Portugal: A Crypto-Friendly Country for Digital Nomads

Did you know that cryptocurrency is tax-free in Portugal? The country has announced several incentives over the years and today cryptocurrency traders and miners enjoy Portugal’s crypto-friendly environment. Earnings from crypto are exempt from VAT in the country and there’s little legal and regulatory burden on cryptocurrency businesses.

Portugal sets a great example for other European countries in terms of crypto-friendliness. It encourages foreign entrepreneurs, investors, and digital nomads by allowing them to realize tax-free cryptocurrency earnings.

But what makes Portugal one of the most crypto-friendly countries in the world? How did the country transform while most governments still ignore cryptocurrency?

Let’s dig deeper!

Cryptocurrency Is Tax-Free in Portugal

Portugal has always been open to innovation. While it follows the EU guidelines on digital currency regulation, Portuguese authorities have affirmed that the cryptocurrency will be treated the same as any other currency, not just an asset. In 2016, The Ministry of Finance issued a notice stating that retail trades of cryptocurrencies would be non-taxable and that only trades or income generated from professional activities would be taxed.

According to this notice, the earnings from cryptocurrency don’t fit into any income categories such as Category E (Capital Yields), Category G (Capital Gains), or Category B (Self-Employed Worker) under the Portuguese Tax Law. Let’s understand deeply.

Category G: Capital Gains Income refers to the income gained by the sale of a house, shares, or assets. Portuguese Law doesn’t consider cryptocurrency trading as a generator of capital gain. This is why it’s exempt from taxation.

Category E:  Dividends and interests fall under this category. As this is not the case with cryptocurrency trading, no tax is applied. However, please note that if you derive income from your investments in crypto interest accounts, you might be required to pay taxes.

Category B: This category refers to the income received from self-employment activity. If your cryptocurrency trading is not frequent and recurring, it can be exempt from this category of tax, as well. But please note that if you trade cryptocurrency as your main line of business to generate income, you’re required to make a declaration and pay taxes on your profits.

We understand it might be confusing to decide if your activity falls under any of these categories. Therefore, we suggest you speak with a tax lawyer first before committing an investment. Feel free to email Melissa for a recommendation.

On the other hand, salaries will be fully taxed like any other currency if paid in crypto. But please note that not many countries allow wages to be paid in crypto. So, Portugal has come a long way in this regard!

Cryptocurrency Regulation in Portugal: No VAT

To clarify the VAT issue on cryptocurrencies, the Court of Justice of the European Union made a declaration in 2015. With this declaration, CJEU stated that traders and investors aren’t subject to VAT when they buy or sell cryptocurrency.

In April 2020, Portugal also approved a “Digital Transitional Action Plan” to encourage digitalization. With this plan, the government declared that it would provide the necessary environment for innovation and digital transformation of businesses. The plan includes the creation of “Technological Free Zones”  to encourage experimentation on blockchain and other fields.

All these incentives make Portugal a great place to be in, don’t they?

Non-Habitual Residency Program in Portugal

Portugal is a star when it comes to tax applications for expats. Its Non-Habitual Resident (NHR) program is for non-resident individuals who are looking forward to benefiting from tax policies in Portugal. The program offers reduced tax rates and exemptions on certain taxes to foreign investors and residents.