Portugal is constantly mentioned in the news as a crypto-friendly nation and you probably know or heard of someone willing to relocate to Portugal to benefit from low crypto taxes.
Having such good weather, a relatively low cost of living and a safe environment had already made this destination a favorite amongst digital nomads, even surpassing Bali.
Additionally, Portugal also offers a very attractive Non-Habitual Resident regime, applicable to the foreign income of individuals, designed for people wishing to transfer their residence to Portugal.
Is Portugal really a crypto tax free country?
Firstly, for individuals investing in cryptocurrencies that are tax residents in Portugal it should be noted that currently, the Portuguese Tax Law doesn’t foresee specific regulation regarding cryptocurrencies.
Before entering into detail of what is the PTA position regarding this matter, it should be noted that this position only gives a framework about individual taxation and can change in the future i) if the PTA changes its opinion or ii) if the law changes.
In the binding rule published, the PTA considers that capital gains resulting from the sale of cryptocurrencies will not be taxable (crypto to fiat, as well as crypto to crypto) under the Personal Income Tax Code, within the scope of category E (dividend and interest income), nor subject to being taxed under category G (as capital gains).
Additionally, the PTA considers that the profits obtained from the sale of cryptocurrencies are only taxed at a personal level if their regularity ends up constituting a professional or entrepreneurial activity of the taxpayer, in which case it will be taxed as a qualifying income under the 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 it is considered that this activity is a professional or entrepreneurial activity of the taxpayer.
What is the criteria for the definition of what constitutes a professional activity from a tax point of view?
Well, the criteria for the definition of what constitutes a professional activity from a tax point of view are not clearly defined by Portuguese law and depend of the PTA analysis but some common criteria that may indicate that its considered a professional activity are:
- high regularity of the activity,
- high economic dependence (in relation to tother income),
- physical space for the activity and workers.
The fact that one of the factors applies does not mean that the PTA may consider that you have a professional activity and this should be evaluated on a case by case basis.
How can I be certain of what will be the PTA position regarding my situation?
To avoid uncertainty on decisions, taxpayers in Portugal (or non residents that wish to relocate) can request a binding ruling from the Portuguese tax authorities regarding the application of any tax rule or regime to a certain operation to be performed.
The binding ruling must be issued by the PTA 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 a renewal is requested), and after the first year it can be revoked without retroactive effects.
Will the Portuguese Tax law change in the near future in respect to the taxation of cryptocurrencies?
As far as we know, there isn’t any indication for now that there is a legislative process underway to introduce taxation to cryptocurrencies in Portugal and there isn’t also a public discussion regarding this matter.
Nevertheless, this does not mean that the Portuguese government will 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 specific of how this will affect the taxpayer will depend on how the law is designed.
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, NFT trading income, since they are not specifically foreseen in the tax law nor there isn’t a public position from the PTA, a case by case analysis should be made, taking into account an interpretation of the current tax framework.
What else should I consider if I am thinking of relocating to Portugal?
For EU citizens
If you are a resident in the EU (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, if your crypto income is related to selling cryptocurrencies, as an individual and not under a professional activity.
As previously mentioned, to reduce uncertainty in this move, you may consider submitting a binding rule to the PTA, so that your specific case is evaluated before you relocate.
For countries outside the Schengen area (such as the UK), the requirements for obtaining a visa should be more difficult (and may depend on specific arrangements between countries).
An aspect that should be considered is to make sure that your country of origin doesn’t have a type of “exit tax” where unrealised capital gains are subject to income tax when you change tax residency.You should also evaluate in your country of origin if there isn’t a risk of double taxation between the two countries. Please note that Portugal has signed double tax treaties with more than 70 countries, which may eliminate 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 (certain foreign earned income exclusions and/or foreign income tax credits may apply).
This is the reason for some US citizens to consider renouncing their citizenship and becoming a citizen in another country with lower taxation.
Portugal has a golden visa program that allows foreigners that invest in the country (through real estate or creating a company) to receive residency in Portugal and visa free travel in the Schengen area.
Taking into account the complexity associated with a relocation of a US citizen, this should be evaluated on a case by case basis.
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