Crypto Regulation in Portugal: Key Features
Binance’s CEO, Changpeng Zhao, has described Portugal as a serene tax haven for cryptocurrency platforms. He first expressed this view in 2021 and it has remained unchanged since. But why?
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How does Portugal categorize digital assets?
At the moment in Portugal, revenues from cryptocurrencies are tax-free since digital assets (including stablecoins) are not acknowledged as legal tender or a financial asset. Thus, they currently operate outside the scope of the local tax system. The exceptions are when their trade or exchange occurs regularly (no less than three times a week) as part of professional activities. Moreover, the commercial use of digital assets extends to activities like mining, staking, and crypto brokerage.
Portugal's Tax Authority adopted this stance in 2016, and their position hasn't shifted since. Portugal later earned a reputation as a serene haven for crypto investors, particularly when the “Non-habitual Residence” (NHR) regime started being applied to crypto earnings. This law absolves foreigners from paying taxes on income generated abroad. Hence, Portugal is currently a tax-exempt zone for investors who invest and earn profits by trading on Asian or American markets.
What's the state of crypto taxes in Portugal?
In December 2022, Portugal underwent a single reform. The Parliament included a new clause in the 2023 budget about taxing incomes from digital assets held for less than a year at a rate of 28%.
Cryptocurrencies that have been stored in a single wallet for over 365 days are exempt from taxation. Thus, holders (with the exception of stakers) are not required to submit an end-of-year tax return (IRS).
In addition, a 4% levy was introduced on commission rewards received, expanding the range of crypto taxes. This will impact crypto platforms serving Portuguese citizens. There are also plans to charge a 4% tax on free cryptocurrency transfers from one wallet to another as part of inheritance procedures. However, this provision is not yet finalized since cryptocurrencies are not officially recognized as currency, goods, or personal property that can be legally inherited.
How do Crypto Exchanges Function in Portugal?
In Portugal, no crypto exchanges claim native origins. The only exchange asserting itself as a Portuguese-rooted digital enterprise for cryptocurrency trading and storage, Bison Digital Assets, belongs to Bison Bank, which is under Chinese control.
Yet, several international crypto exchanges are thriving in Portugal:
- Bybit;
- Binance;
- OKX;
- Crypto.com;
- eToro;
- Bitpanda.
All of these companies have been granted an official license to provide virtual asset services by the Bank of Portugal.
The requirements for aspiring participants in the local digital market are quite straightforward:
- Compliance with Anti-Money Laundering (AML) procedures and the designation of a dedicated staff member (or a department) who will be responsible for ensuring compliance.
- Appointment of a Portuguese citizen to a directorial role, even if just in a nominal capacity.
- Establishment of a transactional bank account within a local bank.
There's no set minimum for either charter capital or the number of resident employees.
Although all Centralised Exchange (CEX) platforms operating in Portugal are regulated by the European Securities and Markets Authority (ESMA), they are not currently mandated to disclose their customer data to state tax authorities. Exceptions only apply to transactions that could be regarded as suspicious from an AML perspective.
The potential implementation of Markets in Crypto Assets (MiCA) regulations may shake up the stable scenario, but it's not a guarantee. It's important to note that MiCA isn't absolute; each European nation can interpret and apply this standard based on its unique economic interests.
Thus, it's still unclear how everyday Portuguese traders will be declaring their incomes in February 2024.
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