Portugal Draft Budget 2023

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Portugal's draft budget for 2023 was delivered in October, with a focus on cryptocurrencies, and with some smaller changes to tax bands and deductions. Find out what the budget may mean for you, and how your finances and tax bills can be affected.

Portugal's Finance Minister delivered the State draft budge for 2023 in October. As the current governing party, PS, has an absolute majority in parliament, it is unlikely that there will be changes made as it goes through the usual parliamentary process.

In the article below, Sharon Farrell partner at Blevins Franks, looks at the proposed budget and its potential impact. Cryptocurrencies are most affected, with some other minor changes and tax breaks.

Blevins Franks are the leading tax and wealth advisors to UK nationals living in Europe. Their expertise can save you money and offers peace of mind. 

Portuguese Draft State Budget 2023

By Sharon Farrell, Partner, Blevins Franks
Portuguese finance minister, Fernando Medina, delivered his Draft State Budget on 10 October. In terms of taxation, the focus was on cryptocurrencies and other related crypto assets and gains.
The budget also includes some minor tax cuts. There will also be increases to the income tax bands, personal tax deductions for dependants, tax deductions for young people, increases to the threshold of taxable profits for small and medium-sized companies, and an increase to the tax bands of permanent residential properties in urban areas that will affect IMT (Imposto Municipal sobre Transmissôes Onerosas de Imóveis).
As the Socialist Party has an absolute majority in the Portuguese government, it is unlikely that any changes will be made to the draft budget as it passes through the usual parliamentary process.

Taxation of cryptocurrencies

Over recent years, Portugal has been considered a prime destination for crypto investors due to the lack of taxation on gains made on crypto assets such as NFTs, mining and trading. However, all this looks about to change.
As we enter 2023, crypto will be taxed in Portugal (presuming the measures are approved). This relates to all types of crypto coins, assets and other crypto-related activities where gains are achieved.
  • Disposals
    When a Portugal tax resident sells a crypto asset held for less than 12 months, any gains will be subject to a flat tax rate of 28%. These gains would not be taxable if the assets were held for over a year, which will likely discourage short-term trading in volatile marketplaces and steer people towards longer-term investments.
  • Trading
    Any commercial activity involving crypto assets or crypto-related products, including mining, will be considered self-employment by the Portuguese government and therefore subject to income tax and social security.
  • Stamp duty and Transfer Tax
    Transfer of ownership for any crypto assets will be subject to stamp duty and IMT. IMT is a property transaction tax that is payable by the buyer for the transfer of the asset.
  • Gifts, death and inheritances
In an unprecedented move, gifts and inheritances in the form of crypto will become subject to a 10% stamp duty if the amounts are deposited into a Portuguese bank or other investment institution in Portugal, are inherited from a deceased Portuguese tax resident, or on lifetime gifts of crypto assets for Portuguese tax residents.
The usual familial exemptions for gifts and inheritances will apply to crypto assets, giving exemptions for spouses and direct line descendants. Also, this change does not affect the territoriality of stamp duty for any other asset type.
However, those who opt into the ‘englobamento’ regime can carry forward any losses on crypto assets or investments to offset the tax applied to gains for the following five years.

Income tax rates 2023

The income tax bands have all increased, which will help reduce tax bills a little. The 2023 income tax scale rates are as follows:

  • €0 to €7,479  –  14.5%
  • €7,479 to €11,284  –  23%
  • €11,284 to €15,992  –  26.5%
  • €15,992 to €20,700  –  28.5%
  • €20,700 to €26,355  –  35%
  • €26,355 to €38,632  –  37%
  • €38,632 to €50,483  –  43.5%
  • €50,483 to €78,834  –  45%
  • Above €78,834  –  48%
As announced in the August 2022 budget, capital gains made on assets held for less than a year (usually taxed at a flat rate of 28%) will be taxed at the scale rates in 2023, where the total income is equal to or exceeds the top band (€78,834).  
Reductions for children and students
The budget increases the personal deduction for additional children under the age of six to €300.  Young people who have completed higher education or doctorates between the ages of 18 and 30 will benefit from reductions from 20% to 50%, potentially for up to five years.

Benefits for small and medium-sized companies

The first €25,000 in profits made by small to medium-sized companies currently benefit from the 17% reduced tax rate. In 2023 this threshold will be doubled to €50,000. This is probably a move to encourage investment into new and existing businesses to stimulate economic growth.

IMT – Property transaction tax

The tax bands for urban residential properties that are used as permanent places of residence will be increased by 4%. Consequently, IMT will only be applicable on property valued over €97,064.

What the Portuguese budget means for you

Unless you invest in cryptocurrencies, the budget does not include any significant tax reforms this year.  Nonetheless, it is a good prompt to review your tax planning if you have not done so for a while. Seek personalised advice from cross-border specialists to ensure your assets and wealth are structured in the most tax-efficient way possible for Portugal.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.

This article was originally published by Blevins Franks