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Portugal – The Most Crypto-Friendly Nation in Europe

Published: January 07, 2021Leave a Comment

Portugal is fast-becoming the number one country for anyone involved in crypto, especially long-term investors and traders.

Portugal is located on the Iberian Peninsula and is a member-state of the European Union (EU). It has about 10.2 million citizens, a Gross Domestic Product (GDP) of $358 billion (PPP) and features a very high Human Development Index of 0.85.

The road to this state of affairs was not an easy one, and recent actions in the country can trace back to the economic turbulence of the late 2000s. In order to understand what forced Portugal to innovate, we must first consider its economic situation during the past two decades.

While Portugal has had structural problems long before the 2007-2008 financial crisis, its domestic problems were magnified by that turbulent period of time. Its unemployment rate climbed slowly but steadily from around 3.8% in 2000 to around 16.2% in 2013.

Portugal was eventually unable to repay and or refinance its government debt. In April 2011, it applied for bail-out programs from the International Monetary Fund, the European Financial Stabilization Mechanism and the European Financial Stability Facility. In sum, it drew an accumulated $91 billion in financial aid, and eventually exited the bail-out programs in May 2014.

Overall, the 2011-2014 period resulted in an extensive exodus of young and educated citizens to northern European countries as well as a structural real estate crisis similar to the one that took place in Spain. More than 50,000 young and educated citizens a year left permanently between 2011 and 2014.

Thus, in order to revive its economy and to partially offset the loss of productive capital, Portugal passed a series of laws in a bid to become more attractive to foreign investors and expatriate professionals.

These laws are now having the desired effect, and are a great example of how a country can pick itself up from the ashes and thrive against the odds by supporting freedom and innovation.

Portugal is one of the few countries that is forward-looking and is encouraging the immigration of high net worth individuals, investors, and entrepreneurs. This will result in these people having a positive effect in the local economy by spending their money within Portugal. Not only that, they will bring new and bright ideas, and will start new businesses in the country.

See also: Lisbon vs Barcelona

This attitude is in stark contrast to the neighboring country, Spain, which has gone out of its way to punish local and foreign entrepreneurs who want to start new businesses and help the economy. It’s a real pity to see the political situation in Spain at the moment, but hopefully, the politicians will eventually see that the Portuguese model works better and switch course.

Tax Benefits on the Sale of Crypto in Portugal

The main reason for the enthusiasm about Portugal from people involved in the crypto space is that crypto earnings are tax-free in Portugal.

In a 2016 official ruling, the Portuguese Tax Authority analysed the possible classification of cryptocurrencies within certain types of income that are subject to Portuguese tax, notably capital gains, capital income and income from business activities, and decided that, as a general rule, natural persons should not be taxed in respect of gains derived from the valuation or sale of cryptocurrencies, except that, in the case of sale of cryptocurrencies, if they correspond to the individual’s main recurrent activity, income obtained from such activity could be subject to Portuguese tax.  It should also be noted that this was only a partial decision that did not elaborate on other types of income derived from other cryptocurrency-related activities (e.g. mining and farming activities).

Have a look at the 2016 binding information as it’s the most relevant document for crypto investors. The linked document is in Portuguese, but it consists of the Portuguese tax authority’s reply to a direct question about crypto taxation.

I’ll provide a basic interpretation (in my own words, not a word for word translation) for those of you who don’t understand Portuguese:

Cryptocurrencies or virtual currencies are not technically considered money due to not having legal tender in Portugal. However, they can be exchanged, with a resulting profit, for real currencies (euros, dollars, or other) at exchanges, with the prices being determined by the demand for said cryptocurrency.

Thus, cryptocurrencies can generate different types of taxable income:

  1. Gains obtained from the purchase and sale of virtual currency units/exchange from the cryptocurrency to real currency (whatever it may be)
  2. For obtaining commissions for the provision of services related to obtaining cryptocurrency.
  3. For gains derived from sales of products or services in cryptocurrency

This document only considers the first scenario. This is the scenario faced by most crypto investors.

The profits from this activity are candidates for three categories of income types:

  1. Capital Gains – category G (e.g. sale of an apartment, sale of shares)
  2. Capital Yields – category E (e.g. rent of an apartment, dividends)
  3. Professional Income – category B (e.g. consultancy, freelance work)

Category G

Article 10 of the IRS Code specifies the cases that are taxable as capital gains. The key thing to note here is that when the legislator created this law, they resorted to a closed type, meaning that the law is specifically for the items mentioned and nothing else. Since cryptocurrencies do not fall within the specific cases mentioned, and their value is merely determined by supply and demand, therefore we can conclude that they are not taxable within this category.

