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Is Portugal a Crypto Tax Haven?

First and foremost, it is essential to understand that Portugal has no tax legislation (crypto tax) nor provisions on cryptocurrencies and crypto-assets. Given this current absence of tax legislation on crypto assets, the Portuguese Tax and Customs Authority (AT) has 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 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”.

Therefore, the position of the AT is in line with that of the Portuguese Central Bank, the latter 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).

The AT understands that profits obtained from the sale of cryptocurrencies are not taxable under the Portuguese tax system. However, should the gain be regular, it will qualify as a professional or entrepreneurial income, and as such, taxed at the progressive tax rates that can go up to 48%.

However, the AT does address 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 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 their notions of what they wish to understand from the loose tax ruling, consider Portugal to be a crypto tax haven, where their income is not taxed (for the time being).

One can argue that the Portuguese Tax and Customs Authority would have difficulty proving regularity and income flow derived from trading.

Under the current rules, those who are residents, for tax purposes, in Portugal could have their income audited under “wealth manifestation” rules. The same is to say that if the taxpayer conducts high-profile/luxury purchase 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 on how much they earn.

Considering the above, low-risk takers relocating to Portugal can still legally benefit from low taxation on their crypto income under the non-habitual resident (NHR) scheme. As such, before effective relocation to the country, restructure 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.

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

In short, Portugal is a crypto tax haven if one is willing to take fully take the risk of non-reporting based on a 2016 loose tax ruling. Suppose you do not wish to restructure your income flow prior to relocation to Portugal. In that case, you will not find 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 and the examples are given should not be seen as something certain in legal terms.

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