Introduction
Portugal has long been a haven for cryptocurrency enthusiasts due to its tax-friendly policies. However, recent changes introduced by the Portuguese tax authorities in January 2023 have raised questions about the future of crypto taxation in the country.
In this guide, we will provide an in-depth analysis of these new regulations and how they impact individual investors, professional traders, and businesses.
We will also draw comparisons with other EU countries and global crypto tax havens.
Is crypto tax-free in Portugal?
For individual investors, Portugal has historically been a tax-free haven for cryptocurrency. Capital gains tax and value-added tax (VAT) did not apply to digital assets. However, these favorable conditions are changing. One of the complexities is that crypto taxation will depend on the amount of time you have owned cryptocurrency assets and your tax residency position.
The New Crypto Tax Rules in Portugal
The recent tax rules in Portugal distinguish between different income categories, affecting how cryptocurrency is taxed:
1. Category G
Capital Gains: This category covers gains from the transfer of crypto assets, excluding securities. Currently, cryptocurrency is not classified as an asset subject to capital gains tax. However, the tax landscape is evolving. In capital gains on cryptocurrency held for over a year will remain tax-free, but short-term gains will be subject to a 28% tax.
2. Category B
Business Incomes: Crypto mining and earnings from validating crypto tokens fall into this category, treated as business income. Taxation occurs when crypto assets are used as payment.
3. Category E
Investment Earnings: Returns from cryptocurrency investments are categorized as investment earnings. If these returns are received as crypto assets, they are considered Category G capital gains.
The majority of taxable crypto earnings will be subject to a 28% flat-rate capital gains tax, provided the assets have been held for a year or more. This represents a significant departure from Portugal’s previous status as a “crypto tax haven.”
The Scope of Portuguese Crypto Taxation
Not all crypto-based tokens are classified as cryptocurrency in Portugal. Non-fungible tokens (NFTs) and unique crypto assets are exceptions and fall outside the scope of taxation. Holders of such assets may find relief from tax obligations.
Moreover, investors with tokens held for over 365 days will not face tax liabilities, regardless of the total duration of ownership. However, expat residents need to be cautious when changing their residency status, as this may trigger capital gains tax.
Becoming a Recognized Trader in Portugal
If you’re wondering whether you would be classified as a ‘trader’ in Portugal, it’s crucial to understand the implications. Being designated as a trader means that your income from cryptocurrency transactions will be categorized as Category B taxable income. This distinction hinges on several key factors that authorities consider to determine your trading activity’s professional status:
1. Primary Income Source:
Is cryptocurrency your primary source of income? If you heavily rely on crypto trading, it may raise the likelihood of being considered a professional trader.
2. Trading Frequency:
The frequency of your cryptocurrency trading activities matters. The high trading frequency could lead to a trader classification.
3. Crypto Asset Holding Duration:
How long do you typically hold your crypto assets? Extensive holding periods may indicate a professional approach.
4. Trading Platforms:
The number of trading platforms you use can influence your status. Operating on multiple platforms could indicate professional trading.
If you’re uncertain about your trader status in Portugal, it is advisable to seek guidance from a tax professional who can provide clarity.
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, 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 Golden Visa program. This 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:
1. Special Tax Treatment:
NHR beneficiaries enjoy a unique tax treatment on their earnings for ten years.
2. Foreign Income Tax Exemption:
Almost all foreign income is considered tax-free, providing significant financial benefits.
3. Favorable Tax Rate:
Beneficiaries are subject to a flat 20% tax rate on income sourced in Portugal.
4. No Wealth Tax:
Portugal does not impose wealth tax on NHR beneficiaries.
To qualify for the NHR program, you must reside in Portugal for a minimum of 183 days per year and own or rent property in the country. It’s important to note that this program is unavailable to individuals who have been residents of Portugal within the previous five years.
Conclusion
Portugal’s recent crypto tax regulations mark a significant shift from its previous tax-free status for long-term gains. These changes align with broader EU efforts to standardize crypto taxation. The UK follows a comparable path. While cryptocurrency remains legal in Portugal, individuals should remain vigilant about their tax obligations and stay informed about the evolving global landscape of crypto taxation.
