TL;DR
- Portugal’s crypto taxes have long been a haven for cryptocurrency enthusiasts. Since the recent changes in January 2023, questions have been raised about the future of crypto taxation in the country.
- Relocating to Portugal offers opportunities for EU and non-EU citizens through various residency programs. The Non-Habitual Residence (NHR) Program provides unique tax advantages for residents and digital nomads.
Introduction
Portugal has long been a haven for cryptocurrency enthusiasts due to its tax-friendly policies.
However, recent changes introduced by the Portuguese crypto tax authorities in January 2023 have raised questions about the future of crypto taxation in the country. Since it has been tax-free, there has been little to worry about. That is now about to change.
In this guide, we’ll look into the intricacies of these new regulations, giving you a detailed analysis of their implications. We will cover individual investors, professional traders, and businesses.
We’ll also explore practical strategies to navigate the Portuguese crypto tax landscape effectively.
We will also compare other EU countries and global crypto tax havens. Let’s dig in!
Is crypto tax-free in Portugal?
For individual investors, Portugal’s crypto tax policy has historically been a tax-free haven for cryptocurrency. That means 0% tax on capital gains if you own digital assets.
While Portugal’s status as a tax-friendly destination remains, individual investors must adapt to the new requirements. These adaptations are to continue benefiting from the unique opportunities offered by the country’s crypto tax policies.
Capital gains tax and value-added tax (VAT) do not apply to digital assets. However, these favorable conditions are changing.
One of the complexities is that crypto tax will depend on when you have owned cryptocurrency assets and your specific tax regime and residency position. Let us explain this further.
The New Crypto Tax Rules in Portugal
The recent Portugal Crypto tax rules distinguish between different income tax categories, affecting how cryptocurrency is taxed:
1. Category G – Capital Gains
This category covers capital gains from transferring crypto in Portugal, excluding securities.
Currently, cryptocurrency is not classified as an asset subject to the capital income or capital gains tax. However, the capital gains and income tax landscape is evolving if you are a taxable person.
Starting in 2023, capital gains income on cryptocurrency held for over a year will remain tax-free. However, short-term capital gains will have to pay taxes and be subject to a 28% tax.
If you have frequently been trading, your trading bag is subject to 28% tax, while your long-term bag (over one year) is not.
2. Category B – Business Incomes
Category B refers to paying taxes due to professional income from a self-employed worker. Residents not earning from traditional “work” should be cautious, as crypto revenue might be classified as business income.
Crypto mining and earnings from validating crypto tokens fall into this category, treated as business income pay tax. Taxation applies when using crypto assets, such as USDT, for payments or services.
3. Category E – Investment Earnings
Returns that generate income from cryptocurrency investments are categorized as investment earnings. If these returns are received as capital gain or gains on crypto assets, they are considered Category G capital gains.
The majority of taxable income from crypto will be subject to a 28% flat-rate capital gains tax, provided the crypto assets that generate the taxable income are held for less than a year or more.
This represents a significant departure from Portugal’s previous status as a “crypto tax haven,” as now investors have to pay taxes.
In degen terms, only your long-term bags are safe, while your metamask is subject to 28% tax if you haven’t held it for over a year.
The Scope of Portuguese Crypto Taxation
Portugal’s tax policies distinguish between various crypto-based tokens (like normal cryptocurrency), with non-fungible tokens (NFTs) and unique crypto assets considered exceptions.
This distinction relieves individuals holding these assets, making Portugal an attractive destination for NFT enthusiasts. That means NFTs do not go under the crypto asset definition of taxation in Portugal (as of yet!).
Additionally, the country offers a significant benefit to long-term investors.
Crypto assets held for more than 365 days are not subject to capital gains tax, regardless of the total duration of ownership. That means everything over one year is home-free.
However, expat residents contemplating a change in residency status should exercise caution, as such a transition may trigger capital gains tax liabilities. If you have moved to Portugal, you should become a tax resident, not to employ tax liabilities in your country.
Understanding these nuances is essential for crypto investors in Portugal to optimize their tax strategies effectively.
Becoming a Recognized Trader in Portugal
If you are recognized as a trader, the income tax from your crypto transactions falls under Category B, taxable income. That means you must pay 28% income tax on every profitable trade.
This distinction hinges on several key factors that Portuguese tax authorities consider to determine your trading activity’s professional status:
- Primary Income Source: Are Bitcoin and cryptocurrency services your primary source of income? If you heavily rely on crypto trading, it may raise the likelihood of being considered a professional trader.
- Trading Frequency: The frequency of your cryptocurrency trading activities matters. The high trading frequency could lead to a trader classification.
