Portugal 2023 Budget proposal introduces a crypto asset tax framework and new tax incentives

Tax framework for crypto assets

Currently income from crypto assets is subject to corporation tax (CIT) when derived by Portuguese tax-resident companies, including permanent establishments in Portugal of foreign entities. The proposed framework defines ‘crypto assets’ as all digital representations of values or rights that can be transferred or stored electronically using distributed ledger or similar technology. The framework also includes provisions regulating the taxation of income and gains from crypto assets for personal income tax. 

Reporting obligations likely would be required for providers of custody services and management of crypto assets on behalf of third parties, or management of one or more platforms for the negotiation of crypto assets. Free transfers of crypto assets deposited in institutions located in Portugal would be subject to a 10% stamp tax. Commissions and other payments charged by or with the intermediation of crypto assets service providers would be subject to a 4% stamp tax. 

Tax incentive schemes and support measures for companies

Incentive for Capitalization of Companies  

The Budget proposes a new tax incentive aiming at capitalizing companies. Eligible companies could deduct an amount corresponding to 4.5% of the net increase in eligible equity.

The deduction would occur in the tax year would which the increase in equity takes place, as well as in the nine following tax periods. Such deduction would not exceed, in each tax year, the higher of EUR 2 million or 30% of the tax EBITDA. The part that exceeds the percentage of the tax EBITDA could be carried forward for a five-year period.

The following are eligible equity increases:

• cash contributions made in connection with the incorporation of companies or the increase in the share capital of the beneficiary company,
• contributions in kind made within the scope of the share capital increase that correspond to the conversion of credits into capital,
• premiums for issuing securities, and 
• tax profits that are applied to retained earnings or, directly, to reserves or to an increase in share capital.

The net increases in eligible equity correspond to the increases in eligible equity after deducting outflows, in cash or in kind, in benefit of the holders of equity, by way of remuneration or reduction of equity or equity sharing, verified in the period of taxation and the nine previous taxation periods.

Approval of this new tax incentive would dictate the revocation of two existing tax incentives:

• The conventional remuneration of share capital - under a transitional period, this will continue to apply to contributions made until December 31, 2022.
• The deduction for retained and reinvested profits.

Extraordinary support to costs incurred with electricity and gas

Costs and losses incurred or borne related to consumption of electricity and natural gas, in the amount exceeding the previous tax year and excluding any funding received, would be deductible at 120% of the respective amount for the purpose of assessing the 2022 CIT taxable profit.

Excluded are those taxpayers whose turnover derives in at least 50% of economic activities related with the production, transport, distribution and commercialization of electricity and gas, or the manufacturing of oil products, either refined or derived from residue, and other patent fuels.