Treatment of trusts
The 2015 PIT Reform introduced some provisions on the taxation of income and gains arising from trusts, both during their life or at their termination. The taxation of operations involving trusts was not ruled in the Portuguese tax law (before the PIT Reform), with the exception of the consideration of these structures for purposes of the application of the controlled foreign companies (CFC) legislation.
The new legislation refers specifically to fiduciary structures (estruturas fiduciárias). The reports produced by the PIT Reform Commission, which includes the reasoning for the proposed changes, makes it clear that this expression is intended to cover trusts, which are, in fact, the only type of ‘fiduciary structure’ mentioned on those reports.
Regarding the taxation of income from trusts, the new legislation provides rules to tax the following realities:
- Amounts received by individuals from liquidation, revocation, or extinction of ‘fiduciary structures’.
- Distributions made by ‘fiduciary structures’ other than as a result of any of the above operations.
According to the 2015 rules, the amounts received as a result of liquidation, revocation, or extinction of ‘fiduciary structures’ are:
- Taxable as capital gains (Category G) whenever the recipients are settlors of the trust. Taxation arises either at 28% or at 35%, in the latter case if the structure is considered to be ‘domiciled’ (domiciliada) in a jurisdiction that is on the ’black list’ of tax havens published by the Portuguese authorities.
- Subject to stamp duty whenever the recipients are not settlors of the trust. Whenever the recipient is not a settlor, the amounts received as a result of liquidation, revocation, or extinction are regarded as transfers for no consideration/gifts and, as such, subject to stamp duty. The liability of transfers for no consideration to stamp duty follows the territorial principle, meaning that only assets that are located or deemed to be located in Portugal are subject to taxation. Taxable transfers are subject to a 10% flat rate.
Regarding the distributions paid by fiduciary structures, the amounts either paid or made available to a taxpayer from ‘fiduciary structures’, other than those arising from a liquidation, revocation, or extinction, are taxable as investment income (Category E) and subject to taxation at a flat rate of 28% or of 35% (if the trust is considered to be domiciled on a 'blacklisted' jurisdiction), regardless of whether the recipients are settlors or not.
The 2022 State Budget establishes that the transfer for consideration of rights on trusts, including the transfer for consideration of the beneficiary position, qualifies as a capital gain subject to taxation.
The rate is 35% in case of trusts domiciled in countries, territories or regions subject to more favourable tax regimes.
A trust is considered as having its domicile in a country, territory or region subject to a more favourable tax regime if the head office or place of effective management of the trustee is domiciled therein. If the trustee is a natural person, the same applies if he is resident for tax purposes therein.
Capital gains derived from the transfer for consideration of rights on trusts are considered as having Portuguese source if the assets of the trust are comprised directly or indirectly in more than 50% of real estate or rights in rem of real estate located in the Portuguese territory. Reference is made to any moment of a period of 365 days prior to the transfer.
Tax treatment of crypto assets income
The 2023 State Budget introduced into Portuguese tax legislation a definition of crypto assets and respective taxation.
Based on the legislation in force the definition of crypto assets includes all digital representations of values or rights that can be transferred or stored electronically using distributed ledger technology or similar. Unique and non-fungible crypto assets are excluded from this definition (e.g., NFTs).
In general terms, as a rule the new regime establishes that:
- Gains obtained with the transfer for a consideration of crypto assets that are not securities are regarded as capital gains (Category G) for tax purposes. A relief from taxation applies in the case of crypto assets held for 365 days or more. Moreover, no taxation arises on crypto assets held for less than 365 days whose consideration on a transfer is also crypto assets.
- Activities involving mining or on-chain or the validation of crypto assets transactions through consensus mechanisms (e.g., staking) shall be considered commercial and industrial activities, taxed accordingly within the scope of the Category B of income (Business and Professional Income). Income derived from these transactions is deemed realised on the moment of the transfer of the crypto assets for consideration.
- Any type of remuneration derived from investment of crypto assets qualifies as investment income (Category E) for tax purposes (e.g., delegated staking). In case the income is received in the form of crypto assets, taxation occurs considering it as a capital gain (Category G), rather than investment income (Category E). In this case, the taxation is deferred to the moment in which the crypto assets received (the above-mentioned “remuneration”) are transferred for consideration and some exclusions may apply.
Both the termination of the (self-employment) activity and the cease of Portuguese residency are equivalent to transfers for consideration (exit tax).