On April 21, 2020, the Portuguese government passed the “Digital Transitional Action Plan.” The act establishes “Free Zones” for the testing of crypto technology. These zones create a flexible regulatory environment for testing purposes, including on-site testing in real-life settings, and provides assistance from regulatory entities. Hence, the program will reduce the regulatory and legal burden that crypto businesses face as they develop and experiment with new technologies.
There are three main focuses for the program: “Capacity-building and digital inclusion of people, digital transformation of businesses, and digitalization of the State.” The rests resulting from the free zones will supply a reliable assessment of the technical and commercial viability of blockchain technology. The key areas of focus for the free zone tests are “regulation, digital privacy, cyber-security and defense, the data economy, communications, and infrastructure.”
Portugal’s policy is to stimulate the economy by aiding crypto companies in their testing stages. Noting the importance of new technologies for economic development and the restructuring of economic structures, the Portuguese government provides testing to capitalize on the new opportunities that cryptocurrency offers. Accordingly, Portugal has established itself as an appealing place to start a crypto-related business. In doing so, Portugal hopes to promote the growth of the crypto industry within Portugal. Indeed, this policy makes Portugal one of the best places worldwide for creating a crypto-related business. Portugal’s regulatory stance aims to incentivize the growth of the cryptocurrency industry within the country’s borders. On the other hand, these tests also provide important information and data that will help the Portuguese government draft effective laws concerning cryptocurrency. Hence, the tests in Portugal will foster regulations that are based on objective data and are what society needs.
[1] António Madeira, Portugal Chases Crypto-Friendly Status With New ‘Free Zones’ for Tech. Cointelegraph, (2020, April 30).
[2] Marie Huillet, Portugal Unveils ‘Free Zones’ for Emerging Technologies in Digital Action Plan, Cointelegraph; Cointelegraph, (2020, April 24).
In 2019, the Portuguese Tax & Customs Authority (PTA) declared that buying or selling cryptocurrency is tax-free in Portugal. Specifically, the PTA stated that crypto transactions are not subject to capital gain taxes or value-added tax (VAT). Crypto transactions are exempt from these taxes even though they are analogous to a “means of payment.” However, there are a few exceptions. Crypto exchanges for goods or services does not change the tax treatment of the original transaction. Secondly, taxpayers who trade in crypto as professionals or business activity are still subject to the same taxes.
Crypto is exempt from VAT and capital gains taxes because Portugal treats it as a form of currency. This approach is compatible with the country’s public policy because Portugal forbids taxing the gain on any currency’s value or sale. This policy favors retail traders, who can benefit from a zero-VAT tax policy. Portugal’s Ministry of Finance revealed that retail trades of crypto are not taxable, but income or transactions resulting from professional activities are taxable. The policy also favors crypto miners. In 2019, Portugal’s Tax and Customs Authority declared that mining rewards and crypto payments are not subject to VAT in Portugal.
[1] António Madeira. (2020, March 28). No Tax for You: Why Crypto Traders and Miners Might Head to Portugal. Cointelegraph; Cointelegraph.
[2] Kelly Phillips Erb. (2019, September 20). Portugal Tax Authorities Clarify That Buying Or Selling Cryptocurrency Is Tax-Free. Forbes.
Initial Coin Offerings
In Portugal, each ICO is analyzed on a case-by-case basis. Accordingly, the main issue in issuing ICOs is whether the token is classified as a utility token or a security token. Depending on the circumstances, a token may fall under consumer protection regulations or security regulations.
ICOs that fall under consumer protection regulations are ICOs that offer tokens that represent rights and/or economic interests in a specific project’s results, use of software, access to certain platforms or virtual communities, or other goods or services.
There are many nuances that determine whether an ICO is subject to securities regulations. On one hand, ICOs that offer tokens that represent rights and/or economic interests in a pre-determined venture, project, or company, such as tokens granting the older a right to take part in the profits of a venture, project, or company may be subject to securities regulation. On the other hand, tokens that are not financial instruments are not subject to securities regulations. Specifically, tokens that allow its users to (i) participate in surveys related to the development of an online platform, and (ii) further donate tokens to the online platform for the development of new tools, is not a financial security because it is not a qualified as a financial instrument.
Two important elements that may implicate securities law are (i) if the tokens may be considered documents representative of one or more rights of a private and economic nature; and (ii) if, given their particular characteristics, they are similar to typical securities under Portuguese law. The second element is more likely to be satisfied if the investor has an expectation for a return on investment. Returns on investments include (a) a grant to the right to any type of income, like the right to receive earnings or interest; or (b) undertaking certain actions, by the issuer or a related entity, aimed at increasing the token’s value.
P.S. Insights on Cryptocurrency Legal Issues
Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.
Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States are relatively friendly to crypto mining.
However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.
Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency. The globe below provides links to country-by-country summaries:
Is cryptocurrency legal in Portugal?
Do you have questions about cryptocurrency, digital currencies, or blockchain technology?
Freeman Law can help with digital currencies, tax planning, and tax compliance. Contact us now to schedule a consultation, or call (214) 984-3410 to discuss your cryptocurrency and blockchain technology concerns.
