Portugal Crypto Tax: Why It's the Best Place for Crypto Tax

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Did you know that 5% of Portugal's 10.3 million population is foreign-born?

Although the United States is taking a hard stance on cryptocurrencies, not every country is looking to profit from the virtual currency craze. According to the Portuguese Tax and Customs Authority, buying and selling crypto in Portugal is now crypto tax free.

Portugal is quickly becoming the top destination for everyone interested in cryptocurrency, particularly long-term investment traders. Official data clearly indicates that immigration to Portugal is increasing year after year. A large proportion of these ex-pats being under the age of 40.

If you're curious about Portugal's crypto tax rules, you may be questioning why it's the greatest location for crypto tax. Learn more about it here!

A Short Overview of Portugal History

Portugal's often-overlooked past is fascinating. It was the world's first worldwide empire and was once one of the world's largest.

The Early Years

António Oliveira de Salazar founded the Second Republic, commonly known as the Estado Novo, which means New State, in 1933. The dictatorship of Salazar was characterized by nationalism and isolation. His motto 'Proudly Alone' says it all.

Portugal was spared participation in both World Wars because of this regime. He made every effort to maintain Portugal's colonies under his control, and many Portuguese were forced to fight in the Portuguese Colonial Wars. Salazar's tyranny came to an end on April 25, 1974, when the nonviolent Carnation Revolution, a military coup d'état, occurred.

The first elections in Portugal were held in 1975, and the country was brought into democracy. Portugal became a member of the European Union in 1986. From 2004 until 2014, José Barroso, one of Portugal's most popular politicians and former Leader, served as President of the European Commission.

Looking Forward

The population is approximately 10 million people and healthcare rates among the finest in the world. The locals are extremely friendly, and one may feel secure walking along the streets. The crime rate is very low.

Consider how challenging things have been for Portugal over the past two decades. As a result, many of the country's young people left to seek better opportunities elsewhere.

The Non-Habitual Resident (NHR) initiative is really a countermeasure aimed at restoring things. The restoration makes the nation more appealing to ex-pats and Portuguese who had previously left.

The NHR and a slew of other similar legislation are now having the intended impact. It is an excellent example of how a nation can rise from ruins and flourish in the face of adversity by encouraging freedom and creativity.

The big attraction of Portugal is the NHR program. If you qualify for the NHR, you may receive tax-free overseas dividends. Additionally, there are exemptions for some kinds of professions that enable them to tax their overseas income at zero percent.

This is great for the crypto sector in Portugal and the nation itself. Innovative new technology can only lead to Portugal serving as a destination for those connected to it.

Non-Habitual Residency Requirements

To apply to become a non-habitual resident, you do not have to reside in Portugal the whole time. Portugal allows citizens from all walks of life to enjoy a life free of income tax to join the NHR program.

You need to satisfy one of the criteria listed below:

  • Maintain a presence in Portugal for at least 183 days, whether uninterrupted or interspersed throughout the year
  • Possess a home and the "original intent" to occupy it
  • Join the crew of a Portuguese ship or aircraft
  • Have a child or partner who resides in the country
  • Employed by the Portuguese state abroad

If you want to become a non-habitual resident and apply for a visa in Portugal, employ a tax lawyer. They are best informed and can help set you up as a non-habitual resident.

Crypto Tax and Portugal

Crypto space complexity increases with holding, financing, decentralized exchange, non-fungible tokens, and more. It would help if you examined each of them. Investors no longer only want to purchase and trade large cryptos such as Bitcoin.

Let's start with crypto sales treatment, which is what investors want to see. We basically have to learn how Portugal taxes earnings from cryptocurrency sales. Most countries regard these earnings as capital gains. Portugal?

Portugal Tax Benefits When Selling Crypto

There is no tax on crypto profits in Portugal, making it very attractive for crypto entrepreneurs in Portugal.

In 2016  the Portuguese Tax Authority analyzed how the treatment for tax purposes in Portugal of various cryptocurrencies. They particularly investigated capital gains, capital income, and revenue from commercial operations.

The government decided on no tax for natural people on profits from cryptocurrency sales or increases in cryptocurrency value. The only exemption is if your source of income is from cryptocurrency trading or mining, then the tax office will view your position differently.

Personal profits on currencies, including crypto, are not subject to capital gains or VAT in Portugal. That implies that if you purchase $1 worth of Bitcoin and sell it for $1.50, you will not be taxed on the gain ($0.50).

This was according to a report in the Portuguese daily 'Jornal de Negócios' on a 2016 document from 'Finanças.'

The Purchase, Sale, and Exchange of Crypto in Portugal

Cryptocurrencies and virtual currencies are not officially recognized money in Portugal owing to the absence of legal tender. They may, however, be traded for actual currency at a profit.

Thus, cryptocurrency may produce a variety of taxable revenue streams:

  • Gains obtained from the purchase and sale of virtual currency units or exchange of such real currency
  • To earn commissions on the supply of crypto-related services
  • For profits generated from the selling of crypto-based goods or services

This document takes just the first context into account. This is the situation that the majority of cryptocurrency investors confront.