Category E

This category clearly does not apply to the sale of crypto assets since it relates to yields on capital e.g. dividends, rental income. On the other hand, I would note that the income derived from services such as BlockFi, YouHodler, and other crypto interest accounts would probably fall in this category. The same goes for income from crypto staking e.g. Ethereum staking.

Category B

Here’s the tricky one. Category B relates to the income of a self-employed worker. When a type of income can be classified as of category B or any of the other two categories considered here, category B would prevail. So in this category income can be taxed whether it comes from sales, whether it is capital income, or any other nature, pursuant to paragraph 1 of article 3 of the IRS Code.

To determine whether the income falls into this category, one would need to consider its frequency and the orientation of the activity towards obtaining profits. If the existence of the exercise of a business or professional activity is verified, then the taxpayer is obliged to comply with the declarative obligations contained in paragraph 6 of article 3 of the Code of IRS, i.e. to issue an invoice or equivalent document (electronic invoice-receipt), whenever you sell some product or provide a service.

The reason I say that it’s a tricky one is that crypto traders need to consider carefully whether their activities would be considered professional income or not. Here I would suggest that if you’re in doubt you should consult a tax lawyer. The general rule worldwide is that if trading is your main source of income and you are opening and closing positions on a daily basis you would most likely classify as a professional trader and your income will fall in this category – therefore not being tax-free.

The conclusion of the document states clearly that the sale of cryptocurrencies is not taxable in Portugal unless due to its frequency it constitutes a professional or entrepreneurial activity, which would make it taxable under category B.

In summary, cryptocurrencies in Portugal are only taxable if you do it as a professional trading activity and therefore you need to open an activity as a trader and pay taxes according to your profit, otherwise they are considered non-taxable in Portugal due being unable to fit in any category.

Note that the above is true for individuals but not for corporate entities. If you hold your crypto in a Portuguese company, all the gains from cryptocurrency trading are taxed together with any other profit the company had, irrespective of whether the company is engaged in trading or whether it held the crypto as a long-term investment.

Inheritance Taxes

There is no precedent, specific rules or particular approach regarding the treatment of cryptocurrencies for the purposes of estate planning and testamentary succession in Portugal.

Notwithstanding, certain aspects of estate planning and testamentary succession should be highlighted.  Inheritance tax does not exist in Portugal, but stamp duty may apply to certain transfers of certain assets (e.g. immovable property, movable assets, securities and negotiable instruments, provided they are located, or deemed to be located, in Portugal) included in the deceased’s estate in case of succession.

However, in the absence of a legal amendment or binding information from the Portuguese tax authorities, it may be argued that the drafting of the relevant legal provisions does not expressly foresee assets such as cryptocurrencies, thus excluding the same from the scope of application of stamp duty, which de facto mitigates the need for estate planning with respect to cryptocurrencies.  Estate planning and testamentary succession must therefore be analysed on a case-by-case basis, considering all variables involved.

VAT

In a 2019 official ruling, the Portuguese Tax Authority confirmed the precedent from the Court of Justice of the European Union (Case C-264/14, Skatteverket v. David Hedqvist) to argue that although cryptocurrencies such as Bitcoin were analogous to a “means of payment” and therefore subject to VAT, they were exempt by application of VAT exemption rules, which should be consistent across EU Member States considering existing VAT EU harmonisation.

Participating in the Portuguese Crypto Community

You can follow this Twitter list that features many of the big crypto players that are based in Portugal. Please let me know about other crypto players and communities in Portugal by leaving a comment below or by contacting me.

Hard Fork Cafe is a cool YouTube channel dedicated to crypto, although you need to understand Portuguese for that. It’s a good way to practice learning the language though if you want to hit two birds with one stone.

Filed under: Cryptoassets, Money & Investing

How do Bitcoin Futures Work and Should You Trade Them?

Published: January 04, 2021Leave a Comment

bitcoin futures guideFutures operate in a multi-trillion dollar industry. They are complex financial instruments that allow you to speculate on whether the price of an asset will be higher or lower in the future.

While futures are particularly common when trading commodities like gold, oil, and wheat – they have since reached the Bitcoin scene. Whether or not you should access Bitcoin futures will depend on your financial goals, understanding of the market, and how much risk you seek to take.

To help clear the mist, this guide will tell you everything you need to know about Bitcoin futures. I’ll explain how this segment of the crypto investment scene works, what potential risks and rewards you need to consider, and how you can get started with a Bitcoin futures trade today.

[Read more…]

Filed under: Cryptoassets, Money & Investing

BlockFi Review 2021 – Do more with your crypto

Published: January 01, 2021Leave a Comment

blockfi

Blockfi is a crypto lending provider that offers two products to investors:

  • BlockFi Interest account
  • Crypto-backed loans

The BlockFi Interest Account (BIA) lets you put your crypto to work and earn monthly interest payments in the asset-type that you deposit with BlockFi.

