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Portugal: What Fixing the Legal Loophole on Crypto Means for Traders and Investors

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portugal:-what-fixing-the-legal-loophole-on-crypto-means-for-traders-and-investors

Not so long ago, Portugal was being applauded as being one of the world’s top destinations for cryptocurrencies. The European country which allowed crypto investors, traders and enthusiasts alike to put down roots, while also enjoying a zero percent tax and regulation on cryptocurrencies is now likely to come to an end after a recent announcement.

The country’s Finance Minister, Fernando Medina announced in a recent press conference in Lisbon that the country will now be looking to move towards taxing and regulating crypto, with the government pursuing the intention to legislate cryptocurrencies.

The recent move will bring an end to Portugal’s status as being a crypto tax haven after the country initially allowed crypto enthusiasts to treat the digital asset as a fiat currency within the country.

This vacuum that allowed crypto investors and traders to live and operate within the country could bring an abrupt stop to the influx of foreigners who have moved here in the last couple of years due to the lax crypto taxes and regulations.

Earlier in the year, CNBC covered how the so-called ‘Bitcoin Family’ emigrated to Portugal, as the country was at the time considered the ultimate crypto tax haven.

According to the provisional 2021 population census, the number of foreign residents in the country has increased by more than 40% in the last decade, partially due to the country looking to uplift its economic infrastructure and ageing population.

Now, as the tax loophole is looking to come to an end, what could this mean for those crypto investors and traders who have already settled down in the country?

The Current Crypto Situation

While the crypto tax loophole has helped the country rise to fame as becoming a crypto tax haven, a look back paints a better picture of where the country is currently standing in regards to crypto taxes and regulation.

In 2016, the Portuguese tax authority laid claim that it would only be taxing business-related crypto activities, which highlighted no specific law or regulation on cryptos or digital coins. In the meantime, since 2018, the country has solely traded crypto as an exchange of money, and not as a form of investment, limiting capital gains taxes that other investments are subject to.

In Portugal, capital gains taxes are taxed at 28%; in the United States, this rate is anything from 0%, 15% or 20% and solely depends on the taxpayers’ tax bracket for the year in which they are filing.

Because of the relaxed tax regulations, the real estate market in the country has been seeing major interest from investors and property buyers from around the world.

In a recent article, it was claimed that the very first property sale in Bitcoin without the conversion of Euros was completed at the start of May for a three-bedroom, $116,058 (€110,000) apartment in Braga. The buyer spent a total of three BTC on the deal.

All over the country, crypto holders have been enjoying the luxuries created by the digital coins, as it has allowed them to purchase real estate, trade, mine and invest as much as they could handle.

So, with the governments’ sudden decision to put a damper on the zero tax haven, where will these crypto lovers and enthusiasts go next?

The Timeline

For now, crypto holders in the country are still relatively off the hook, as the Finance Minister has yet to make any claims on an exact date at which the new regulations will come into effect.

If there is anything we have learned from crypto regulation in the last few years, it takes a while for governments to put a basic structure and plan together before they are able to implement it.

There is more to crypto than just putting a tax bracket or a percentage on it. Taking into consideration how people use it within the country, how the government and its existing financial infrastructure will regulate it, and then what they actually see as regulation in light of the new jurisdictions.

Even here in the United States, where the Biden Administration recently made the move to recognize digital assets as a major part of the economy, progress on full regulation has been slow.

The (New) Tax Rate

Some have been asking what the crypto tax rate in the country will be, but minimal information has been given as of yet.

The Ministry of Finance could still take some time before it is able to release an official statement on what the adequate tax rate for cryptos could be.

Instead of just taxing cryptos, the government is taking a different route by working with local authorities and financial institutions on a plan that could help serve both crypto holders and the country’s economy.

The Finance Minister mentioned in his statement, “We are evaluating what regulations [fit] this matter […] so that we can present not a legislative initiative to appear on the front page of a newspaper but a legislative initiative that truly serves the country in all its dimensions.”

If you look at it from this angle, it could be something positive for those who have already invested a lot of resources and money in crypto in Portugal. The government is clearly looking at it from all perspectives, instead of putting a clamp on the local market.

The Preparations

While it has been said that it could take anything from one year to almost more than two years before official legislation is published, some crypto investors and traders are now looking to make the needed adjustments and preparations if that time does arrive.

