Cryptocurrencies are in vogue. News comes out every day about new records being beaten by Bitcoin (surpassing €50,000 this month), especially since Elon Musk announced that Tesla made an investment of $1.5 billion in Bitcoin and that the company will start accepting payments with this cryptocurrency – the first major car manufacturer to accept this form of payment.
Portugal, a country with almost 900 years of history, is emerging as one of the most favourable in the world with regard to the taxation of this asset. This has already proved to be a major reason why several investors in this sector were interested in establishing residence.
Why? This type of asset remains unregulated in Portugal and the tax framework for the income derived from it has yet to be defined. In this sense, the understanding of the Portuguese tax authority is that, “cryptocurrencies or virtual currencies are not, technically, considered a currency themselves because they don’t have legal tender or liberating power (the possibility of being accepted for debt payment) in Portugal”. Consequently, such income does not fall within the scope of either capital gains, capital yields or professional income – offering a 0% tax rate to the holders.
However, the sale of cryptocurrency which would normally constitute a professional or business activity of the taxpayer (who for this purpose will have to register the activity with the tax authority) will be taxable.
With regard to such professional activity in this area, Banco de Portugal (Portuguese Bank) has been, since 1 September 2020, the qualified authority for the registration and verification of compliance with the applicable legal provisions regarding the prevention of money laundering and the financing of terrorism, by entities that carry out activities or services for the exchange, transfer, custody or administration of virtual assets. However, Banco de Portugal highlights that is not qualified regarding prudential, behavioural or other monitoring of these activities.
Therefore, there are several warnings regarding the inherent risks:
- Virtual assets have no legal tender in Portugal, so their acceptance at face value is not mandatory;
- There is no legal protection that guarantees reimbursement rights for consumers who use virtual assets to make payments;
- In the event of devaluation of virtual assets, there is no fund to cover possible losses.
Even so, the trend is for growth, in interest, use and presence in the Portuguese market. Recently, Anchorage Digital Bank, the North American cryptocurrency bank led and co-founded by a Portuguese national, raised US$80m, an amount that will be used to expand the bank in Portugal. In fact, in Portugal, there are more and more companies accepting cryptocurrencies. According to Coinmap.org, the largest bitcoin ATM operator in the USA, there are over 100 Portuguese companies (from football clubs to the tourism and restaurant sectors) accepting payment through cryptocurrency – and this number has doubled since the end of 2018.
On the other hand, at European level, although the recommendations for caution are similar, something unique is being created on the international scene, with the collaboration of Portugal. The European Blockchain Services Infrastructure (EBSI) is a network of distributed nodes across Europe that aims to allow citizens to use public services in the EU, easily and securely, even across borders – as well as simplify public administrative processes in member states, increasing efficiency and instilling public trust.
It is also worth noting the fact that in Portugal there is no inheritance tax, which, together with the absence of cryptocurrency taxation, places the country, at this moment, as a destination to be considered when considering inheritance and tax planning. This offers a golden triangle to HNWIs – Cryptocurrencies, Golden Visa (the residency by investment programme that leads to European citizenship) and NRH (the tax programme exempting most of foreign personal income from taxation for 10 years) – not to mention 943 kilometres of beaches, more than 300 days of sunshine per year, and a geostrategic location unmatched worldwide.