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Bitcoin

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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Buying Real Estate with Crypto in Portugal

Is it possible to buy a property with crypto-currencies in Portugal?

Although there are already some websites where you can “buy and sell” real estate using crypto-currencies, including some options located in Portugal, and although this type of business has already been carried out in the United Kingdom, in my opinion, this type of operation will always be controversial.

Whether it is due to the “speculative aura” brand given by public authorities to cryptocurrencies or the difficulty in complying with certain parameters and assumptions of the European laws to combat money laundering and financing of terrorism, there is no open offer in the current market to negotiate and carry out a property purchase and sale transaction under these circumstances, at least that would comply with all the demands made by law.

It should also be said, and except in the best of cases, that because cryptocurrencies are not considered to have a legal course in Portugal as a legally established form of currency, according to the Bank of Portugal, it is considered to be a virtual coin/asset, there will always be a legal obstacle to entering into any purchase and sale transaction under the terms of the assumptions and requirements set out in Article 47 of the Notarial Code.

Taking into account that Portuguese law limits the means of payment for the purchase of a property, those mentioned in the Notary Code, this hinders and creates the first obstacle to the purchase and sale of real estate being able to be made using payment in cryptocurrencies.

However, since the dawn of trade between human beings, goods were not acquired through purchase with currency as consideration and price payment.

Since the dawn of trade, and up to the present day, many businesses have been conducted through the exchange of goods.

It may not be possible to buy a property with cryptocurrencies; however, the law does not stipulate any express prohibition on exchanging property for any other good or service.

These atypical contracts are based on the parties’ autonomy, availability and will are called swaps or exchange contracts.

The exchange contract, in general terms, is a contract not autonomously typified by law and to which the rules of freedom of agreement apply and subsidiarily the rules relating to purchase and sale. It is, in short, a contract whereby the ownership of an asset or other right is exchanged for the ownership or right to another asset.

Eventually, it will be as legitimate to exchange a real estate property for a car, a boat, a jewel, for gold or other precious metals, for the provision of a service, or any other good or service, as it would be, for example, to exchange a property for cryptocurrencies, or any other thing, provided that the property/good is not physically or legally impossible, contrary to law or indeterminable.

Bearing in mind that cryptocurrencies are not considered to have a legal course in Portugal, they will eventually have to be considered a “thing”, a good, such as a bar of gold, and that the concept of a thing within the scope of an exchange contract is quite extensive, it will always be said that within the contractual freedom and autonomy of the parties, two persons or entities may enter into an exchange contract whereby one of them transfers the property and the other, in exchange, transfers a certain number of cryptocurrencies.

Regarding the registration of the property right over the real estate by the buyer, and under the notarial legislation in Portugal, even if the acquisition has been made through an exchange contract in which one of the goods is not subject to registration, as is the case of cryptocurrencies, it will be possible for the buyer of the property to register the property using the exchange contract as sufficient title.

The exchange of immovable property for movable property or any other good or service that is not immovable does not integrate the exchange concept for Property Transfer Tax (IMT) purposes, as provided for in article 4 c) of the CIMT.

As such, calculation of the IMT will be made under the general terms.

In this case, the acquirer of the property will be required to pay IMT, which will be calculated on the value that the parties have attributed to the property or on the taxable patrimonial value, whichever is greater, applying the same rule as to stamp duty.

Although there is nothing in the law that prevents the contract of exchange of real estate property for cryptocurrencies, it is important to note that since there is no doctrine, jurisprudence or specific legislation on the subject, 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 certain in legal terms.

auctor Pedro Marrana

 

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Bitcoin

Banco de Portugal to regulate crypto

Banco de Portugal (the Portuguese Central Bank) will assume the powers of supervision of entities that exercise services for the exchange, transfer or custody of virtual assets, with respect to compliance with the preventive rules on money laundering and terrorism financing, with the entry into force of the Law transposing the most recent European Directive on this matter.

