As the cryptocurrency world went into full meltdown last week with the price of Bitcoin plunging to its lowest point since 2020, it is a given fact that more and more people hold these currencies. For many, investing in crypto has become a very profitable activity. With profits, comes tax. Moving to a country where taxes are less onerous might seem a next logical step.
If you search online for crypto tax friendly countries, Portugal is almost always in the top 10 and is sometimes even considered a crypto tax haven. But what exactly convinces crypto traders and miners to move to Portugal?
Portugal has taken great strides in recent years to attract foreign capital by giving tax breaks and special visas to foreign investors (e.g. Non-Habitual Resident (NHR) regime, Portugal Golden Visa, etc.). Add to this the wonderful climate, great cuisine and infrastructure, and you have the perfect destination to relocate to.
At the moment, there is no specific regulation in Portuguese law that deals with crypto assets. This includes cryptocurrency, but also asset-backed tokens, utility tokens and security tokens. The Portuguese Tax Authorities (PTA) have only issued an official statement back in 2016 on the tax treatment of certain transactions involving crypto. This only relates to personal income tax and VAT, not to corporate income tax.
The PTA are of the opinion that cryptocurrency is technically not a currency with legal tender (fiat currency), but only an asset that can be used as a medium of exchange in a barter transaction for fiat currency, goods and services.
According to the official statement, the profit resulting from the sale of cryptocurrency is not considered taxable as dividend or interest income (Category E) or capital gains (Category G). Gains can only be subject to taxation when the individual is carrying out a business trading activity aimed at generating profit. In this case it will be taxed as freelance income (Category B). The presence of a business activity should always be analyzed on a case-by-case basis. If you invest in crypto with a company, the profits will in any case be taxed as business income.
Private investors who are tax resident in Portugal remain currently out of scope from paying income tax on their crypto gains. Since there is currently no legal or regulatory framework in place for crypto, the tax-friendly treatment is based on a legal vacuum. This can quickly change if the tax authorities change their opinion, or new legislation would be implemented.
The absence of a legal framework is also what largely characterizes the current Belgian tax treatment of crypto gains. In Belgium, capital gains realized by a private individual are not taxable if they are realized within the ‘normal management of their privately held assets’. What is ‘normal’ and what is ‘abnormal’ (or speculative) really depends on the facts and circumstances and the tax person sitting in front of you. This rule also applies to capital gains resulting from other types of investments like a share deal or real estate transaction.
The main criterion is that of a prudent family man who undertakes the steps required to grow, retain or protect his personal wealth. The fact that ‘normal’ management remains a rather vague notion, often results in a subjective approach by the tax authorities.
While there is currently no Belgian case law that can provide some guidance on the topic, Belgian taxpayers often seek legal certainty on the tax treatment of a particular crypto transaction by applying for a tax ruling. For almost 20 years now, we have a generalized advance tax rulings system in place for the application of Belgian tax law in a particular situation or transaction. Considering the lack of any objective criteria, the Belgian Ruling Office often seems to apply the same subjectiveness to their analysis of a particular crypto investment situation.
If you have a background in finance, make daily trades or frequently buy and sell cryptocurrency, generate income from staking or yield farming, apply a short-term investment strategy rather than a long term one, use automated crypto trading platforms or bots, use external funds to invest instead of or in addition to your own savings, the gains resulting from this will most likely be qualified as ‘speculative’ by the taxman and trigger a 33% taxation.
Keeping these criteria in mind, it is possible to steer away from whatever qualifies you as ‘speculative’ and manage your crypto investments as a diligent private individual. Evidently, there can be other reasons to move to Portugal, but if you are a hobbyist, even a passionate one, Belgium can certainly provide a tax-friendly environment for crypto investors.
The current legal vacuum in many countries in respect to crypto demonstrates that your tax position can easily change and shows how important it is to seek proper advice if you are considering moving to another jurisdiction. Do your research before you start packing your belongings.
Portugal’s days as crypto tax haven might soon be over as well. The Minister of Finance has confirmed last week that the government is looking into how to tax crypto gains. There is no timeframe available for this yet, but the 2022 budget is set to be approved in Parliament by the end of May.