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​​Do you pay taxes on crypto in Portugal?

by September 14, 2021 0
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The United States of America has taken a hard stance on cryptocurrencies, but that isn’t the same across all countries in the face of the digital currency explosion. The Portuguese Tax & Customs Authority (PTA) has announced investors may buy crypto in Portugal tax-free.


Portugal, a country ripe for innovation

Portugal, a country in the member European Union, is known for its beautiful climate and beautiful Atlantic waters. However, more interestingly, the country is becoming one of the best countries for anyone involved in crypto, whether long-term investors or retail traders. As a result, statistics have shown that immigration to Portugal continues to grow, the majority being those under the age of 40, many of whom are interested in the world of digital currencies.


The country of Portugal is becoming a haven for this new revolutionary technology, especially with considerations on how they are taxing their citizens. Below is an overview of how the government is currently taxing crypto.


How crypto taxes work

The Portuguese law is very cryptocurrency-friendly, despite the complexity of innovations such as staking, lending, and decentralized Finance (Defi). Although each event is taxed differently, we can start by looking at the buying and selling of digital currencies.


Currently, individuals in Portugal who profit from the purchase and sale of cryptocurrency do not need to pay capital gains taxes. The government arrived at this decision in 2016 when the Portuguese Tax Authority analyzed the classification of cryptocurrency within types of income. They decided that selling cryptocurrencies that corresponds to the individual’s main recurrent activity would be the only taxable activity. Therefore, buying and selling digital currency is not subject to capital gains taxes or value-added tax (VAT). For clarification, VAT is similar to sales tax, the only difference being it is collected at every stage in the production chain. The decision made does not account for other cryptocurrency-related activities such as farming or mining.


However, some exceptions do exist. Namely, the receipt of cryptocurrency when consumers buy a good or service doesn’t change the tax treatment of the original transaction. Therefore, cryptocurrency dealt with in a professional or business activity may still be subject to some taxes.


Therefore, Portugal will treat digital currencies like any other currency, making investors exempt from VAT and other capital gains taxes. For U.S. citizens looking for a tax haven, Portugal might still not offer any assistance. The government of the United States still takes all citizens on the world income, so a visit to Portugal will not do much for their tax bill.


Investors located in Portugal who have not been tax residents in the country for a minimum of five years can benefit from the non-habitual tax regime (NHR). Under this regime, investors may be able to monetize their cryptocurrency profits in the country and be exempt from paying capital gains taxes. To qualify, investors must be Portuguese citizens through the Golden Visa program or by being an EU/Swiss or EEA citizen. By qualifying, the NHR allows exemption on the majority of foreign-source incomes, eliminates wealth tax and offers other special treatment on taxes in general. 


Under this program, investors must stay in Portugal for a minimum of 183 days each year.


Taxation of professional income

It is also important to note that professional income (including freelance work or other consulting activities). To determine if it is, the individual would need to consider both the frequency and type of activity towards obtaining profits. If it is related to a professional or business activity, the individual must comply with the Code of IRS. When a company trades cryptocurrency for profit, investors must itemize transactions on their balance sheets. This step is necessary since regulatory authorities recognize and tax based on company profits. Taxes on capital gains, in this case, may be anywhere from 28% to 35%.


The only time individuals must pay taxes is if they receive payment in cryptocurrency. In this situation, normal capital gains taxes are applicable. For these reasons, many individuals paid in cryptocurrency will avoid paying heavy capital gains taxes in the country.


In April 2020, Portugal approved what is known as a “Digital Transitional Action Plan” from a cryptocurrency-friendly stance. This plan intends to encourage digitization and provide the proper environment for innovation and the digital transformation of businesses. Also included in this plan is the creation of Technological Free Zones to encourage further experimentation with blockchain and digital ledger technology.


Buying crypto in Portugal

To start purchasing your first cryptocurrencies in Portugal, crypto-friendly banks, including Santander and BBVA, make it easy for users to buy and sell on crypto exchanges.