts into optimising their business operations in accordance with MiCA which translates into having the competence and tools to fight market abuse and manipulation, avoid conflicts of interest, and implement procedures that prevent proprietary trading. Generally, it will be the minimum standard to demonstrate stability, soundness, and competence in adhering to laws and regulations.

EU-wide Regulatory Sandbox

In 2022, the EU finalised the directive for the Pilot DLT Market Infrastructure Regulation (PDMIR). The pilot will be applicable from March 2023 and will provide a legal framework for the trading and settlement of transactions in cryptoassets that under Markets in Financial Instruments Directive 2 (MiFID 2) are classified as financial instruments. Just like a regulatory sandbox, the DLT Pilot will present opportunities for eligible businesses to experiment with blockchain-based trading facilities and settlement systems for financial instruments. It also includes the option to operate a combined trading and settlement facility.

The DLT Pilot is scheduled for review in 2026. In the meantime, the European Securities and Markets Authority (ESMA) continues to assess whether the Regulatory Technical Standards (RTS) developed under the Markets in Financial Instruments Regulation (MiFIR) require any amendments in order to ensure effective application to securities issued, traded, and recorded on DLT. Therefore, ESMA continues to consult on draft guidelines with the goal to establish standard formats and templates for application to the DLT and is now engaged in Q&A sessions to assist with the implementation.

National Legislation in Portugal

While crypto businesses are still largely unregulated in Portugal due to the absence of a robust crypto regulatory framework and aren’t treated as legal tender, general legislation may still be applicable. However, every individual case requires an individual assessment, when the purpose and characteristics of particular cryptocurrencies are taken into consideration. Mainly, it will be imperative to determine whether it’s a utility token or a security token.

Utility tokens usually provide access rights to a non-financial application of blockchain technology, and are therefore subject to consumer protection legislation. Security tokens, also called investment tokens, are tied to a securities offering and represent a share in the company issuing the tokens. Such tokens are subject to complex securities regulations.

Cryptocurrency Taxes in Portugal 2023

In 2023, the treatment of cryptocurrencies for tax purposes is set to change, as the Portuguese government has announced new rules in the country’s budget plan for 2023. The goal is to start treating crypto activities as a fully-fledged industry with a clear and transparent taxation framework.

The changes exclude VAT which is already clarified by the Court of Justice of the European Union (CJEU) and isn’t levied on cryptocurrencies since they’re considered the same as fiat money for VAT purposes. Also, gifts and inheritances in the form of cryptoassets won’t be taxed, provided that they’re gifted to or inherited by spouses and direct line descendants.

Most importantly, while cryptocurrencies owned longer than a year won’t be taxed, profits sourced from cryptoassets held for less than one year will be subject to the standard Capital Gains Tax at a rate of 28%. The issuance of cryptocurrencies and mining operations will also be subject to tax.

The government is also planning to impose a 4% tax on any free crypto transfers. The Stamp Duty at a rate of 0,8% will also apply in the cases of transfer of ownership for any cryptoassets. Such economic activities as the sale of crypto-related products and mining will be treated as self-employment and will be subject to Personal Income Tax (14,5-48%) and Social Security (11%).

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

• Corporate Income Tax – 21% which is paid by companies resident for tax purposes in mainland Portugal and Portuguese Permanent Establishments of foreign entities
• Value-Added Tax – 23% which Portuguese businesses with a turnover of more than 10,000 EUR on taxable products and services must pay
• Withholding Tax – 25% which is levied on dividends, interest, royalties, bank deposits, property income, and service charges (non-residents only); salaries of board members are taxed at a reduced 21.5% rate