Please make sure to check out the October 2022 update of this article below.
Portugal often comes up in the news as a crypto-friendly country, and you probably know or heard of someone willing to relocate to Portugal to benefit from low crypto taxes.
Its offer of good weather, a relatively low cost of living, and a safe environment already make Portugal a favorite among digital nomads. Lisbon has branded itself as a crypto hub with its trending Bitcoin Beach that gathers crypto investors from around the globe.
Portugal also offers a desirable Non-Habitual Resident regime, applicable to the foreign income of individuals and designed for expats wishing to transfer their residence to Portugal and pay taxes there. So, should you move to Portugal to reap the crypto tax benefits? Let’s review the facts and check if Portugal is the crypto tax haven of Europe.
Is Portugal Crypto-Tax-Free?
The Portuguese Tax Law currently doesn’t foresee specific regulations for tax residents in Portugal investing in crypto assets. Nevertheless, even as a Portuguese resident, you should know the legal specifics before filing your crypto taxes.
The Portuguese Tax and Customs Authority (PTA) has published its position regarding cryptocurrency taxation in a piece of binding information.
The PTA’s position on this matter only gives a framework for individual taxation, which is a subject of change in the future if the PTA changes its opinion or if the law changes.
In the binding rule published, the PTA stipulates that capital gains resulting from the sale of cryptocurrencies are not taxable (crypto to fiat, as well as crypto to crypto) under the Personal Income Tax Code, within the scope of category E (as dividend and interest income), nor subject to taxation under category G (as capital gains tax).
Additionally, the profits obtained from the crypto sales are only taxed at a personal level if their regularity constitutes a professional or entrepreneurial activity of the taxpayer. In that case, the profits will be taxed as a qualifying income under category B (freelancing) of the Personal Income Tax Code.
In short, the PTA considers that capital gains resulting from the sale of cryptocurrencies are not subject to Personal Income Tax unless crypto trading constitutes the taxpayer’s professional or entrepreneurial activity.
What Qualifies as Professional Activity from a Tax Perspective?
The criteria for determining who counts as a professional trader from a tax point of view aren’t clearly defined by Portuguese law and depend on the PTA analysis. Some standard criteria that may indicate professional activity include:
- high regularity of the activity
- high economic dependence (in relation to other income)
- physical space for the activity and workers involved.
If only one of the factors applies, that doesn’t mean that the PTA will automatically qualify your crypto activity as a professional activity. This is evaluated on a case-by-case basis. Cryptocurrency profits related to commercial activities deemed “professional” under Portuguese law will be subject to income tax. However, the mere possession of crypto does not generate any tax obligation.
How can I Anticipate the PTA’s Position in my Case?
In terms of crypto trading, the Portuguese authorities may assess the amount of profit, the number of trading platforms a given person uses, as well as the number of transactions performed over a period, for example, one month.
To avoid uncertainty on decisions, taxpayers in Portugal (or non-residents who wish to relocate) can request a binding ruling from the PTA regarding the application of any tax regime to a certain operation they plan to perform.
The PTA must issue the binding ruling within 150 days (75 days for urgent rulings). Once the binding ruling is issued, the PTA cannot act differently with respect to the subject matter of the ruling unless otherwise required by a judicial decision.
The ruling ceases to be binding after four years (unless you request a renewal). After the first year, it can be revoked without retroactive effects.
Will Portuguese Tax Law Change Regarding the Taxation of Crypto Gains?
There is no indication for now that there’s a legislative process underway to introduce digital assets taxation in Portugal. There has been no public discussion regarding this matter.
Nevertheless, this doesn’t mean that the Portuguese government will certainly not introduce a law regarding this matter either to tax cryptocurrencies or to clarify that cryptocurrencies are not subject to tax.
If the Portuguese government approves a law that taxes cryptocurrencies, the specifics of how it will affect crypto traders will depend on how the law is designed.
What is the Virtual Asset Service Provider in Portugal?
From April 2021, the country has a licensing system that the central bank grants to entities that enable cryptocurrency transactions. In March 2021, the first such license was issued to Utrust as the beneficiary. Under this license, it git the right to:
- store and handle private keys
- place swaps for cryptocurrencies in the offer
- offer digital wallet transfer services.
