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Like the gold rush of the 1800’s, people are climbing over each other to get a piece of the cryptocurrency market, with Google searches for Bitcoin at an all-time high. Those who got in early have reaped the rewards, and there’s still time for people to get in and turn a profit. Typically, with profit comes taxation, and in the US, crypto appears to be treated as personal property, with capital gains taxes applied. Portugal has taken a far more libertarian approach to taxes on crypto; they aren’t charging any.

Portugal has taken the lead on free-market economics, by declaring the buying and selling cryptocurrencies to be completely tax-free, according to Publico. The tax authority, in answering a question from a taxpayer said that Portuguese law doesn’t have a legal framework to consider taxing incomes made from crypto trade.

2017 was a great year for cryptocurrency with Bitcoin growing over 17.5 times from $1000 at the beginning of the year while Ethereum grew over 100 times. Ripple grew over 119 times from $0.006 on 1 January 2017 to cross the $1 mark in December. Top this off with the flood of ICOs and it’s obvious that positive sentiment is strong, regardless of the recent Bitcoin correction.

For crypto investors who have made staggering profits and others who have bought different digital coins in speculation, the decision by the Portuguese Tax authority couldn’t have come at a better time. The announcement comes when the price of Bitcoin and other cryptocurrencies have fallen amidst fear of bans and regulation in some countries and bad press spreading over the internet. This positive news out of Portugal may very well send the price of Bitcoin skyward again while setting an example for other countries to follow. At a minimum, it provides relief to the residents of this small country.

The results of this decision by Portugal to take a small-government approach to cryptocurrency trading may be predicted by their decriminalization of drugs in 2001.  While countries like the United States were pouring resources into a failing “war on drugs,” taking a hardline approach in the face of increasing deaths and HIV linked drug infections, Portugal went in the opposite direction by decriminalizing the use and possession of cocaine, marijuana, LSD, heroin and other drugs. Five years later, the number of deaths related to street drug overdoses and drug-related HIV infections was slashed by over 70% by 2006. In other words, turning people into “criminals” for victimless crimes does not work. The same can be said for over-taxation. Recently, corporate taxes were reduced and companies like Apple have pledged to reinvest their off-shore funds into the American economy. It’s therefore realistic to assume that in Portugal, people will take their earnings and invest them into the local economy as well.

The Portuguese tax authority said on Wednesday they don’t consider cryptocurrency a currency. Investors however can exchange crypto coins for fiat currency at will. This led to the question of how to treat the gains made from such exchanges. Portugal’s IRS admitted that while the income can be considered an asset increase, capital income, or “category B” professional income, there wasn’t a legal framework to categorize the earnings as income in a taxable category.

The Portuguese tax authority says, “the sale of crypto-currency is not taxable under Portuguese tax law unless by its habituality it makes up a professional or business activity of the taxpayer”. The greatest outcome is that crypto investors will have the freedom to trade without fear, and will be less incentivized to send their money offshore, meaning that their earnings will more likely get spent in Portugal and benefit the local economy.

Flag of Portugal courtesy of Freepik