Cryptocurrencies have become a household asset among younger people worldwide, with as many 51% of investors aged between 18 and 37 saying they’ve traded or owned cryptocurrencies in the past year.
Although digital assets have been around for more than a decade now, governments in Europe have been slow to modernize their tax codes to adapt to the new reality.
As a result, many countries still have no special legislation for regulating cryptocurrency trading, and some local tax authorities have been more than happy to exploit pre-existing law codes to grab an unfair share of the proceeds.
The worst example of this is Denmark. There, profits on each trade are taxed at up to 53%, while losses are deductible up to only 28%. This unfair asymmetrical taxation creates the possibility of being taxed at over 100%.
In more forward-thinking countries like France, the national Treasury Department has taken a more realistic approach. Since investors brought a case before France’s highest administrative court in 2018, taxes on profits now sit around 30% but only when exchanged into Euros or other fiat currencies, which means most crypto activities remain tax-free.
It quickly becomes apparent that tax treatments of cryptocurrencies vary greatly among European jurisdictions and that many ambiguities still need to be clarified.
These vagaries make reporting tax liability a significant source of stress for anyone participating in the development of digital assets. The time it takes to calculate your profits and losses from what is easily thousands of small and large trades across multiple exchanges, plus various bonuses, rewards, swaps, etc., is nothing short of a nightmare.
With all of this pressure on investors, many are fleeing to more welcoming climates where taxes are lower or even non-existing and where governments promote the development of new technology.
Disclaimer: I’m not an accountant or tax lawyer. The information in this article was gathered as part of my personal research, by consulting with different experts, and by talking with people who have done it before. I’m sharing my own thoughts, but you should always ask a professional for individual advice before you proceed.
Most crypto-friendly countries in Europe
After extensive research and reading a lot of legal material, I would say the following are the most crypto-friendly nations for private investors:
- Portugal
- Slovenia
- Switzerland
- Malta
- France
- Germany
There are advantages and disadvantages to each country. While tax incentives are often very appealing, they shouldn’t be the primary reason to emigrate to another country.
That said, I find Portugal the most exciting choice in the medium-term when combined with the NHR regime. However, Switzerland is the better solution long-term due to the absence of capital gains tax.
I hope you will be able to make a more informed decision after reading this long article. You need to consult with a professional before making the final move. Ask challenging questions and make sure they understand both cryptocurrencies, international tax law, and your specific situation.
Portugal
Profits from the sale of cryptocurrencies by individuals have been tax-exempt in Portugal since 2018. The Portuguese Tax Authority has officially stated that the sale of cryptocurrencies is free from capital gains and income taxes and exempt from VAT (see the original rulings on private trading here and about VAT here, in Portuguese). Here is a translation of the conclusion from the 2016 binding information:
“The sale of cryptocurrency is not taxable under the Portuguese tax system, unless it constitutes a professional or business activity” (Conclui-se assim que a venda de cripto-moeda não é tributável face ao ordenamento fiscal português, a não ser que pela sua habitualidade constitua uma atividade profissional ou empresarial do contribuinte).
Private vs professional activity
According to Portuguese tax lawyers, the above statements mean that proceeds obtained from the sale of cryptocurrencies are tax-free for individuals in most cases unless your combined activity with digital assets makes up a for-profit business due to its professional nature or commercial characteristics. Gains made from unsystematic investments, occasional trades, purchases, or sales of virtual currencies are, however, not taxable, regardless of the size of the profits made.
For example, if you bought Bitcoin in February 2018 and sold it in April 2021 for profit, with some sporadic, unsystematic trades in between, this would be tax-free in most cases. However, if your primary source of income stems from day trading cryptocurrencies and forex seven-eight hours a day, operate a crypto-related business, or if you perform another commercial-like activity, then you would most likely be classified as a professional – thus subject to taxation.
Deducting losses
The lax tax system seemingly makes Portugal one of the most crypto-friendly countries in Europe for individuals. Although there are currently no taxes on capital gains from cryptocurrencies, the current system consequently does not provide any relief for capital losses in case assets are sold for less than the price they were purchased for. According to Portuguese tax lawyers, losses from trading cryptocurrencies can therefore not be offset against profits or against taxable income earned in other areas.
Crypto-friendly banks in Portugal
Sooner or later you might want to cash out part of your cryptocurrency stack to rebalance your portfolio or to pay for everyday expenses like rent or utilities. If the lenient Portuguese stand on crypto were to change, it might also not be a bad idea to get some real cash in the bank to avoid the possibility of higher taxation on future gains.