- Crypto Asset Holding Duration: How long you hold your crypto asset can be a key indicator of your investment strategy. Extensive holding periods may suggest a professional approach, indicating that you’re more focused on long-term growth and less influenced by short-term market value fluctuations. However, it’s essential to align your holding period with your financial goals and risk tolerance. Some investors prefer long-term “HODLing,” while others use more active trading strategies. It’s important to strike a balance that suits your objectives and risk profile.
- Trading Platforms: The number of trading platforms you use and how many can influence your status. Operating on multiple platforms could indicate professional trading generating professional income. If you’re uncertain about your crypto trader status in Portugal, it is advisable to seek guidance from a tax professional who can provide clarity.
Are you thinking of Relocating to Portugal?
Moving to Portugal offers a range of opportunities, depending on your citizenship and intentions:
- EU Citizens: If you are an EU citizen, as per EU guidelines, you can reside in Portugal without needing a visa. However, if your stay exceeds 30 days, you must obtain a registration certificate.
- Non-EU Citizens: Non-EU citizens can gain Portuguese residency through the Portugal Golden Visa program. This Golden Visa initiative enables you to achieve Portuguese citizenship after five years, contingent on a qualifying investment of €250,000, typically in real estate or investment funds.
Portugal’s Non-Habitual Residence Program
The Portugal Non-Habitual Residence (NHR) Program is designed for both EU citizens and individuals who have moved to Portugal through the Golden Visa program.
The NHR program offers the following advantages, particularly appealing to digital nomads:
- Special Tax Treatment: NHR beneficiaries enjoy a unique crypto tax treatment on their earnings for ten years.
- Foreign Income Tax Exemption: Almost all foreign income derived is considered tax-free, providing significant financial benefits.
- Favorable Tax Rate: Beneficiaries are subject to a flat top tax regime and a 20% crypto tax rate on self-employment income generated in Portugal.
- No Wealth Tax: Portugal’s Non-Habitual Resident (NHR) program further adds to its appeal for cryptocurrency enthusiasts. Under this program, there’s no imposition of wealth tax on NHR beneficiaries, offering a significant advantage for those relocating to Portugal.
Under Portuguese law, individuals must meet specific requirements to qualify, such as residing in Portugal for at least 183 days per year and owning or renting property within the country.
However, the NHR program is not available to individuals who have been Portuguese residents within the preceding five years.
EU Tax Rules on Crypto Gains and Trading
The European Union’s initiative to standardize crypto taxation reflects a broader global trend of regulating the cryptocurrency market.
The DAC8 rules, which took effect in May 2023, place tax obligations on service providers offering crypto trading services to EU residents.
This design aims to increase transparency in the crypto market. In addition, it facilitates a more effective tax system, minimizing potential revenue loss for tax purposes.
Furthermore, the European Commission aims to establish a comprehensive register of crypto operators by December 2025. This broadens digital currency regulation and taxation to encompass service providers outside the EU serving EU residents.
This step indicates a growing commitment to the regulation of Bitcoin, in addition to cryptocurrency services and operations-related activities on an international scale.
As such, investors, businesses, and service providers in the crypto space should remain attentive to evolving global regulatory developments, as these changes can significantly impact the industry.
Conclusion
Portugal’s crypto and tax regime and regulations significantly shifted from its previous tax-free status for long-term capital gains. These changes align with broader EU efforts to standardize crypto taxes.
The UK follows a comparable path.
While cryptocurrency remains legal in Portugal, individuals should know about their tax obligations. The best way is to stay informed about the evolving global landscape of crypto taxes and consult a tax lawyer.
Portugal has officially recognized cryptocurrency as legal, allowing activities such as cryptocurrency transactions such as buying, selling, holding, and trading, providing individuals and businesses with a clear legal framework to engage in these transactions.
Starting in 2023, Portugal will tax short-term capital gains on cryptocurrency transactions. However, long-term capital yields from crypto investments will remain exempt from taxation, preserving its appeal as a tax-efficient destination for long-term investors.
Portugal's accommodating and progressive tax rates, policies, and regulations continue to attract cryptocurrency enthusiasts and businesses alike, making it a preferred destination for blockchain innovation and digital asset adoption.
Different European countries have varying approaches to crypto tax. In most countries, cryptocurrency is subject to income and capital gains tax.
In most crypto-friendly countries like Bermuda, the United Arab Emirates, and Singapore, there is no crypto tax on individual investors on cryptocurrency gains.
Suchet Salvesen
Suchet is a Norwegian economist, entrepreneur, and investor, serving as the CFO and COO of Brainfund. With over a decade of experience in global expansion, venture capital, and emerging technologies, he earned his MBA from the NMBU School of Business & Economics. He held dual bachelor's degrees from the University of South-Eastern Norway. His career spans roles at NextToMe, Get, and Conax before joining Everipedia, now Brainfund, in 2017.