Law No. 58/2020, of 31 August, transposing Directive (EU) 2018/843 of the European Parliament and of the Council, of 30 May 2018, amending Directive (EU) was published in Diário da República) 2015/849 on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing and Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering through criminal law, amending several laws, including Law No. 83/2017, of 18 August, which establishes preventive and repressive measures to combat money laundering and terrorist financing (BC / FT ).

As a result of such changes, Law No. 83/2017, of 18 August, now includes in the list of entities required to comply with the preventive rules of BC / FT, entities that exercise any of the following activities with virtual assets:

  • Exchange services between virtual assets and fiat currencies or between one or more virtual assets;
  • Virtual asset transfer services;
  • Guarding or guarding services and administration of virtual assets or instruments that allow controlling, holding, storing or transferring these assets, including private cryptographic keys.

In accordance with the new regime, Banco de Portugal will be the authority responsible either for registering the entities that carry out those activities with virtual assets, or for verifying the compliance, by these entities, with the legal and regulatory provisions applicable in terms of BC prevention. / FT. It is clarified, however, that in relation to such entities, the competence of Banco de Portugal is limited to the prevention of BC / FT, not extending to other domains, of a prudential, behavioral or other nature.

Source: Banco de Portugal

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Bitcoin

Cryptocurrency Taxation in Portugal

Portuguese Central Bank’s position on cryptocurrencies

Since there is no central entity that guarantees the irremovability and finality of payment orders, virtual currency cannot be considered a safe currency, as there is no certainty of its acceptance as a means of payment. The same is to say that the Portuguese Central Bank (Banco de Portugal) does not technically recognise cryptocurrency as currency per se due to lack of monetary policy regulation.

Portuguese Tax and Customs Authority’s position

It is the understanding of the Portuguese Tax and Customs Authority 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”. Its position is, therefore, in line with that of the Portuguese Central Bank.

As such, income resulting from the sale of cryptocurrencies will not be taxable under the Personal Income Tax Code, within the scope of category E (referring to capitals), nor subject to being taxed under category G (referring to equity increases, as capital gain).

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 as a qualifying income under the category B (freelancing) of the Personal Income Tax Code.

Last, but not least, the Portuguese Tax and Customs Authority issued clear guidelines in January 2019 providing many answers to questions related to dealing with cryptocurrency, reporting obligations, cryptocurrency invoicing rules, rules for initial coin offerings,etc…

European Court of Justice and VAT

Jurisprudence of the European Union Court of Justice (EJC) on bitcoin, states that  its sale is an onerous activity, subject to VAT, but covered by the exemption, as with other means of payment with a liberating value . “Considering the decision handed down by the ECJ (…) the exchange of cryptocurrency for‘ real ’currency constitutes a provision of services carried out against payment, exempt from VAT”.

Thus, the Portuguese Tax and Customs Authority concludes that although “cryptocurrency remuneration is a service provision subject to VAT”, the VAT code article that defines the exemptions covers “also cryptocurrency transactions”.

In the medium-long run

It is expected that, in the medium term, cryptocurrencies will be regulated and their tax regime concretely defined. In fact, its regulation may not imply taxation of the income derived from them. However, it is expected that it may eventually pass through its classification as financial assets, and through its classification as a security or derivative – not as a currency for purchase and sale transactions – with a consequent change in the definition of a security. Should this be the case, the respective income, obtained by taxpayers who do not engage in any activity related to cryptocurrencies, could eventually be taxed as passive income, such as capital income (for examples as dividends in proportion to the original investment) or capital gains.

Conclusion

Although Portugal has great conditions, from a personal income tax and VAT standpoint, for those who income is generated through cryptocurrencies, some uncertainty remains due to the fact that there’s no regulatory framework, which in turns makes it difficult for individuals (and companies) to open bank accounts in the country to be used for the purpose of trading.

Further to the above, crypto traders opting for taking up residency in Portugal, and more specifically Madeira Island (due to is safe haven status during the Covid-19 pandemic) for tax purposes, may combine the above benefits with the ones available under the Non-Habitual Resident taxation regime, under which most the foreign sourced income is exempt.

MCS and its team has more than 20 years of experience in assisting international investors and expats making their move to Portugal and Madeira Island. Should you request our assistance do not hesitate to contact us.

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