BlockFi clients using the BIA earn compound interest in crypto, significantly increasing their Bitcoin, Ether, and Gemini Dollar (GUSD) balances over time.

Crypto-backed loans allow you to access liquidity without selling. By using your crypto as collateral, you can unlock up to 50% of the value of your assets in USD. We fund same day through wire or stablecoin.

BlockFi clients use crypto-backed loans to do anything from paying off credit card debt to buying a home. Businesses turn to BlockFi to help them with payroll financing and business expansion. There are many advantages to borrowing instead of selling, including tax benefits.

Blockfi interest account

With BlockFi you can earn up to 8.6% on your crypto. Note that this product is focused on USD, not on any other fiat currency, and while there is no big downside there, it’s worth noting that if you are using a EUR or GBP based stablecoin you will need to convert those coins to a USD stablecoin like USDC or GUSD in order to start earning interest in a BlockFi interest account.

In 2020 alone, BlockFi distributed more than $50 million in monthly interest payments to their clients.

They also announced a game-changing new product: the first-ever Bitcoin Rewards Credit Card. Cardholders are be able to earn 1.5% back in bitcoin on every transaction. It’s an intuitive and easy way for people to access a new asset class, and it’s going to fundamentally change the way credit card rewards work. BlockFi clients have an exclusive opportunity to join the waitlist and be first in line to receive the card. In 2021, this card will be more widely available in the US.

The BlockFi mobile app empowers clients to take the BlockFi platform with them everywhere they go. You can transfer funds using ACH and wire payments, and they’ve added support for a wide range of currencies, including Litecoin (LTC), USD Coin (USDC), Tether (USDT) (USDT is available to non-U.S. clients only), and PAX Gold (PAXG), the first cryptocurrency that lets you directly invest in gold.

BlockFi is also building new bridges with institutions. In 2020, BlockFi became the first crypto company to join Symphony, one of the top collaboration platforms for the world’s leading financial firms, introduced lending on tokenized assets to help investors become more capital-efficient, and partnered with Fidelity Digital Assets to enable clients on Fidelity’s institutional-grade digital assets custody platform to pledge bitcoin as collateral in a transaction.

But what does this all mean for BlockFi and the future of crypto? In a word: inclusion. Every new product, feature, and partnership is intended to bring more people into the crypto community, giving access to a thriving financial market for those who didn’t—or couldn’t—participate in it before. Crypto is a big tent, and BlockFi is inviting the world inside.

One of BlockFi’s core values is “Transparency Builds Trust,” so they strive to teach first-time users (and even savvy investors) about the crypto market to help them understand what they’re investing in. With BlockFi, what you see is what you get. And that’s why everyone who signs up with us is a valued client, not a “customer.”

I’m very excited about the next innovations that are coming from BlockFi, and I regard this platform as one of the very best ways to make money on crypto. If you’re not a trader but you’re happy to hold your cryptos long term, this is one of the best ways to make profits off your cryptos, especially in the case of cryptos like Bitcoin that do not inherently provide any kind of returns for holders.

Visit BlockFi

Filed under: Cryptoassets, Money & Investing

Introducing Multi HODL: Crypto Margin Trading (Made Easy)

Last updated: January 08, 20212 Comments

Youhodler Multi Hodl

Recently, I’ve been discussing the Europe-based FinTech platform YouHodler a lot on here. For readers of those articles, you probably noticed as strange new terms appear frequently.

One of those terms is “Multi HODL” and at first glance, it may not mean much to you but as we peel back the layers behind this tool, you’ll begin to understand why automated margin trading should have a place in every crypto trader’s trading strategy.

So let’s get started, but first, the basics.

[Read more…]

Filed under: Cryptoassets, Money & Investing

Custody Solutions for Bitcoin and Cryptoassets

Last updated: January 08, 20211 Comment

crypto custody

Once you buy Bitcoin, Ethereum, or any other cryptoasset, you’re definitely not done yet. The hard part is what comes next – deciding how to custody your cryptoassets.

The web is full of horror stories of people who got their cryptos stolen, or just misplaced the information necessary to access their holdings.

The challenge of custody remains, in my opinion, one of the biggest impediments to the mainstream adoption of Bitcoin.

On the other hand, several companies have been working on coming up with a solution for the custody challenge. Multisig solutions, in particular, have really taken the forefront in 2020, and I expect more innovations in 2021.

[Read more…]

Filed under: Cryptoassets, Money & Investing

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Jean Galea

Investor. Dad. Global Citizen. Padel Player.

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