For smaller amounts, there is the option to load up a cryptocurrency debit card for spending directly from your wallet like those from Coinbase, Nuri, or Binance, or to use a virtual bank like N26. These all work from Portugal. However, if you plan on cashing out serious amounts you’ll need to transfer out to a real Portuguese bank account. Satander is often mentioned as the most crypto-friendly bank in Portugal, but other banks like Banco CTT and BBVA will most likely also process transfers from exchanges.
Should you move to Portugal?
Portugal is worth considering for more than just its crypto-friendly stance, white sandy beaches, and low cost of living. If you plan your relocation properly, you may stand to benefit handsomely from Portugal’s Non-Habitual Resident taxation regime (NHR).
Under the NHR, qualifying foreigners who move to Portugal are given very lucrative tax breaks for a period of 10 years. The biggest advantage of the NHR program is that you’re almost completely exempt from taxation on foreign sources of income. This includes foreign source salaries and capital gains generated outside of Portugal, as long as there is a double taxation agreement in place with the foreign country. According to experts, work performed in Portugal but for a foreign company will also be tax free, as it is regarded as a foreign source.
Secondly, income from regular employment at a Portuguse company from professions of high cultural, technical, or economic value will only be subject to 20% income tax during this period. Most business owners (sole proprietors and limited company directors) will fall under this category. Some entrepreneurs find a way around this by setting up a Maltese company to be paid from, but you should be very careful with CFC and effective management rules.
So is Portugal the most crypto friendly country in Europe? With the current rules, I believe so. Combine attractive tax incentives with very low living costs, cheap housing, excellent public healthcare, status as the fourth safest country in the world, beautiful scenery and beaches, EU membership, this makes for a great package. Nevertheless, the lack of a bespoke regulatory crypto regime does bring some uncertainty to the table.
Slovenia
Slovenia, one of the smallest countries in Europe, is another highly attractive destination for private cryptocurrency investors due to its mild tax laws, but also because of its beautiful alpine nature, pleasing climate, and small-town atmosphere. Like their Portuguese counterpart, the Slovenian tax authority, the Financial Administration of Slovenia (FURS), has officially stated that there is no tax on cryptocurrency profits received by individuals, unless it constitutes a business or professional activity.
Unlike these Portugese, however, the Slovenian authorities have published exceptionally clear guidelines in 2017 on the tax treatment and interpretation of cryptocurrencies. If you’re considering moving to Slovenia, I highly encourage you to read this only 21 page detailed explanation in English (Word DOC) from the FURS, as it contains everything you need to know, including several realistic examples of different tax scenarios.
To summarise the current taxation rules in Slovenia: the FURS considers cryptocurrencies movable property, which as per Article 32 of the Slovenian Personal Income Tax Act, also called ZDoh-2, are exempt from tax when disposed of. It is explained in which cases personal income tax is not paid on gains from trading virtual currencies, and in which cases it is considered a business activity, and in which cases income is considered as other taxable income.
To be specific, here is the exact wording used by the FURS:
“Personal income tax is not paid on capital gains from the disposal of virtual currencies that:
- are not considered as capital as per points 2 and 3 of Article 93 of the ZDoh-2 , or
- are considered as derivative financial instruments (except in the case as per point 1 of Article 32 of the ZDoh-2 of the aforementioned gain of an employee),
under the condition that the natural person does not generate such income in connection with a business activity as per Section III.3 of the ZDoh-2.”
Private vs professional activity
So what constitutes a “business activity” according to the Slovenian tax authorities? Here are the general criteria (taken directly from the guidelines):
- a large number of realized orders in one year
- trading for the purpose of generating gain on the basis of exploitation of short-term fluctuations in the prices of virtual currencies in the market (not with for purpose of long-term investment), which is shown in a substantial number of trading days (days when orders are implemented) in one year
- a significant value of realized orders within one year;
- a high average value of a virtual currencies portfolio in one year;
- investments or the use of dedicated equipment and other means for performing an activity, information, knowledge and technologies;
- existence of an organizational structure and division of work among several people for the purpose of achieving a common goal.
Trading is not necessarily considered a business activity only on the basis of the number of realised trades, or only on the basis of a number of trading days if other relevant circumstances speak against it. Consider the following examples, given by the FURS:
1. A natural person invested part of his/her savings in the purchase of virtual currencies. The person traded in virtual currencies actively on a daily and weekly basis, or for a total of 107 trading days, and made 1,020 orders for purchase and sale in one year. The value of transactions carried out on virtual currencies markets in current prices exceeded EUR 1 million; the average portfolio value [(final + start value)/2] in that period amounts to EUR 200,000.
