From a position of relative obscurity, cryptocurrency, being a form of digital money, has rapidly evolved into a widely used form of currency trading and payment. In fact, the most widely used form of cryptocurrency, bitcoin, experienced the most significant increases in 2016 and 2017 as compared to other currencies and ended up having more value than gold. However, there is no consensus on the qualification of cryptocurrency as a currency, nor is it tied to any Central Bank. In addition, it is not recognised as a payment method in Portugal.
However, the Portuguese tax treatment of cryptocurrency lends even more support to Portugal’s positioning as a tax friendly jurisdiction for international investment.
Whilst there is a lack of specific legislation, according to a binding opinion of the Portuguese Tax Authorities, gains deriving from the purchase and sale of cryptocurrency or its exchange for real currency may generate different types of taxable income: capital gains (income type G), capital income (income type E) or business or professional income (income type B). The good news is that, in practice, these gains do not represent a taxable event under categories G and E.
As for category B, and whether the purchase, sale or exchange of cryptocurrency is taxable as professional income, this will depend upon how regularly the taxpayer trades cryptocurrency. In other words, tax will only be due in Portugal if the buying and selling of cryptocurrency is a regular professional activity of the investment professional on behalf of third parties. Furthermore, according to another binding opinion from the Portuguese Tax Authorities, no duty VAT is payable on these operations due to a VAT exemption.
As a result, although there has been increasing regulation of cryptocurrency within the European framework, the current position in Portugal is that income deriving from cryptocurrency is not taxed unless it is generated in the exercise of a professional activity, as opposed to by way of investing personally/privately.
We have already advised many clients who invest in cryptocurrency and therefore have the experience and knowledge to successfully navigate investors through the specific treatment of cryptocurrency in Portugal.
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