Crypto tax in Portugal and Madeira under analysis
Recent developments are expected concerning crypto tax in Portugal and Madeira. The Portuguese Tax and Customs Authority (AT) is investigating, under orders issued in 2021 by the Secretary of State for Tax Affairs of the Portuguese Government, how other countries tax the income derived from the sale of crypto assets. According to Portuguese media, the AT’s work will then serve as the base for the Portuguese Government to create a taxation structure for these new instruments, as previously mentioned in our blog.
“The government favors a united stance on this issue at the European level. Nonetheless, by order of the Secretary of State for Fiscal Affairs dated 2021, it was determined that the Tax and Customs Authority should study the framework for cryptoactive assets in light of international best practices in order to propose an appropriate tax framework for these new instruments, taking into account the necessary balance between the equitable distribution of income and wealth and the attraction of foreign investment, and this evaluation has not yet been completed.”
The Ministry of Finance is the official source.
The aim of the AT’s research is “to establish an acceptable tax structure for these new instruments, taking into mind the necessary balance between the fair distribution of income and wealth and the attraction of foreign investment.” The research is yet to be concluded.
Currently, Portugal is one of the few countries where capital gains from cryptocurrency sales are not taxed. Due to the lack of a tax framework for crypto assets, crypto investors are frequently yet wrongly referring to it as a “tax haven”.
According to the Portuguese media, the Ministry of Finance seeks a tricky balance with this response. On the one hand, it implies that crypto-activities should be taxed appropriately like other financial instruments. However, it believes that a new regime should not punish the attraction of foreign investment.
MCS professionals believe that the debate on crypto taxation in Portugal could take place after the State Budget for 2022 is completed.
Further to the above, the Banco de Portugal (Portuguese Central Bank) conducted an interbank meeting in Lisbon on November 30, 2021, to address the European Central Bank’s introduction of the digital euro and developments in bitcoin and crypto-activity in general. This year, it has established a “contact group” to discuss these issues and as a discussion with other financial sector participants, including the Portuguese Blockchain and Cryptocurrency Association.
Whatever taxation Portugal adopts concerning crypto assets and crypto derived income, Madeira Island shall apply it accordingly. Notwithstanding this, under the current constitutional framework, the Autonomous Region of Madeira can lower by 30% the personal income tax rate applicable to said type of income. Whether the Legislative Assembly of the Autonomous Region of Madeira shall implement said tax differential remains to be seen.
Crypto tax in Portugal and Madeira: preparing for the future
If one is considering moving to Portugal or Madeira Island, MCS and its team of lawyers and accountants have more than twenty-five years of experience. They are ready to provide the advisory you need regarding Portugal’s personal or corporate income taxation.
Although personal income tax on crypto is looming in Portugal, those who may benefit from the Non-Habitual Resident (NHR) scheme may still enjoy a low personal income tax rate on their crypto portfolio. Careful analysis of one’s situation, portfolio, detailed income structure and family circumstances is required before finding a compatible solution for one’s case.
In other words, one may be able to obtain cryptocurrency derived income, as a resident, for tax purposes, in Portuguese territory without being taxed, provided they hold NHR status under the current existing benefits granted under the said scheme.
Relocating to Madeira Island as a crypto trader
Non-EU/EEA citizens may be granted residency in the Portuguese territory (Madeira included) under the Portugal Golden Visa scheme and become eligible for citizenship after five years, provided proof of knowledge of the Portuguese language is supplied to the Citizenship Services.
The abovementioned program enables investors to get residency and citizenship in Portugal by making a qualifying investment. At the same time, it allows one to live, study, and work in the country.
Portugal Golden Visa is exceptionally appealing to crypto investors seeking to protect their investments, primarily through acquiring real estate property located in Madeira Island while retaining residence and Portuguese tax benefits rights.
Another route that crypto investors may choose to obtain residency rights is through the D7 Visa, sometimes referred to as a passive income visa. If one earns pensions, transferable equity or rental income, one may be eligible for a D7 visa. This type of visa (and consequently its residence permit) allows the investor and family to reside in Madeira.
Like the Golden Visa or any other type of visa, you may petition for Portuguese citizenship after five years of residence, provided proof of knowledge of the Portuguese language is supplied to the Citizenship Services.
Are capital gains from crypto-assets currently exempt from taxation in Portugal? Is it true that all coins in Portugal are tax-free?
The answer to this question is more complicated than it seems at first sight. The current framework theoretically provides an exemption if the taxpayer does not make a living out of said income (such as a full-time job). However, this might be extremely difficult to prove in the case of a tax audit.
Before effective relocation, one must seek professional advice to conduct a thorough analysis of one’s income structure and if the said structure can benefit from the current NHR scheme. Should the latter be the case, you may expect low to zero taxation in Portuguese territory.
Are there other crypto-friendly jurisdictions other than Madeira Island (or Portugal)?
Yes, many other crypto tax-friendly jurisdictions exist, such as the UAE, the Republic of Malta, the Federal Republic of Germany, and the Swiss Confederation. Notwithstanding the said fact, Portugal, and Madeira Island, in particular, offer a unique lifestyle, cost of living and speedy internet connections that are hard to beat within the European Union. Furthermore, although the situation may not be clear, at this point, the current taxation system in Portugal can provide you with documented evidence of tax residency and taxes paid that you may require one day, should you move back to your home country.
Is it possible to obtain Portuguese Citizenship through investment?
Under the current Nationality and Immigration Laws, no one can buy Portuguese Citizenship through investment vehicles or investment activities. Please note that Portugal provides a path for citizenship under current laws through a residency by investment program. Portugal has no Citizenship by Investment program.
This article is provided for general information purposes only and is not intended to be, nor should it be construed as, legal or professional advice of any kind.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more