Crypto Regulation in Portugal: a Heaven for Investors?
Portugal is widely seen as the most crypto-friendly country in Europe with zero taxes on capital gains and plenty of other benefits. This is how it works.
Source: Unsplash
The past two years have been a rollercoaster for the crypto market. In 2021 Bitcoin hit its new all-time high several times last year, with a value exceeding 65000 $. In the same period, another strong crypto, Ethereum, reached a valuation of over 4800 $.
And then this summer came, bringing with it what many analysts have described as a “Crypto winter”.
Even with its ups and downs, people have started to understand how crypto works. In 2021 digital assets moved from the fringes of the economy and began to enter the mainstream, prompting more widespread public adoption. Crypto trading platforms have become more and more popular, and some financial experts dare to say that cryptocurrency is the future of money
One of the biggest questions around crypto remains, though: how does crypto get taxed? As cryptocurrency use increases across the world, Governments have started to catch up and regulate crypto income.
Source: Thomson Reuters
India recently announced its intention to charge a 30% fee on the capital gains generated by transactions made with cryptocurrencies. In Canada, cryptocurrency is taxed like any other commodity: 50% of the gains are taxable and added to the income for that year. In Spain, the profits from selling cryptocurrencies are subject to taxes that range from 19 to 23%. While many countries around the world rush to tax crypto assets, Portugal stands its ground as a crypto haven. This is how it works.
What does Crypto Regulation in Portugal look like?
In Portugal, cryptocurrencies do not have legal tender. They are not treated as “money” and are not regulated by the country’s central bank. Since cryptos are not considered currencies or financial assets, there are no specific laws or regulations including in relation to their issuance, taxation and transfer. That means investors are free to purchase, hold and sell cryptocurrencies.
In Portugal, there is no specific regime that deals only with the taxation of cryptocurrencies–either corporate, individual, VAT or stamp duty. That means Portugal has an effective capital gains rate of zero on crypto, compared to the current capital gains tax rate for financial investment, of 28%.
In addition, there are no border restrictions or obligations to declare cryptocurrency holdings. The same goes for mining: there are no restrictions in Portugal on the development of mining cryptocurrencies and the activity itself is not regulated.
There is no reporting obligation in the case of cryptocurrency payments above a certain threshold, except with transactions that may involve an obliged entity covered by anti-money laundering and terrorist financing laws. Furthermore, Banco de Portugal (Portugal’s central bank) has stated it has no immediate plans to regulate cryptocurrencies. Instead, the nation’s highest credit and payment institution adopted a watchdog approach.
Crypto traders and investors in Portugal can also take advantage of the non-habitual tax regime if they have not been tax residents in the country for the previous five years. That means a 10-year tax break on other earnings.Yet, cryptocurrency in Portugal is not a complete free-for-all. As an alternative payment method used in transactions - the first house ever bought with Crypto was registered in Portugal - existing laws and regulations on consumer protection and financial markets apply to crypto as well. For instance, if you trade bitcoin as your primary source of income, you must file a tax return and pay taxes on your earnings. Also, obliged entities must undertake identification procedures and customer due diligence whenever there is an occasional transaction of more than €15,000.
With the rising amount invested in crypto, opportunities are arising. Recently, news of the Portuguese Congress rejecting two bills seeking to tax crypto – including a capital gains tax – made headlines. But deciding how to proceed can be decisive for the country’s economy.
Crypto legislation: what the future holds for Portugal
Portugal is in a unique spot to become a true international hub of companies in blockchain and, in particular, cryptocurrencies. Unlike other countries that are moving forward with tight legislation on crypto assets (often providing for a very heavy tax burden), the Portuguese hands-off approach is an attractive ecosystem for fintech companies linked to the world of decentralized finance (DeFi).
The approach is beginning to pay dividends. According to Ernst & Young’s foreign direct investment attractiveness report, Portugal is among the 10 most attractive countries in Europe. Roughly 50 per cent of investors believe Portugal is going to get more attractive in three years and 37 per cent are planning to expand their operations in the country. And some changes are welcomed. The existence of a clear and attractive regulatory framework on crypto actives is desirable. This is essential to maintain a competitive fiscal framework - as long as a delicate balance is achieved.
There is a huge opportunity to legislate without spoiling an engine of economic development. This is the way to make the Portuguese economy more competitive, capture foreign investment and bring talent and knowledge to Portugal from an area that will be critical to the financial system and to the functioning of future societies.
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