Is Portugal really a Tax Haven for crypto?

Is Portugal really a Tax Haven for crypto?

If you ever come across an article comparing the most crypto tax friendly countries (like this, this, or this), you have noticed that Portugal is almost always in the top 10. 

Plus having such good weather, a relatively low cost of living and a safe environment had already made this destination a favorite between digital nomads, even surpassing Bali.

Additionally, Portugal also offers a very attractive Non-Habitual Resident regime, applicable to the foreign income of individuals, designed for people wishing to transfer their residence to Portugal.

Should I relocate to Portugal with my cryptocurrencies to benefit from its tax regime?

Firstly, for individuals investing in cryptocurrencies that are tax residents in Portugal it should be noted that currently, the Portuguese Tax Law doesn’t foresee specific regulation regarding cryptocurrencies.

Nevertheless, the Portuguese Tax Authorities (PTA) have published their position (written in Portuguese) regarding the taxation of cryptocurrencies in a binding information.

Before entering into detail of what is the PTA position regarding this matter, it should be noted that this position can change in the future i) if the PTA changes its opinion or ii) if the law changes. 

In the PTA’s view, cryptocurrencies are not technically considered “currency” because they do not have a legal tender, however they can be exchanged, with profit, for real currency, with its value, compared to the real currency, being determined by the online demand for cryptocurrencies.

In this sense, PTA considers that income resulting from the sale of cryptocurrencies will not be taxable under the Personal Income Tax Code, within the scope of category E (capital income), nor subject to being taxed under category G (equity increases, as capital gain).

Additionally, the PTA considers that the profits obtained from the sale of cryptocurrencies are only taxed at a personal level if 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.

In short, the PTA considers that income resulting from the sale of cryptocurrencies is not subject to Personal Income Tax unless it is considered that this activity is a professional or entrepreneurial activity of the taxpayer.

What is the criteria for the definition of what constitutes a professional activity from a tax point of view?

Well, the criteria for the definition of what constitutes a professional activity from a tax point of view are not clearly defined by Portuguese law and depend of the PTA analysis but some common criteria that may indicate that its considered a professional activity are: 

- high regularity of the activity, 

- high economic dependence (in relation to other income), 

- physical space for the activity and workers.

The fact that one of the factors applies does not mean that you are automatically a professional trader and this should be analysed on a case by case basis.

How can I be certain of what will be the PTA position regarding my situation?

To avoid uncertainty on decisions, taxpayers in Portugal (or non residents that wish to relocate) can request a binding ruling from the Portuguese tax authorities regarding the application of any tax rule or regime to a certain operation to be performed.

The binding ruling must be issued by the PTA within 150 days (75 days for urgent rulings).

Once the binding ruling is issued, the PTA cannot act differently with respect to the subject matter of the ruling, unless otherwise required by a judicial decision.

The ruling ceases to be binding after four years (unless a renewal is requested), and after the first year it can be revoked without retroactive effects.

If you are interested in help with the preparation of this, let us know here.

Will the Portuguese Tax law change in the near future in respect to the taxation of cryptocurrencies and how would this affect me if I relocated before it changes? 

As far as we know, there isn’t any indication for now that there is a legislative process underway to introduce taxation to cryptocurrencies in Portugal and there isn’t also a public discussion regarding this matter. 

Nevertheless, this does not mean that the Portuguese government will not introduce a law regarding this matter either to tax cryptocurrencies or to clarify that cryptocurrencies are not subject to tax.

If the Portuguese government approves a law that taxes cryptocurrencies, the specific of how this will affect the taxpayer will depend on how the law is designed, nevertheless taxpayers should be aware that there are ways to minimize the tax exposure before this situation happens.

You can find a full report with an overview and existing official Tax Authorities guidance in Portugal, get it here now.

Why I created CoinTaxList

I worked for 7+ years as a Tax Consultant in a Big4 consulting firm helping multinational companies structuring their investments internationally. Plus, I've been an enthusiast and dealing with crypto since 2017.

I always got a lot of questions related to crypto taxes. I found that 90% of the info out there is either inaccurate, confusing or very technical lingo.

So, I've built CoinTaxList, reliable database on the existing crypto tax overview and tax authorities guidance of 30 countries. We only look at trustworthy and official sources and our goal is to make this information more accessible, useful and easy to digest for your DYOR. Get access here.

Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. For detailed information on crypto taxes we recommend contacting a specialist in the specific country.