What Could These Preparations Be?

Well, for starters, the best could be to move one’s crypto investments to a different crypto tax haven, such as Switzerland, Malta, Germany, Puerto Rico or the Cayman Islands, among others. This could mean that they can keep their investments safe while waiting to see what the Portuguese authorities have planned.

On the one hand, it might be a good time to consider how to dilute current crypto into other assets that are still taxed relatively low. Purchasing physical or portable property, real estate, stocks, shares or bonds could all be viable options, but it comes with some risk to it as well.

On the other hand, crypto holders can start looking to invest in certain assets or projects within the country that could give them some tax incentive, especially if they are foreigners.

Portugal has been known to offer foreigners a fast track to residency under the Golden Visa scheme if they purchase real estate or make a major business-related investment in the country.

Then finally, there is the option of physical relocation, but this is tricky and comes with a lot of administration as well. While it is possible to relocate to any other country that is considered a crypto tax haven, it does make things a bit more challenging for those who saw Portugal as a long-term solution.

There is also the notion that those countries that are considered crypto tax havens might start clamping down on digital assets in the near future as well.

With this in mind, it might be a good time for some crypto traders to start considering long-term preparations instead of holding out hope that local authorities could still take a few years before they implement actual regulations.

As countries around the world are looking to bring in changes to their tax regulations and tax codes considering cryptos and other digital assets, it is only a matter of time before crypto holders and traders run out of options.

In due time, it is possible that Portugal might reverse their current decision, but the chances thereof are quite slim, and even if traders and investors hold out for better news, they are only cutting their time shorter.

Change Is Inevitable

The announcement is not something many people had expected, especially after the tumultuous year cryptos have endured so far.

Even though Portugal might soon lose its status, it is inevitable that most developed nations around the world that have yet to catch on will start following the same tracks.

While those who are already settled in the country are now seeing their tax haven crumble before them, this puts a clear peg on the fact that crypto holders should think and strategize for the long-term game.

Yet, while many are awaiting further announcements from the government, perhaps it is time to rethink how one can use your digital assets in a country that sees no problem in you using it as regular cash, it might offer you the perfect opportunity to build wealth in physical investments that can still offer the same value and growth as crypto does, for now at least.

Not so long ago, Portugal was being applauded as being one of the world’s top destinations for cryptocurrencies. The European country which allowed crypto investors, traders and enthusiasts alike to put down roots, while also enjoying a zero percent tax and regulation on cryptocurrencies is now likely to come to an end after a recent announcement.

The country’s Finance Minister, Fernando Medina announced in a recent press conference in Lisbon that the country will now be looking to move towards taxing and regulating crypto, with the government pursuing the intention to legislate cryptocurrencies.

The recent move will bring an end to Portugal’s status as being a crypto tax haven after the country initially allowed crypto enthusiasts to treat the digital asset as a fiat currency within the country.

This vacuum that allowed crypto investors and traders to live and operate within the country could bring an abrupt stop to the influx of foreigners who have moved here in the last couple of years due to the lax crypto taxes and regulations.

Earlier in the year, CNBC covered how the so-called ‘Bitcoin Family’ emigrated to Portugal, as the country was at the time considered the ultimate crypto tax haven.

According to the provisional 2021 population census, the number of foreign residents in the country has increased by more than 40% in the last decade, partially due to the country looking to uplift its economic infrastructure and ageing population.

Now, as the tax loophole is looking to come to an end, what could this mean for those crypto investors and traders who have already settled down in the country?

The Current Crypto Situation

While the crypto tax loophole has helped the country rise to fame as becoming a crypto tax haven, a look back paints a better picture of where the country is currently standing in regards to crypto taxes and regulation.

In 2016, the Portuguese tax authority laid claim that it would only be taxing business-related crypto activities, which highlighted no specific law or regulation on cryptos or digital coins. In the meantime, since 2018, the country has solely traded crypto as an exchange of money, and not as a form of investment, limiting capital gains taxes that other investments are subject to.

In Portugal, capital gains taxes are taxed at 28%; in the United States, this rate is anything from 0%, 15% or 20% and solely depends on the taxpayers’ tax bracket for the year in which they are filing.

Because of the relaxed tax regulations, the real estate market in the country has been seeing major interest from investors and property buyers from around the world.

