Portugal could become a tax haven for crypto traders

The Portugal Tax Authority (PTA) has announced over the past year that trading and cryptocurrency payments will not be subject to an increase in VAT. In accordance with the text of the announcement, payments in cryptocurrencies subject to the provision of services pursuant to Article 9, paragraph 27, letter d) of Portuguese tax law are exempt from VAT.

This only applies to natural persons, as companies based in Portugal are still subject to various taxes such as VAT, social security and income tax.

This is not the first announcement in this regard

This announcement follows another beneficial tax provision for cryptocurrency operators based in Portugal: Ruling 5717/2015, which declares that proceeds from the sale of cryptocurrencies to individuals will be tax free.

According to a sentence published in February 2018, the sale of cryptocurrencies does not qualify as capital gains if the tokens are derived from the sale of financial products as defined by Portuguese law, which are normally subject to a 28% tax rate.

Furthermore, cryptocurrency trading will not be considered an investment income, which is subject to a 28% tax rate in other circumstances. Since the ruling applies only to natural persons, corporate income derived from commercial or other activities is subject to progressive rates for personal income tax.

For anyone familiar with the Portuguese tax system, these two judgments are not surprising. Indeed, Portugal is considered to be a very friendly country towards taxpayers, with rules specially designed to attract wealthy people and with a high net worth. Unlike most countries, Portugal has no taxes on inheritances, donations or on the assets of its residents.

Who are these tax benefits reserved for?

These significant tax benefits are reserved for non-regional tax residents in an attempt to attract high profile professionals from around the world. The multiple professions of the Science, Technology, Engineering and Mathematics (STEM) group and craftsmanship are considered, for example, to be high-profile, and range from architect to investor.

These heterogeneous groups of professionals enjoy a 25% rate on income tax, avoid a tax of up to 48% which is applied to other resident groups and pay a 28% rate on dividends, capital gains and investment income.

If all this seems convincing enough to make you consider moving to Portugal, the residence rules are worth checking. A person is considered resident in Portugal if he spends more than 183 days (consecutive or not) in Portugal during a 12 month period.

In addition, a person who becomes a tax resident in Portugal and has not been taxed as a resident of Portugal in the past five years can apply for the special tax regime for non-habitual tax residents.

However, before setting your plans, it is fair to take into account that in five years, there may be multiple countries that treat cryptocurrency trading as a tax-free activity.