Is Portugal a Crypto Tax Haven?

Last Updated on May 19, 2021 by Miguel Silva Reichinger Pinto Correia

First and foremost it is important to understand that Portugal has no tax legislation, nor provisions on cryptocurrencies and crypto-assets. Given this current absence of tax legislation on crypto assets, the Portuguese Tax and Customs Authority has issued a tax ruling on the taxation of cryptocurrencies at the request of a taxpayer.

Based on the above mentioned tax ruling, the current understanding of the Portuguese Tax and Customs Authority is that, “cryptocurrencies are not technically considered “currency” because they do not have a legal tender or liberating power in Portugal, however, (…) they can be exchanged, with profit, for real currency (…), with specialized companies for the effect, with its value, compared to the real currency, being determined by the online demand for cryptocurrencies”. The position of the Portuguese Tax and Customs Authority is, therefore, in line with that of the Portuguese Central Bank, the later being recently tasked with licensing crypto-trading platforms in Portugal under EU-Law.

Given the above, income resulting from the sale of cryptocurrencies will not be taxable under the Portuguese Personal Income Tax Code, neither within the scope of category E (capital-gains income), nor subject to being taxed under category G (equity increases).

Furthermore, it is also the understanding of the Portuguese Tax and Customs Authority that the profits obtained from the sale of cryptocurrencies are not taxable under the Portuguese tax system, unless by their regularity ends up constituting a professional or entrepreneurial activity of the taxpayer, in which case it will be taxed (at the progressive tax rates that can go up to 48%) as a qualifying income under the category B (professional and business income from free-lancing) of the Personal Income Tax Code.

However the Portuguese Tax Authority does not define in its ruling:

  • The concept of what it deems as the sale of a cryptocurrency or asset. Is it the sale of cryptocurrencies and crypto-assets for other cryptocurrencies and crypto-assets? The sale of cryptocurrencies and crypto-assets for fiat currency? Or both?
  • What it deems as regular activity. How often trading must occur in order for it to be deemed a regular activity and therefore taxable under the category B type of income?
  • If activities such as staking or mining are taxed.

Given the above, high-risk takers, based on their own notions of what they wish to understand from the loose tax ruling consider Portugal to a crypto tax haven, where their income will not be taxed for the time being.

One can argue that the Portuguese Tax and Customs Authority would have a difficult time proving regularity and income flow derived from trading, but under the current rules those you are resident, for tax purposes, in Portugal could have their income audited under “wealth manifestation” rules (i.e. should the taxpayer conduct high-profile/luxury purchased of property and transportation, the Portuguese Tax and Customs Authority could request justification of how the income is generated and how often).

On the other side, low-risk takers, opt to strictly follow the ruling and register themselves as free-lancers and subject their income to personal income tax and social security contributions based how much they earn.

Having the above into consideration, low-risk takers wishing to relocate to Portugal and legally benefit from low taxation on their crypto income, under the non-habitual resident (NHR) scheme, should, prior to effective relocation to the country, restructure their crypto-income generating activities. This restructuring must occur in way that the income generated fully abides to the NHR tax exemption rules. This means that crypto income, ought to be received, in Portugal either as dividends or salaries paid by a foreign entity.

The mere holding of crypto does not generate, for the time being, a taxable event.

In short, Portugal is a crypto tax have if one is willing to take fully take the risk of non-reporting based on a 2016 loose tax ruling. If you do not wish to restructure your income flow prior to relocation to Portugal, then you will not find a low risk solutions in this jurisdiction and you should be considering other jurisdictions…

auctor Miguel Pinto-Correia

All mentions above are merely academic and opinionated, so the considerations in this article, as well as the examples given, should not be seen as something absolutely certain in legal terms.

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