Portugal is incentivizing the growth of the cryptocurrency industry within its borders, providing the best taxation regime for crypto investors. Here, we will figure out how the country has become a heaven for crypto enthusiasts.
Being a relatively small country on the southwestern periphery of the European continent, Portugal has a diversified and increasingly service-based economy. And an increasingly important role in the structure of a wide range of sectors in Portugal belongs to the distributed ledger technology or blockchain. How has Portugal become one of the most crypto-friendly nations and why it is considered to be a Bitcoin heaven? Here, we’ll find answers to these questions.
Portugal’s Economy: From Crisis to Awakening
First, let’s dive a little deeper into the economic history of Portugal.
Before joining the EU back in 1986, Portugal had a rich history. For centuries, it was among the most powerful nations in the world as the Portuguese Colonial Empire. The prosperity was followed by chaos and negative economic growth as a result of the Carnation Revolution’s turmoil of 1974. From the mid-1970s, after the revolution, the country’s economy was disconnected from Portugal’s remaining overseas possessions in Africa and started moving toward Europe.
During the 1980s, Portugal’s economy was conditioned by structural changes imposed by the decision to join the European Economic Community and external shocks and short-term fluctuations in the world economy. Due to an intensive process of structural transformation, Portugal was spurring strong and steady economic growth when joining the EU.
In the early 2000s, the economic growth of the country improved living standards dramatically. However, in 2009, Portugal was one of the countries hardest hit by the euro-zone debt crisis, with its economy’s most severe recession since the 1970s. To recover from the hardest time, Portugal got support from the EU. EU membership helped Portugal in overcoming the adjustment crisis with the single market, cohesion policy, and the euro. European economic surveillance gave guidance and set a solid policy framework which also had positive signaling effects on financial markets.
Now, Portugal’s economy is the 31st freest in the 2022 Index. The country is ranked 21st among 45 countries in the Europe region, and its overall score is above the regional and world averages.
Portugal has always been open to innovations, and the adoption of distributed ledger technology in the country was not sudden. 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. Besides, in April 2020, Portugal also approved a “Digital Transitional Action Plan” to encourage digitalization. Within this plan, the government declared that it would provide the necessary environment for innovation and digital transformation of businesses.
The most notable thing about Portugal that makes the country crypto heaven is its taxation policy. In Portugal, cryptocurrency transactions are exempt from VAT, as the country views cryptocurrencies as a form of payment rather than an asset. The Portuguese currency is the Euro, but you use cryptocurrency as a method of payment for items with crypto visa cards. It is a win-win situation for crypto traders and investors.
In addition, crypto traders and investors in Portugal can benefit from the non-habitual tax regime if they have not been tax residents in the country for the previous five years. In other words, you will be able to monetize your crypto earnings in Portugal without being taxed under the non-habitual resident program. Thus, the country encourages overseas entrepreneurs and investors by allowing them to earn cryptocurrencies without paying taxes on them.
Starting from 2021, Portugal has also been attracting crypto families – families that heavily invest in cryptocurrencies. The most notable one is the family of Didi Taihuttu – Mr. Taihuttu, his wife, and three daughters. Crypto families are a new type of crypto investors. Earlier this year, we reported that the family of Taihuttu moved to Portugal due to its crypto-friendly regime and burgeoning crypto community. According to a luxury real estate company Vanguard Properties, in the summer of 2021, they sold at least 10 homes to so-called crypto families, most of them from the US.
Another milestone in reaching the status of crypto heaven was achieved when several companies in Portugal announced accepting crypto payments. Among them are Chinese tech giant Xiaomi and a local power company Luzboa.
Currently, Portugal considers crypto not as an asset but as a currency, which means that while businesses that provide cryptocurrency services are subject to taxation, individuals investing in them are not. At present, the standard capital gains tax in Portugal for residents totals 28%, while personal income tax ranges from 14.5% to 48%. The corporate income tax is a flat rate of 21%, but there are also local and state surtaxes. In the future, the Portuguese Ministry of Finance might introduce a guideline on proper crypto regulation. However, crypto enthusiasts can be sure that Portugal will continue to incentivize the growth of the cryptocurrency industry within its borders.
Darya is a crypto enthusiast who strongly believes in the future of blockchain. Being a hospitality professional, she is interested in finding the ways blockchain can change different industries and bring our life to a different level.