The number of days when the taxable person engaged in trading in one year, the number of realised orders carried out by the taxable person in one year, the value of realised transactions in that period, and the average value of the virtual currencies portfolio show that the generated income can be considered as income from the performance of a business activity. The person generated this income by regular and permanent trading (permanent, active, independent and autonomous operation, focused on acquiring profit or income).
2. A natural person invested EUR 500,000 in crypto tokens in 2017. She/he made 20 orders in ten trading days. After a few months, the natural person sold the purchased crypto tokens and obtained EUR 1,500,000. Sales were made in 10 trading days with 20 orders. This natural person did not make any other purchases and sales of virtual currencies. The person did not invest any funds for acquiring information or knowledge for realising the mentioned transactions.
In this case, the natural person did not perform business activity by trading with crypto tokens, although the value of trades made in trading in crypto tokens in a one year period was considerable (EUR 2,000,000), and the average value of virtual currencies portfolio in a year amounted to EUR 1,000,000. The natural person did not achieve this with a larger number of realised orders, since they carried out the latter only via 40 orders in 20 trading days, meaning that trading was not implemented continuously, but was a single venture. The natural person did not invest funds for acquiring information and knowledge for the realisation of this trade, and implemented purchases and sales independently.
Crypto-friendly banks in Slovenia
The Slovenian savings bank Hranilnica LON has traditionally been friendly to cryptocurrency related activities and even operated a few Bitcoin ATMs in the country for a while. Another option is Unicredit which is the bank used by Bitstamp. Some alternatives include the four largest banks, SKB Banka, Nova Ljubljanska banka, Nova KBM, and Abanka, but their stand on crypto is unclear.
Among the cryptocurrency debit cards available in Slovenia are the Coinbase Card, Nuri, and the Binance Card. The German online bank N26 is also available in Slovenia, but users seem to have mixed experiences with them regarding crypto-related transactions.
Should you move to Slovenia?
Having visited Slovenia several times and made a few local friends there, I would say Slovenia may be worth it for its natural grandeur, rural feeling, clean air, one of the lowest crime rates in Europe, good infrastructure, and crypto friendliness.
Anecdotal pros aside, there appear to be no special tax incentives for workers moving to Slovenia and becoming Slovenian tax residents. Expats are more or less subject to the same progressive income taxation as local Slovenians, which can range up to 50% if you’re a top earner, and foreign source income is for the most part fully taxable in Slovenia.
Local salaries are higher than in Portugal, but much lower than in other parts of Europe. If you work independently or for a foreign company, there are of course geoarbitrage advantages to be had due to the relatively low living costs outside the capital of Ljubljana.
Adding to the plus side, investment income and capital gains are taxed at a 27.5% rate but tax-exempt after a 20 years holding period. Portugal and Slovenia are two very different countries, each with their own benefits and downsides to keep in mind, but in terms of low taxes Portugal stands out as the clear winner.
Read more:
- Cryptocurrency Tax in Slovenia: https://sloveniatimes.com/cryptocurrency-tax-in-slovenia/
- Slovenian Financial Administration on cryptocurrencies: https://www.fu.gov.si/zivljenjski_dogodki_prebivalci/trgujem_z_virtualnimi_valutami/
Switzerland
In Switzerland, capital gains on movable private assets, like securities, are generally tax-exempt. The Swiss Federal Tax Administration (SFTA) has officially stated in a 2019 working paper (PDF; in German) that the acquisition and sale of cryptocurrencies by individuals is also tax-exempt (“steuerfrei”). This means you can invest in traditional equities or cryptocurrencies with no capital tax on the realized profits, as long as they are privately owned and as long as you are not classified as a professional investor.
Here is the relevant paragraph from the SFTA in its original form:
Das Kaufen und Verkaufen von Fremdkapital-Token ist steuerlich den Transaktionen mit herkömmlichen Wertschriften gleichzustellen. Die aus solchen Transaktionen resultierenden Gewinne und Verluste stellen bei natürlichen Personen im Privatvermögen grundsätzlich steuerfreie Kapitalgewinne oder nicht abzugsfähige Kapitalverluste dar.
While there are other countries in Europe with zero capital gains taxes on equities, including Belgium, Luxembourg, and Slovakia, Switzerland is among the few nations to leave its hands off cryptocurrencies (besides Gibraltar).
