Ole, a Scandinavian VC, moved to the Portuguese coast in 2020 as the pandemic broke out. Like many expats, he was lured by the warm climate, serene political environment and reasonably low prices. But, as good as the weather can get in the south, there was another incentive at play for this crypto investor: taxes. Or rather, the lack of them.
But the good times could soon be over for Ole and other crypto investors like him. Portugal’s finance ministry is reportedly preparing a new draft law that would put an end to the crypto tax haven, to be presented with the next budget in October.
What will the crypto millionaires do now? And what would that move mean for the country’s budding startup scene?
The allure of Portugal
Both Ole, 56, and Andrey, a 30-something eastern European founder Sifted interviews, are now residents of Portugal. Both refuse to give their real names for this article — and both initially tell Sifted that taxes weren’t their main motivation to move to, and stay in, Portugal.
But as our conversations roll on they express their indignation at the possibility of seeing those tax benefits evaporate. Particularly — both say — when they contributed so much to bring qualified professionals to the country, further fertilising an already quite dynamic startup ecosystem.
In the Lisbon suburb of Cascais, over a glass of white wine, Ole tells Sifted that safety, cost of living, weather and “seriously nice people” were the reasons that prompted him to start looking for properties in Portugal two years ago after working more than three decades in trading — and more recently in crypto.
He heard “that a lot of French, a lot of Germans” were moving to the country for the same reasons — and taxes were important to them. “You have to have respect for other people's money," he says. "If you tax them too high, you'd lose them. Why do it?"
If Portugal starts taxing crypto transactions Ole thinks many of his crypto acquaintances will "simply look for a new place”. Greener pastures might be Malta, which has shown so far no interest in taxing crypto assets in any way.
"People who come here spend a lot of money, and it means businesses go well. They may create jobs," Ole said. “Taxing wealth is a bad idea.”
If taxes are raised and people move away, companies might close and investments might be reconsidered or outright pulled, he added.
Portugal has experienced something similar before. When tax benefits for startups headquartered in inland Portugal were abolished in 2012 — when the country was dealing with the harsh conditions of a financial bailout — companies and jobs were destroyed, according to a recent study. If a lower corporate tax rate had been implemented instead, almost 30,000 new companies and more than 220,000 new jobs could’ve been created, the study found.
Rui Serapicos, president of the Portuguese Blockchain Alliance, tells Sifted that the Portuguese government’s crypto law must be “crypto friendly but with an intelligent fiscal incidence on crypto activity”.
Prudence is essential to avoid spooking some of the most valuable individuals among Portugal’s 300k investors in cryptocurrency, and to protect the viability of over 30 Web3 startups already in operation in Portugal, according to his estimates.
If a law taxing crypto is approved in the Parliament, “the cryptomillionaires living in the country will have to make a cost-benefit analysis”, he said — and a new tax-free jurisdiction might very well seem worth moving to.
The dawn of a crypto hotspot?
Crypto transactions to and from Portuguese accounts amounted to €27bn in the year to June 30 2021, according to Chainalysis data. And in 2021 alone, investors headquartered in Portugal realised cryptocurrency gains amounting to €1.3bn, according to Chainalysis’s estimates, above countries such as Belgium, Austria and Norway.
Investment in startups also more than trebled from €345m in 2020 to €1.1bn in 2021. In the first five months of 2022, Portuguese startups had already raised €1.1bn, of which at least 71% came from abroad, according to Dealroom data.
Andrey, whose company offers services for crypto exchanges, tells Sifted that Portugal did “nothing” to become such a crypto hub in Europe, “and that worked quite well during the pandemic”.
He reckons that if the Portuguese government kept doing nothing, the country could “rapidly become a major crypto hotspot in the world”.
“But I am really concerned right now,” he said. “All of the foreigners that are coming to Portugal with crypto backgrounds are seeking NHR status” — the non-habitual resident tax regime which offers a fixed 20% tax rate on salaries and professional income, for a period of 10 consecutive years, to all foreigners who decide to establish themselves in the country — and crypto’s current free lunch. “Once you remove one of these [it’s] going to damage heavily the country’s current situation” — and future prospects concerning foreign investment, he thinks.
Tax breaks “not sustainable”
Violetta Chekan, founder of the Vis Caeli startup studio, which is focused on Web3 startups founded by entrepreneurs from post-Soviet countries, thinks these kinds of tax breaks are not actually such a big deal.
She moved to Porto from Belarus a decade ago, and is now a resident. “I know many investors who moved to Portugal, but I would not say taxes were the main incentive — although they’re definitely an advantage,” she says.
“The investors I know moved and stayed because of a combination of things that Portugal offers: great weather, friendly people who speak English, a comfortable time zone for business, safety, surfing possibilities — and because it is an EU country with European legal and cultural values.”
“I don't believe it is sustainable to give such tax benefits for a limited time,” she adds; instead, she thinks the country needs “a better legal and tax system”, and limits on income tax and social security contributions so local and foreign talent can be paid higher salaries. “Either you transform the country to a more competitive business environment at the international level or it just runs in a cycle — people come and go.”