Profits from this practice fall into three revenue categories:

  • Capital Gains – category G
  • Capital Yields – category E
  • Professional Income – category B

Let's look at these categories in some detail. Each category has its own tax implications.

Category G

Article 10 of the Internal Revenue Code defines the circumstances under which you tax capital gains. The critical point to remember here is that when the government drafted this legislation, they selected a closed type. The legislation applies only to the things specified (e.g., the sale of an apartment or stock), nothing more, nothing less.

Because cryptocurrencies do not fit under any of the aforementioned exceptions and calculate the value solely by supply and demand, we may assume that they are not taxed under this category.

Category E

This category obviously does not apply to the selling of crypto assets since it's concerned with capital gains—for example, dividends and income from rental.

On the other hand, revenue generated by other crypto income accounts would very certainly fall under this category. The same is true for earnings from cryptocurrency staking, such as Ethereum staking.

Category B

Category B can be tricky. It refers to the earnings of a self-employed individual—for example, a consultant or freelance worker. When a source of income may be categorized as either category B or one of the other two, category B will predominate.

Thus, income may be taxed in this category regardless of whether it is derived from sales, capital gains, or any other source.

To evaluate if an income belongs to this group, one must examine its recurrence and the activity's profitability aspect.

Once you register a company or professional activity, the taxpayer is required to adhere to the requirements declared.  That is, anytime you sell a product or perform a service, you must produce an invoice or similar document. You refer to this as a 'green receipt.'

Crypto traders must carefully evaluate whether their actions qualify as qualified income or not. If you are in doubt, employ a tax consultant as it can get confusing.

If trading is your primary source of income and you trade constantly, you will be classified as a professional trader. Therefore your income will be taxable.

Classification as a Professional Crypto Trader

Numerous variables contribute to the determination of whether a trader's activity is professional or not. These include the following:

  • The number of activities per month
  • Financial goods' holding period
  • The intricacy of financial goods sold on the open market
  • The total number of trading platforms used
  • Credit financing, debt-to-equity ratio
  • Profitability and its connection to other sources of revenue
  • What is your primary activity, and how do you earn money?

The fact that you meet one of the criteria outlined above does not automatically qualify you as a professional trader. Finally, one must consider an individual's entire circumstances. You can do this only with the assistance of a tax lawyer.

Portuguese Inheritance Taxes and Crypto

In Portugal, there is no precedent, no defined regulations, and no special approach to the handling of crypto in estate planning and testator succession.

Portugal does not have an inheritance tax, although some transfers of certain assets may be subject to stamp duty. For example, immovable property, moveable assets, securities, and financial commitments, as long as they are situated in Portugal or are considered to be located there. These are included in the estate of the deceased in the event of inheritance.

However, without a legislative change or definitive information from the Portuguese tax authorities, it may be claimed that the applicable legal rules do not explicitly include crypto assets. Thus, crypto is excluded from the scope of stamp duty. That effectively mitigates the necessity for estate planning concerning crypto.

Estate planning must thus be evaluated on an individual basis, taking into account all relevant factors.

Value Added Tax in Portugal

The Portuguese Tax Authority confirmed in a 2019 official ruling the position taken by the European Court of Justice (Case C-264/14, Skatteverket v. David Hedqvist). They argued that crypto, such as Bitcoin, was similar to "means of payment" and thus subject to VAT. They were exempt from VAT under the application of VAT exemption rules that should be consistent across the EU Member States.

How to Buy Crypto in Portugal

You may use the world's top cryptocurrency exchanges freely in Portugal; neither the government nor any major exchanges apply any restrictions.

For more experienced traders, the platforms to which you are used will also function in Portugal.

Bear in mind that even if your crypto trading activity is tax-free, you will still need to maintain meticulous records.

Crypto-Friendly Banks in Portugal

Both Santander and Banco Bilbao Vizcaya Argentaria (BBVA) have a close relationship with cryptocurrency exchanges. But obviously, the best would be to approach your chosen bank and see their standpoint on cryptocurrency.

In Portugal, there are various locations where you may withdraw bitcoin and other cryptos, including three bitcoin ATM Cash machines in Lisbon.

Ka-ching Cash Out that Crypto!

Cryptocurrency investing and trade are heavily regulated in several countries worldwide. This may present complications for investors in the United States.

Portugal's announcement about crypto tax demonstrates that it is - at least for the time being - a tax-friendly nation for individuals who purchase and sell bitcoin. Because of that, Portugal is a very competitive country in which to retain and trade large amounts of bitcoin, Ethereum, or other cryptos.

But hold your horses, don’t pack your bags just yet. Bear in mind that US residents are taxed on their global income. That means that a flight over the ocean may not be enough to reduce your tax burden.

For more information on investing and moving to Portugal, feel free to reach out for support to get a quick answer to your questions

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Ana Fankhauser

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