Cryptocurrencies are making waves in the global economy, and Portugal has not been left behind. This article explores the emerging trend of buying property with crypto, focusing on the growing interest among investors to purchase real estate in Portugal using cryptocurrency. This surge in interest is primarily due to the country's crypto-friendly environment and attractive conditions for cryptocurrency investments and taxation.
There has been a significant increase in inquiries from foreign nationals who are intrigued by the idea of investing in real estate using cryptocurrencies. The trend took a definitive turn in May 2022 when Portugal recorded its first real estate transaction entirely based on cryptocurrency. This historic event marked a shift in the Portuguese real estate market and highlighted the increasing prominence of cryptocurrencies, which are decentralized digital currencies underpinned by blockchain technology.
Blockchain technology, hailed as one of the most groundbreaking technological innovations since the internet, serves as a global ledger for recording all transactions. It ensures that unlike conventional currencies such as the Euro or Dollar, cryptocurrencies are encrypted and not managed by any central authority. As of now, the market is flooded with more than 5000 distinct virtual currencies, with Bitcoin and Ethereum being the most renowned.
Despite the absence of comprehensive national legislation explicitly dealing with cryptocurrency transactions, Portugal has managed to maintain a crypto-friendly environment. The use and trading of cryptocurrencies in the country are regulated by a combination of various laws and regulations. Notably, despite the lack of explicit regulations, the use of cryptocurrencies is not prohibited. The existing laws fundamentally accept the legality of cryptocurrencies, enabling investors to buy, hold, and sell them without hindrance. In fact, the government has acknowledged the potential of cryptocurrencies as alternative payment methods, particularly for real estate transactions, further endorsing their use within the country's legal framework.
While Portugal is a crypto-friendly nation, conducting cryptocurrency transactions, especially those related to buying real estate, pose significant challenges when it comes to complying with the Anti-Money Laundering Law. To mitigate this, the "ON", Ordem dos Notários (Order of Notaries), issued comprehensive guidelines in April 2022. These instructions equip notaries with the necessary knowledge to facilitate property purchases involving cryptocurrencies. The impact of these guidelines is already apparent, with more than 13 successful property deeds executed via cryptocurrency transactions since their issuance.
Based on the 2022 ON regulation, there are several pathways for buying property with crypto in Portugal, each with its own set of considerations and processes. Understanding these scenarios can greatly facilitate the transaction process and provide insight into the necessary steps involved.
In this initial scenario, you convert your cryptocurrencies into fiat currency (e.g., Euros) before the signing of the property deed. This transaction follows the standard procedures of any traditional real estate transaction. Responsible entities must fulfill their regular duties related to the Anti-Money Laundering Law, particularly in verifying the origin of funds. Keep in mind that capital gain taxes may arise from the sale of the crypto, and you can find more details on this topic in our article on Crypto Tax in Portugal. As is the norm with property purchases, transfer taxes and other fees such as notary, lawyer, and real estate agency fees will be due in fiat currency.
The second scenario involves the direct purchase of property using cryptocurrencies, operating similarly to a standard exchange contract, also known as a "Permuta" contract. Here, cryptocurrencies are directly exchanged for a property. Much like a traditional real estate transaction, a property can be swapped for another property or any other movable asset, such as a car, a boat, or a piece of art. The distinctive feature in this case is that the exchange will be made for cryptocurrencies. Please note that, similar to the first scenario, transfer taxes and other related fees will still need to be paid in fiat currency.
Lastly, the third scenario also involves the purchase of property with cryptocurrencies as part of a typical exchange contract, also known as a "Permuta" contract. However, in this case, the seller receives fiat currency after the transaction, converted at an agreed-upon price. This scenario necessitates the involvement of a regulated crypto exchange entity specializing in real estate transactions, ensuring compliance with AML/CFT regulations. As with the previous scenarios, transfer taxes and other fees will be due in fiat currency.
Understanding these different scenarios provides a solid foundation for making informed decisions when buying property with crypto in Portugal. Each option offers its own advantages, and the right choice will depend on your specific circumstances and preferences. For example, the permuta may be a better option to avoid paying excessive capital gain tax and needs to assessed with our team of experts.
In the case of an exchange, often referred to as a "permuta", where properties are directly swapped for cryptocurrencies, notaries must adhere to stringent reporting requirements. These crypto-based transactions must be reported at least five days before the deed is signed to comply with the Anti-Money Laundering requirements. Such transactions are classified as high-risk businesses, necessitating additional information and communication with competent entities. The required data to be reported includes:
This critical data will be supplied to authorities, especially to the DCIAP (Departamento Central de Investigação e Ação Penal- Central Department for Criminal Investigation and Action) and the Unidade de Informação Financeira (Financial Information Unit), for examination and identification of potential situations related to money laundering.
Furthermore, in scenarios where cryptocurrency transactions exceed two hundred thousand euros, a second communication is mandated after the formalization of the deed. This requirement means that the transaction details must be relayed to the authorities again, reinforcing the rigorous compliance measures in place for buying property with crypto in Portugal.
For those interested in buying or selling real estate using cryptocurrency in Portugal, Elyseeum is your best resource. With a team of crypto experts, lawyers, notaries, accountants, and AML/CFT compliant crypto exchange specialists, we are well-equipped to guide and support you throughout your transaction. Contact us!