Portugal Crypto Tax: Absence of Law
Portugal has no tax legislation (crypto tax) nor provisions on cryptocurrencies and crypto-assets. Further to the current absence of tax legislation on crypto assets, the Portuguese Tax and Customs Authority (AT) has only issued a tax ruling on the taxation of cryptocurrencies at a taxpayer’s request.
Based on the tax-ruling mentioned above, the current understanding of the AT 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”.
Therefore, the position of the AT is in line with that of the Portuguese Central Bank; the latter was recently tasked with licensing crypto-trading platforms in Portugal under EU-Law.
Given the above, personal 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).
The AT also understands that profits obtained from the sale of cryptocurrencies are not taxable under the Portuguese tax system. However, should the gain be regular, the AT will qualify as a professional or entrepreneurial (freelancer) income, taxed at the progressive tax rates that can go up to 48%.
A vague crypto tax Ruling
However, the AT does not address in its ruling:
- The concept of what it deems as a cryptocurrency or asset sale. 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 qualifies as a regular activity, or how often must trading occur for the AT to deem it regular and taxable under the category B type of income.
- The taxation, if any, of staking or mining.
Given the above, high-risk takers, based on the notions of what they wish to understand from the loose tax ruling, consider Portugal to be a crypto tax haven, i.e. a jurisdiction where their crypto income is not taxed.
Regularity is also a vague concept
To further complicate things, one could argue that the apparent absence of taxation in crypto is also related to the AT’s difficulty in proving income flow derived from trading.
Nonetheless, the Supreme Administrative Court jurisprudence has determined that freelancing “implies the idea of stable or habitual exercise of commercial activity as a way of life, even if without perfect continuity, as happens with those activities which, by their very nature, can only be carried on at certain times or from time to time”. Given this, the Supreme Administrative Court deems to “constitute a normal and regular performance of one or more commercial or industrial activities” any activity that generates enough income for a taxpayer to become economically dependent from it, should other sources of income be non-existent or end.
Taking into account the abovementioned, one must consider if one intends to generate income through the sale of cryptocurrencies and assets; and what is the percentage/weight of said activity in one’s income structure, how dependent is said individual is on that income source and if said individual has costs in obtaining said income.
The mere holding of crypto does not generate a taxable event for the time being.
Risk of wealth manifestation
Under the current rules, those who are residents, for tax purposes, in Portugal can also have their income audited under “wealth manifestation” rules. That is to say that if the taxpayer conducts high-profile/luxury purchases of property and vehicles, the Portuguese Tax and Customs Authority could request justification of how the income is generated (and how often).
Portugal Crypto Tax: an NHR approach
Low-risk takers opt to strictly follow the ruling, register themselves as freelancers and subject their income to personal income tax and social security contributions based on how much they earn.
Alternatively, those relocating to Portugal can still benefit from low taxation on their crypto income under the non-habitual resident (NHR) scheme. To benefit from the NHR scheme, before effective relocation to the country, restructuring of crypto-income must occur. This restructuring must happen so that the income generated entirely abides by the NHR tax exemption rules. Such means that crypto income should be received in Portugal either as dividends or salaries paid by a foreign entity.
In short, Portugal crypto tax is yet to be correctly regulated. Before relocation, one should always consider consulting a Portuguese tax advisor to understand the abovementioned framework better, what can be done under the NHR and what to expect in terms of taxation under the said regime.
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