In a recent article, it was claimed that the very first property sale in Bitcoin without the conversion of Euros was completed at the start of May for a three-bedroom, $116,058 (€110,000) apartment in Braga. The buyer spent a total of three BTC on the deal.

All over the country, crypto holders have been enjoying the luxuries created by the digital coins, as it has allowed them to purchase real estate, trade, mine and invest as much as they could handle.

So, with the governments’ sudden decision to put a damper on the zero tax haven, where will these crypto lovers and enthusiasts go next?

The Timeline

For now, crypto holders in the country are still relatively off the hook, as the Finance Minister has yet to make any claims on an exact date at which the new regulations will come into effect.

If there is anything we have learned from crypto regulation in the last few years, it takes a while for governments to put a basic structure and plan together before they are able to implement it.

There is more to crypto than just putting a tax bracket or a percentage on it. Taking into consideration how people use it within the country, how the government and its existing financial infrastructure will regulate it, and then what they actually see as regulation in light of the new jurisdictions.

Even here in the United States, where the Biden Administration recently made the move to recognize digital assets as a major part of the economy, progress on full regulation has been slow.

The (New) Tax Rate

Some have been asking what the crypto tax rate in the country will be, but minimal information has been given as of yet.

The Ministry of Finance could still take some time before it is able to release an official statement on what the adequate tax rate for cryptos could be.

Instead of just taxing cryptos, the government is taking a different route by working with local authorities and financial institutions on a plan that could help serve both crypto holders and the country’s economy.

The Finance Minister mentioned in his statement, “We are evaluating what regulations [fit] this matter […] so that we can present not a legislative initiative to appear on the front page of a newspaper but a legislative initiative that truly serves the country in all its dimensions.”

If you look at it from this angle, it could be something positive for those who have already invested a lot of resources and money in crypto in Portugal. The government is clearly looking at it from all perspectives, instead of putting a clamp on the local market.

The Preparations

While it has been said that it could take anything from one year to almost more than two years before official legislation is published, some crypto investors and traders are now looking to make the needed adjustments and preparations if that time does arrive.

What Could These Preparations Be?

Well, for starters, the best could be to move one’s crypto investments to a different crypto tax haven, such as Switzerland, Malta, Germany, Puerto Rico or the Cayman Islands, among others. This could mean that they can keep their investments safe while waiting to see what the Portuguese authorities have planned.

On the one hand, it might be a good time to consider how to dilute current crypto into other assets that are still taxed relatively low. Purchasing physical or portable property, real estate, stocks, shares or bonds could all be viable options, but it comes with some risk to it as well.

On the other hand, crypto holders can start looking to invest in certain assets or projects within the country that could give them some tax incentive, especially if they are foreigners.

Portugal has been known to offer foreigners a fast track to residency under the Golden Visa scheme if they purchase real estate or make a major business-related investment in the country.

Then finally, there is the option of physical relocation, but this is tricky and comes with a lot of administration as well. While it is possible to relocate to any other country that is considered a crypto tax haven, it does make things a bit more challenging for those who saw Portugal as a long-term solution.

There is also the notion that those countries that are considered crypto tax havens might start clamping down on digital assets in the near future as well.

With this in mind, it might be a good time for some crypto traders to start considering long-term preparations instead of holding out hope that local authorities could still take a few years before they implement actual regulations.

As countries around the world are looking to bring in changes to their tax regulations and tax codes considering cryptos and other digital assets, it is only a matter of time before crypto holders and traders run out of options.

In due time, it is possible that Portugal might reverse their current decision, but the chances thereof are quite slim, and even if traders and investors hold out for better news, they are only cutting their time shorter.

Change Is Inevitable

The announcement is not something many people had expected, especially after the tumultuous year cryptos have endured so far.

Even though Portugal might soon lose its status, it is inevitable that most developed nations around the world that have yet to catch on will start following the same tracks.

While those who are already settled in the country are now seeing their tax haven crumble before them, this puts a clear peg on the fact that crypto holders should think and strategize for the long-term game.

Yet, while many are awaiting further announcements from the government, perhaps it is time to rethink how one can use your digital assets in a country that sees no problem in you using it as regular cash, it might offer you the perfect opportunity to build wealth in physical investments that can still offer the same value and growth as crypto does, for now at least.

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