Wealth taxes
Understanding Swiss taxes is complicated by several factors. Primarily because Switzerland is divided into 26 administrative regions called cantons, and each of these cantons is more or less autonomous in regards to tax laws and interpretations thereof. While capital gain taxes are more or less uniform across cantons, the canton you live in, along with other factors, will affect the rate at which other income is taxed, such as your salary.
Unlike some other countries, there is also a wealth tax in Switzerland which varies from canton to canton. The wealth tax is around 0.3% to 0.5% of the net worth of natural persons, calculated based on the total worth of all your taxable assets after the deduction of any debts. The wealth tax is levied not only on your cash savings, stocks, and real estate, but also on the worth of your cryptocurrencies. Each year, individuals must declare any crypto holdings along with their other assets.
Private vs professional activity
Like in Portugal and Slovenia, tax-exemption for capital gains only applies to individuals whose overall activity is not classifiable as professional or business-like by the Swiss tax authorities, in which gains or losses should be tax-effective.
The Swiss Federal Tax Administration (FTA) has established five safe haven rules for differentiating private from professional investors. If most of these criteria are met, professional trading is excluded. Otherwise, the status must be decided on a case by case basis. These rules originally targeted securities trading, but Lucerne and Zug authorities have stated they will use the same standards for cryptocurrency trading:
- The holding period of the sold securities was at least 6 months.
- The total of the purchase prices and the sales profits of one calendar year do not exceed five times the value of the securities and assets as of the beginning of the tax period.
- The capital gains on securities are not necessary to cover the living costs (this is generally the case if the realized capital gains do not exceed half of the net income in the tax period).
- The investments are either not leveraged or the earnings (e.g. dividends) exceed the pro rata interest on debt.
- The derivatives (especially options) are bought and sold for hedge purposes only.
Source: https://www.taxadvisors.ch/media/6666/TaxBulletin_02_12_english_.pdf
These guiding criteria are used as a rule of thumb by the local tax authorities and shouldn’t be taken lightly. However, it’s difficult to understand the point of view that they should apply to cryptocurrency investors. There are large differences between traditional securities and crypto assets. Particularly extreme volatility, explosive price surges, and the lack of investor protection in the crypto markets force a lot of private investors to manage their portfolio in an active fashion, for example through manual closure of positions or automatic stop losses. Cryptocurrencies can also be sold for other purposes than realising a profit, such as payments in the physical world.
Deducting losses
While there are no capital taxes on the profits from the sale of crypto assets in Switzerland, capital losses sustained from unfortunate investing are not deductible. This means the method of tax-loss harvesting can’t be employed to reduce your overall tax bill or offset against income from other areas.
Crypto-friendly banks in Switzerland
There’s no shortage of banks in Switzerland and a lot of them will accept deposits from cryptocurrency exchanges. The important thing is to keep detailed records of all your transactions, as banks must know where the money comes from.
In general, the attitude of Swiss society is very positive towards cryptocurrencies, especially towards the underlying blockchain technology, and the Swiss government even encourages businesses to set up shop in Switzerland. Employees in the Swiss financial industry also seem to have a much more refined understanding of the subject than their European colleagues. Overall, you will find both banks, government institutions, and the general public view cryptocurrencies in a positive light.
Should you move to Switzerland?
Switzerland is a dividing country. Some say it’s the greatest nation on earth with direct democracy, spectacular nature, entrepreneurial mindset, efficiency, and of course—an attractive tax code. Others paint it as a bureaucratic and boring country where everything is extremely expensive. All in all, it’s fair to describe Switzerland as a great country to live in purely by objective measurements, especially if you work in tech, pharma, finance, or other well-paid professions to meet the high cost of living.
If you’re self-employed with the freedom to work where you want, Portugal wins over Switzerland in my opinion if you can qualify for the NHR tax incentive and use it correctly.
EU/EFTA citizens can easily apply for Swiss residency and relocate to Switzerland without a Swiss visa if they have employment in the country. You can enjoy more or less the same benefits in regards to work and treatment. There are plenty of resources available online to set you on the right path. Swiss statistics office has also reported that around 2.2 million foreigners live in Switzerland, representing a quarter (25.3%) of the population, so you would not be the first to move there.
Read more
- Taxation of Cryptocurrency Block Rewards: Switzerland https://loc.gov/law//help/cryptocurrency/block-rewards/switzerland.php
- Guide to taxes in Switzerland: https://thepoorswiss.com/guide-taxes-switzerland-reduce-taxes/
