Legislative Landscape for Cryptocurrencies in Portugal Prior to 2024

Prior to 2024, Portugal’s approach to cryptocurrency regulation can be characterized by a blend of laissez-faire attitudes, progressive adoption, and evolving tax and regulatory frameworks. The country’s journey towards integrating cryptocurrencies into its financial ecosystem reflects a balance between fostering innovation and adhering to international compliance standards.

General Approach to Cryptocurrencies

Portugal, until recently, had maintained a relatively hands-off approach towards cryptocurrencies. The government neither banned nor imposed specific restrictions on buying, holding, or trading these digital assets, effectively making them legal. This crypto-friendly stance attracted investors, businesses, and blockchain startups, especially in Lisbon, which emerged as a hub for cryptocurrency and blockchain technology. Notably, cryptocurrencies were not considered legal tender or “money” in Portugal, and specific legislation directly regulating cryptocurrencies was absent until 2022​

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Embracing Digital Transition and Compliance with International Standards

In 2020, Portugal expressed its ambition to embrace cryptocurrencies and drive economic growth through its Digital Transitional Action Plan. This included the creation of “Free Zones” for testing innovative technologies. Despite its welcoming approach, Portugal implemented regulations to ensure compliance with international Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) standards. This move demonstrated Portugal’s commitment to preventing illicit activities in the cryptocurrency space​

​Supervisory Role of Banco de Portugal and CMVM

Portugal’s cryptocurrency regulation relied on a combination of existing laws and regulations, leading to a somewhat fragmented framework. The Bank of Portugal (Banco de Portugal) supervised and regulated cryptocurrency exchanges and wallet providers, ensuring their compliance with AML and CFT standards. Entities within the cryptocurrency ecosystem were required to register and obtain licenses following EU Directive 2018/843. Additionally, the Portuguese Securities Market Commission (CMVM) regulated digital assets classified as securities, such as tokens from ICOs and STOs​

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Changing Stance on Cryptocurrency Taxation

Until recently, Portugal had a unique stance on cryptocurrency taxation, exempting transactions involving the purchase or sale of cryptocurrencies from capital gains tax and value-added tax (VAT). However, in 2022, the government introduced stricter cryptocurrency tax regulations, aligning with European counterparts. In 2023, Portugal introduced a Crypto Tax Law, applying a flat tax rate of 28% on cryptocurrency gains held for less than a year, while longer holdings were exempt from taxation​

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Classification and Taxation of Cryptocurrencies

The Portuguese Tax and Customs Authority (PTA) oversaw the taxation of cryptocurrencies, which were classified into several categories for tax purposes. These categories covered capital income, capital gains income, and self-employment income, with varying tax implications based on the duration of holding and the nature of earnings from cryptocurrencies​

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Cryptocurrency Exchanges and Legal Framework

Portugal had a legal framework that implicitly and explicitly regulated cryptocurrency and crypto asset providers, in line with national and European laws. The country hosted numerous cryptocurrency exchanges subject to stringent regulations for secure and transparent operations. This legal framework extended to other cryptocurrency service providers, including digital wallet providers and payment processors​

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Portugal as a Cryptocurrency-Friendly Destination

Recently, Portugal gained a reputation as a cryptocurrency-friendly destination, often labeled a tax haven. The allure of the Golden Visa program, offering tax benefits and a path to citizenship, attracted foreign investors and entrepreneurs. The government proactively created a welcoming environment for blockchain and cryptocurrency startups, further enhancing Portugal’s position as an attractive hub for digital asset growth and innovation​

In conclusion, Portugal’s legislative landscape for cryptocurrencies prior to 2024 was marked by an initial period of regulatory leniency, transitioning into a more structured approach with the introduction of AML/CFT compliance measures and evolving taxation laws. The country’s ability to balance innovation with regulatory compliance set a precedent for other nations navigating the complexities of integrating cryptocurrencies into their economic and legal frameworks.