Zero Tax on Cryptocurrencies
In contrast to countries like the United States, where virtual currencies are considered assets and taxed similarly to stocks or real estate, Portugal treats cryptocurrencies as a currency. This distinction significantly impacts taxation policies. The country currently does not tax any capital gains from cryptocurrency trading by individuals. Bitcoin earnings are also exempt from VAT. However, companies offering services in the cryptocurrency industry are generally taxed on their capital gains, with tax rates ranging from 28% to 35%.
Defining a Professional Crypto Trader in Portugal
Several factors determine whether you are classified as a professional crypto trader who should be subject to taxes on your crypto activities in Portugal. These factors include:
+ Frequency of trading
+ Duration of holding the crypto asset
+ Number of trading platforms used
+ Complexity of traded products
+ Profit levels
+ Primary source of income
+ Use of credit financing or debt-to-equity ratio
Will This Situation Change?
There is a possibility that Portugal’s time as a crypto hub could soon come to an end. On May 13, 2022, the country’s Finance Minister, Fernando Medina, announced that the government was planning a comprehensive review of the tax laws on cryptocurrency profits. However, no specific timeline for the review was given.
At present, Portugal taxes capital gains at a rate of 28% for residents, with income tax rates ranging from 14.5% to 48%. Corporate tax is set at a flat rate of 21%. According to Medina, the Portuguese government intends to take a balanced approach to taxing cryptocurrencies. The goal is to develop a fair and efficient tax system that will apply an “appropriate” tax to crypto assets.
The issue of crypto taxation was already discussed in the Portuguese parliament in March 2021. However, because Portugal lacks a clear tax framework for cryptocurrencies, the Secretary of State for Tax Affairs, António Mendonça Mendes, proposed studying how other countries tax digital assets. A political crisis and an early election delayed these discussions until 2022. It now seems likely that a review of the crypto tax laws will proceed.
The government is also considering reforms in other areas of crypto tax legislation, such as VAT, and may introduce anti-money laundering regulations. Furthermore, it is possible that new laws will include measures for regulating and supervising the crypto market.
According to the Finance Minister, Portugal is simply waiting for the final outcomes of the review of the European Markets in Crypto Assets (MiCA) and the Transfer of Funds (TRF) regulations. Once these are concluded, Portugal plans to implement significant reforms related to crypto assets.
How Taxation May Affect Crypto in Portugal
In recent years, Portugal has seen an influx of crypto enthusiasts moving to the country, attracted by its zero-tax policy on cryptocurrencies. For example, the famous “Bitcoin family,” the Taihutus, relocated to Portugal in February, citing the lack of crypto taxes as their primary reason for moving.
According to EU policy expert Patrick Hasen, the gains Portugal has made in attracting cryptocurrency investors are likely to be diminished. If these legislative reforms proceed, the country may lose its position as a crypto tax haven.
