Portugal has seen a significant increase in the number of foreign residents, with some estimates showing that the number has increased over 40% in the past decade alone.

And while the country’s mild climate, low cost of living, and growing expat community are all a plus, it’s Portugual’s 0% tax on cryptocurrencies that has made it so popular among foreigners.

At a time when more and more governments have begun to crack down on crypto trading through strict regulation, Portugal has emerged as a utopia for crypto-savvy expats. But it’s not the sprawling surfer community and the year-long mild climate that makes Portugal an increasingly popular destination for the crypto community—it’s the country’s lenient tax law. Or, to be more specific—a lack of one.

Despite rumors and headlines, Portugal has no specific law that deals with taxing cryptocurrencies. Instead, the country uses three official court rulings as precedent to how the Portuguese Tax Authority sees cryptocurrencies and crypto-related activities.

In the official 2016 ruling, the Portuguese Tax Authority concluded that, as a general rule, residents shouldn’t be taxed on the gains they make from the sale of cryptocurrencies. In 2019, the Tax Authority confirmed the precedent from the E.U. Court of Justice, arguing that cryptocurrencies are exempt from value-added tax (VAT) despite being analogous to a “means of payment.”

The only time the sale of cryptocurrencies is actually taxed is if the cryptocurrencies were received as payment for providing goods or services in Portugal.

This has made the Iberian Country an attractive destination to those making a living from trading. Even the legendary “Bitcoin family” has made the leap and will be relocating to its southern part.

Didi Taihuttu, the patriarch of the family that traded their home and most of their possessions for Bitcoin, said that Portugal was too enticing a destination to ignore. Taihuttu also said that his siblings may also make the move to Portugal, joining the thousands of expats that have relocated there in the past couple of years.

“It’s full of expats. It’s just paradise,” said Wout Deley, a Belgian native that made a leap similar to the Taihuttus and sold his Gent home for cryptocurrencies. “Everyone has cryptocurrency here. Everyone knows bitcoin. Everyone has it.”

Deley told CNBC that traders in E.U. countries like Belgium face taxes of close to 40% on crypto trading and that establishing residency in Portugal is a “no brainer” for most. He added that he knows of at least three Bitcoin billionaires living in the southwestern city of Algarve, with another dozen people looking to move to the country in the coming months.

The Taihuttus are also looking to put down roots in Algarve after spending the past five years traveling to more than 40 countries. The family told CNBC that they were looking to build their own “crypto village” along Algarve’s southern coastline and that they’ve narrowed their options to three different plots of land—one as big as 250,000 acres.

All of that space will be used to host a big “decentralized community,” where each square meter of the land will be sold as an NFT. Governance will be left to a DAO, where owners of the NFTs representing the land would vote on how to maintain the community.

And while Taihuttu’s decentralized crypto utopia might sound enchanting, there are still quite a bit of bureaucratic hoops to jump through before one can relocate to Portugal.

The country’s special tax regime for new residents, called the Non-Habitual Resident (NHR) tax regime, exempts individuals from paying taxes on foreign source income, capital gains, dividends, interests, and rental income. To benefit from the NHR, a person must remain in Portugal for more than 183 days in a given year or buy a property with the intention to live in it.

NHR makes Portugal especially attractive for crypto entrepreneurs that have their companies set up in different jurisdictions. An even better tax regime applies to Portuguese citizens that receive foreign income—Katie Ananina, the CEO of Plan B Passport, told CNBC that formally applying for residency offers more stability than the 10-year regime offered by the NHR.

Ananina said that the company has helped hundreds of people obtain a Portuguese passport, working in tandem with Portugal’s citizenship-by-investment program. A $100,000 or $150,000 donation to Portugal’s sustainable growth fund and a few thousand dollars for fees are all it takes to receive the country’s passport.

And while this is especially attractive to Canadians, Australians, and E.U. residents, those coming from the U.S. will have a hard time bypassing taxes.

U.S. citizens are required to pay income taxes to the U.S. government even if they receive the income abroad. This applies to taxes on cryptocurrency trading as well, said Jon Feldhammer, a partner at law firm Baker Botts and a former IRS senior litigator.

“If a taxpayer has a green card, is a U.S. citizen, or is a U.S. resident alien, the taxpayer owes the U.S. tax on any crypto gains they have, no matter where the crypto or the taxpayer is located,” he explained. “It also doesn’t matter if they are dual citizens—if they are U.S. citizens they owe U.S. tax on their worldwide income.”

U.S. citizens that want to expatriate are subject to what Feldhammer calls an “exit tax” and are required to pay a tax equal to what they would pay if they sold all of their property and assets the day before giving up their citizenship.

This has pushed many wealthy crypto ex-pats to relocate to Puerto Rico, where they can benefit from either very low or essentially zero percent tax on capital gains.

The post What’s the deal with Portugal and why is everybody moving there? appeared first on CryptoSlate.

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