Tax Framework for Cryptocurrencies in Portugal

More and more people are interested in this type of investment on a personal level, but also as a business.
As a consequence, people are more concerned about how can they safeguard their investments from the tax authorities.

Currently, the most well-known and valuable cryptocurrency is Bitcoin. There are however more than 8800 cryptocurrencies in circulation, all with very different values. From a tax perspective in Portugal, these are seen as the same.

If you are thinking about the cryptocurrency market or intends to invest in them, you must be aware of its current tax framework.

At the time of writing this article, Portugal does not tax cryptocurrencies, which presents an enormous opportunity for cryptocurrency investors.
In my opinion, cryptocurrency investors should obtain a golden visa if they are currently working and residing in another country, or if they want to permanently move here they can obtain a D2 or D7 seven visa. After they can then obtain a Non-Habitual Resident Status, which allows them to gain access to Portuguese fiscal laws and hence not be taxed on their bitcoin portfolios.

This is another one of those like famous investor Warren Buffett mentioned: “People keep dressing their trousers one leg at a time.” Tax authorities are being slow to act on this matter, as most as civil-servants don’t put in the hours to get the law up to date. This presents an opportunity because crypto investors can gain access to the Portuguese Fiscal regime and not be taxed on their portfolios.

For now, there is no specific legislation on the tax framework for cryptocurrencies. However, this does not mean that to date the Tax and Customs Authority has not commented on this issue.

In other words, currently, the available information is linked to two dispatches where AT answered questions from taxpayers, thus addressing the framework of cryptocurrencies and the VAT Code. If you wish to consult this documentation, you can do so through the two doctrinal sheets, which appear in process nº 14910 and in-process nº 5717.

But since this information can be a little confusing, we will divide it into three topics: the tax framework for the PIT(Personal Income Tax), CIT(Corporate Income Tax), and VAT(Value Added Tax)

Tax framework for cryptocurrencies in Portugal at the PIT(Personal Income Tax) Level
For those who only have income in cryptocurrencies derived from investments, you don’t have to worry for now, about declaring them to your IRS.
The rule is that sporadic sale of cryptocurrencies is not taxable under the Portuguese tax framework as this is not your main activity.

Capital gains deriving from buying/selling cryptocurrencies are also not subject to a PIT(Personal Income Tax). Why? Because legally this does not fit the definition of capital gains.

Tax framework for cryptocurrencies in Portugal at the CIT(Corporate Income Tax) Level
In the case of CIT (Corporate Income Tax), the tax framework is only applicable if the sale of cryptocurrencies is your usual activity.
In other words, income is taxed according to the exercise of activity, and not according to the origin of the income. Therefore, if the sale of cryptocurrencies is not your usual professional activity, these incomes do not have a tax framework.

But if selling cryptocurrencies is your usual professional activity, then you will have to fulfill your reporting obligations. These are included in paragraph 6 of article 3 of the IRS Code. It is important to note that in this case there is an obligation to issue an invoice or invoice receipt whenever you make a sale or provide a service. In addition, you will also be taxed with what the legislation defines for category B.

But there is currently no information on specific taxation for cryptocurrencies, only that they are taxed according to category B when it comes to a usual professional or business activity. Also about the issuance of invoices, doubts continue to exist due to the anonymity of many of these transactions. So, again…no taxes if this is done correctly.

Tax framework for cryptocurrencies in Portugal at the VAT(Value Added Tax) Level
About the tax framework of cryptocurrencies in Portugal under the Corporate Value Added Tax, there is no public information disclosed.

The tax authority wants to collect, but at the time of this writing, there are no clear rules on how. They have contradictory answers and nothing clear in writing.

The exemption takes place under Article 9 (paragraph 27, subparagraph d).
The Portuguese Authority’s explanation uses the case law of the Court of Justice of the European Union (CJEU), which determined the VAT exemption under Article 135 of the VAT Directive. The sale of bitcoins is also exempt from taxation, as determined by a judgment of the CJEU (Judgment David Hedqvist of 22 October 2015 – C 264/14).

Do you have to pay tax on income from cryptocurrencies? For now, and unless you make buying and selling this virtual currency your profession, you don’t have to declare bitcoin to the IRS.

In order to safeguard your cryptocurrency investments, all you have to do is to obtain a Portuguese Tax-Residency.

How?
You are considered a Portuguese tax resident if after obtaining your visa, you obtain Non-Habitual Resident Status, with a Golden Visa, a D2 or D7 passport.

In a nutshell:
Golden Visa: through a Golden Visa, you only need to be in Portugal for at least 7 days per year non-consecutive. You just need to just make a capital investment in a real estate or private equity fund of 500K eur. The fund will issue a statement that your immigration lawyer here will use to get you the remaining paperwork.

D2 and D7: For the D2 and D7 you need to stay in Portugal for at least 183 days and have a permanent residence here, either bought or rented.

It comes down to your present circumstances. We have clients that are currently residing and working in the US, and start this process to later move. Others move immediately.
In both cases, you can obtain the NHR(Non-Habitual Resident) Tax status that will allow you to gain access to the Portuguese Tax regime that can safeguard your cryptocurrency investments.

If you want to learn more, you can schedule a free consultation here at: https://euseguros.pt/en/contactos

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