Bison Bank currently has a similar scope of powers. In June 2021, the central bank issued less extensive licenses to two other VASPs (Virtual Asset Service Providers), Mind The Coin and Criptoloja exchanges.
Are other types of income related to cryptocurrencies tax-free?
Currently, and as described before, there is only a public position from the PTA regarding the taxation of individuals that sell cryptocurrencies.
Regarding other types of income, such as receiving a salary in crypto, DeFi income, mining income, NFT creators income, NFTs trading income, since they aren’t specifically foreseen in the tax law nor is there a public position from the PTA, a case by case analysis is made, based on an interpretation of the current tax framework.
Do I need a Bank Account in Portugal?
If you are going to try cryptocurrency trading in Portugal, you’ll need to open a bank account. It’s necessary to come to Portugal to set it up. While, it’s possible to open an account online, from the authorities’ perspective this may be considered suspicious.
What else should I know if I am considering relocating to Portugal?
For EU citizens
If you are a resident of any of the European countries in the Schengen area, the requirements for obtaining a visa to Portugal are relatively low.
In this case, Portugal may be an attractive place to relocate to benefit from lower crypto taxes. Especially if your crypto income is related to selling crypto as an individual and not as a professional activity.
As previously mentioned, to reduce uncertainty in this move, you may consider submitting a binding rule to the PTA to have your specific Case evaluated before you relocate.
For countries outside the Schengen area (such as the UK), more difficult requirements for obtaining a visa exist (and may depend on specific arrangements between countries).
Do make sure that your country of origin doesn’t have a type of ‘exit tax’ where unrealized capital gains are subject to income tax when you change tax residency. You should also evaluate any risk of double taxation in your country of origin. Please note that Portugal has signed double tax treaties with more than 70 countries, eliminating double taxation for certain types of income.
For US citizens
The United States is one of the few countries in the world where, if you are a US citizen living outside the US, your worldwide income is subject to US income tax, regardless of where you live. The IRS allows for certain foreign-earned income exemptions or foreign income tax credits.
This is why US citizens consider renouncing their citizenship in favor of becoming a citizen in a country with lower taxation and more tax benefits.
Portugal has a golden visa program that allows foreign entrepreneurs who invest in the country (in real estate or by opening a company) to receive residency in Portugal. The Portugal golden visa also allows holders visa-free travel in the Schengen area.
Taking into account the complexity associated with relocation as a US citizen, you should decide on this based on your individual situation.
This blog post was provided by CoinTaxList, a database with an overview of crypto taxes of 30 countries worldwide that allows easy comparison between how each country taxes crypto. Use this database to compare different countries and find the most crypto-tax-friendly country to relocate to. Get access to the database with a 30% discount here.
October 2022 Update
In October 2022, the first indication that Portugal may start taxing cryptocurrency income starting 2022 appeared. The Portuguese government published on 10 October the 2023 State Budget Act, which included a section on the tax treatment of cryptocurrencies.
The proposed change would introduce a 28% tax on capital gains from cryptocurrencies, but not all digital assets will fall under the scope of the new regime. Only cryptocurrencies purchased and stored for less than 365 days will become subject to taxation. Digital assets held for over a year will continue to benefit from tax exemptions, it was noted in the proposal.
The Portuguese government also proposed a 4% tax on free cryptocurrency transfers, which could include airdrops. Moreover, the proposal includes a 4% commission tax on cryptocurrency brokers involved in the crypto processes.
It’s noted in the section that the proposal aims to frame the requirements for Portugal to enact a tax regime that encourages the development of a local crypto ecosystem. 28% is the common capital gains tax rate in Portugal.
The Portuguese parliament is yet to vote on the proposal and thus decide whether to approve these crypto tax changes. If enforced, the new regulations may alter the country’s position as one of the most cryptocurrency-friendly jurisdictions in Europe.
Refer to the resources in our crypto tax guide and check out the crypto tax calculator to help you with filing your crypto taxes.