First-step analysis: cryptoasset trading in Portugal

Cryptoasset trading

What rules and restrictions govern the exchange of fiat currency and cryptoassets?

The Portuguese Anti-Money Laundering and Prevention of Terrorist Financing Law (the AMLFT Law) (approved by Law No. 83/2017 of 18 August) requires that entities that provide exchange services between virtual currencies, and between virtual currencies and fiat currencies, in the name and on behalf of clients, must comply with general anti-money laundering and prevention of terrorist financing (AMLFT) provisions and register with the Bank of Portugal (in accordance with the registration process regulated under the Bank of Portugal’s Notice No. 3/2021, of 23 April). Additionally, if cryptoassets are considered to be securities, financial instruments or e-money, other rules and requirements apply (eg, a licence from the Portuguese Securities Market Commission or the Bank of Portugal is necessary to provide financial intermediation, payment or e-money services in Portugal).

Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

There is no specific regulation on secondary markets for cryptoassets in Portugal.

If cryptoassets are qualified as securities or financial instruments, existing securities and markets laws apply.

How are cryptoasset custodians regulated?

Cryptoasset custodians are subject to the AMLFT Law as they fall under the scope of the definition of 'virtual asset service provider' (VASP); notably, custodian wallet providers that provide services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies. Therefore, they must register with the Bank of Portugal (in accordance with the registration process regulated under Notice No. 3/2021 of 23 April) and comply with the AMLFT rules that are applicable to them.

If cryptoassets are qualified as securities or financial instruments, existing securities and markets laws also apply.

How are cryptoasset broker-dealers regulated?

Cryptoasset broker-dealers are considered obliged entities under the AMLFT Law as they fall under the scope of the definition of virtual asset service provider (ie, they provide services on behalf of clients that transfer virtual assets between wallets or addresses). Therefore, they must register with the Bank of Portugal (in accordance with the registration process regulated under Notice No. 3/2021, of 23 April) and comply with the AMLFT rules that are applicable to them.

If cryptoassets are qualified as securities or financial instruments, existing securities and markets laws also apply.

What is the legal status of decentralised cryptoasset exchanges?

Decentralised cryptoasset exchanges (DEx) are construed upon DLT and blockchain only and in principle there is no centralising legal entity or person that manages the exchange. However, it may not always work in a fully decentralised way, which means the AMLFT Law may apply in certain cases, if there is a central entity to the DEx falling under the definition of a VASP, in that they provide exchange services on behalf of clients between one or more cryptoassets.

What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

Peer-to-peer exchanges of cryptoassets are not, in principle, regulated under Portuguese law. However, entities providing transfer services for cryptocurrencies on behalf of a natural or legal person from one address or wallet to another is a VASP for the purpose of application of the AMLFT Law that must be registered with Bank of Portugal and comply with AMLFT rules.

Does the law permit trading cryptoassets with anonymous parties?

Portuguese law does not prohibit trading cryptoassets with anonymous parties; however, VASPs are now required to register with the Bank of Portugal (in accordance with the registration process regulated under Notice No. 3/2021, of 23 April) and comply with AMLFT laws. Anonymous cryptocurrency transactions will become less likely as VASPs are required to conduct KYC and know-your-transaction due diligence on their clients. The obligation to undertake identification and due diligence are triggered whenever a business relationship is set up, in one or more single transactions with virtual assets above €1,000, if there is suspicion of AML or financing of terrorism, or if there is suspicion of the falsehood of the identification information previously provided.

Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?

If a foreign cryptocurrency exchange directs its activity to the Portuguese market in a manner that qualifies as undertaking the activity in Portugal, it should register as a VASP with the Bank of Portugal. In addition, if the foreign cryptocurrency exchange permits regulated instruments to be exchanged, its regulatory framework must be assessed considering securities and markets laws.

Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?

A Portuguese citizen is free to exchange cryptoassets in any foreign exchange.

Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?

In respect of personal income tax, the Portuguese Tax Authority has provided a ruling in response to a binding information request (in procedure 5717/2015 of 27 December 2016) that, as a general rule, natural persons should not be taxed in respect of gains derived from the sale of cryptocurrencies, except if they correspond to the individual’s main recurrent professional or economic activity, in which case the income obtained from that activity could be subject to Portuguese tax. In respect of value added tax (VAT), the Portuguese Tax Authority confirmed the precedent from the Court of Justice of the European Union (Case C-264/14, Skatteverket v David Hedqvist) that although cryptocurrencies such as bitcoin were analogous to a ‘means of payment’ and therefore subject to VAT, they were exempt by application of VAT exemption rules, which should be consistent across EU member states considering existing VAT EU harmonisation.