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No Tax for You: Why Crypto Traders and Miners Might Head to Portugal

No Tax for You: Why Crypto Traders and Miners Might Head to Portugal

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With zero taxes for crypto traders and miners, Portugal could become a Bitcoin tax haven. Cointelegraph takes a deeper look at crypto tax regulation in the country.

Existing outside of the realm of traditional finance and with no central point of authority, digital assets have posed several challenges to governments worldwide. Many nations have struggled with how to define and regulate cryptocurrencies, and there is no uniformity because each country has developed its own unique approach.

Data and transparency seem to be some of the best tools on the road to regulatory certainty and institutional demand. While some countries like the United States and the United Kingdom are taking advantage of this to build a better tax and regulatory framework, others don’t deal with crypto quite as well. India, for example, just recently decided to lift its crypto ban and engage with the sector.

Cryptocurrencies are legal in most countries, with Japan being a shining example of progressive legislation. In 2017, the Japanese government became the first country to recognize Bitcoin (BTC) as a currency and to grant official licenses to exchanges, fostering the growth of what was already one of the biggest Bitcoin markets worldwide.

There are more examples of countries with crypto-friendly regulations and tax policies, but not all pro-crypto countries have developed legal frameworks quite as favorable as Portugal has, especially when it comes to taxing retail traders.

Most countries charge the normal capital gains tax for cryptocurrency profits, such as the U.S. or the U.K., and in many cases filing those taxes can be a nightmare. Florian Wimmer, the CEO and co-founder of Blockpit — a company that offers tax calculation and portfolio tracking for cryptocurrencies — told Cointelegraph:

“In most countries crypto is seen as economic goods, like e.g. property and is taxed after existing regulation for such assets. This means that every single transaction is a taxable event. 

[...] Then there are regulatory differences between certain coins/tokens (especially with securities now) and other ‘special tax events’ like handling hard forks, airdrops, etc. Then you should of course keep track of your assets, and their acquisition time and value, while you move them between your exchange accounts and wallets. I guess you can see where the complexity comes from.”

This is where countries like Portugal have very crypto-friendly laws. Although it’s safe to say that digital assets are still largely misunderstood by regulatory entities and the public, one can speculate that some of these entities in Portugal and other countries are willing to provide a friendly foundation for digital assets to grow. 

Taxes in Portugal before 2017

Although crypto taxes in Portugal may now be seen as friendly, allowing retail traders to benefit from a zero-VAT policy wasn’t always the case. In the past, the outlook on Bitcoin and its taxation and regulation was either uncertain or negative. Back in 2013, Banco de Portugal — the country’s central bank — issued a statement warning users of the risks of crypto trading, given the lack of a central authority and “protection fund for depositors/investors.” The statement read:

“Since there is no central entity that guarantees the irrevocability and definitiveness of payments, Bitcoin cannot be considered a safe currency, given that there is no certainty in its acceptance as a payment method.”

At the end of 2016, the Portuguese Tax and Customs Authority released an official document stating that the trading and selling of cryptocurrencies would be subject to value-added tax, declaring:

“Cryptocurrencies are not technically considered ‘currency.’ [...] However, they can be exchanged with gains, for real currencies (be it euros, dollars, or another), with companies specialized for that effect. […] As so, cryptocurrencies can generate different types of taxable returns.”

In the document, regulators mentioned that winnings obtained through the buying or selling of cryptocurrencies were indeed taxable. At the time, the Ministry of Finance also stated that Bitcoin had no legal framework, but that its earnings were still taxable in the same manner as other tradable assets. However, regulatory entities continued to greatly contradict each other during this time.

In 2017, the uncertainty peaked and getting answers regarding the taxation of crypto was not easy. As mentioned in the Portuguese financial publication Jornal de Negócios, the Tax and Customs Authority stated that yes, all trading in Bitcoin is subject to VAT. However, when asked over the phone, the Ministry of Finance stated that the digital currency was not subject to any taxes at all.

This confusion stems from the fact that the Tax and Customs Authority wanted to tax Bitcoin-related gains despite the lack of any sort of fiscal legislation, which seemed to have created a sort-of-confusing loophole in reporting taxes on cryptocurrencies. 

Portugal and Bitcoin: A bumpy road to friendly taxes

Now, things are looking much clearer for traders and all those dealing with Bitcoin in Portugal. In December 2017, the Ministry of Finance told Dinheiro Vivo, a Portuguese financial news outlet, that retail trades of Bitcoin would not be taxable and that only income or trades resulting from professional activities would be taxed. A ministry official stated:

“The sale of Bitcoins is not taxable under IRS in relation to the Portuguese tax system, namely within the scope of the category E (capitals) or G (gains), except when, due to its habituality, it constitutes a professional or business activity of the taxpayer, in which case it will be taxed in accordance with category B.”

To put it simply, a casual retail trader doesn't need to pay taxes for these trades. However, if you’re a company trading Bitcoin as a service or for yourself, or if you are an individual who earns your income from trading activities, you need to pay taxes. When it comes to salaries being paid in Bitcoin or crypto, these are fully taxed the same as they would be with any other currency. But not all countries make it as easy to receive salaries in crypto, as Igor Samohin, a product manager at PaymentX, told Cointelegraph:

“When you trade securities or any other financial instruments, you pay taxes. I can assume they do it to popularize crypto, and taxes will come later. That’s good of course. [...] Countries that don’t allow pay salaries in Crypto, are afraid that it's not regulated currencies, and they don’t understand that transactions in Bitcoin, for example, are more transparent than fiat payments with bank cards.”

To further cement certainty, the Tax and Customs Authority issued clear guidelines in January 2019 in response to a query regarding Article 68 of its general tax law. Those guidelines provided many answers to common questions related to dealing with Bitcoin. The document sought to answer important questions, such as which documents to fill out in which cases, how to issue cryptocurrency invoices, rules for initial coin offerings, and much more. Jorge Mesquita, the chief operating officer of Universe Coin — a Portugal-based company providing wallet payment terminals — expanded on the matter:

“Currently the Portuguese Securities Market Commission (CMVM) evaluates each ICO individually, and they consider that ‘a commitment from the issuer to adopt actions that result in an expectation of financial return to the investors must be present in the qualification of transferable securities,’ which we abide by, and there are no laws or regulations specifically addressing token sales, so we haven’t run into any problems.”

But this was not the last time the country would enact favorable legislation in regard to cryptocurrencies. Last year, the Tax and Customs Authority released yet another document that cites a previous 2015 ruling by the Court of Justice of the European Union, declaring that cryptocurrency payments and mining rewards will not be subject to VAT.

Portugal: A new crypto scene?

Not taxing Bitcoin can look counterintuitive, as it doesn’t really seem to benefit governments in the short term. But driving the growth of cryptocurrency businesses could be a strong incentive. Many already regard Lisbon as somewhat of a startup and tech hub, with important events like the Web Summit being hosted there. 

This outlook on cryptocurrencies may be a move to get users interested in trading and to generate more Portugal-based trading venues and other enterprises. Taxing these entities may prove to be more fruitful in the future, and according to Mesquita:

“Portugal is a small country in the European Union, considered to be a good testing ground for tech companies, especially startups. [...] Even at a European level, cryptocurrencies aren’t treated as the disruptive innovation they can be and so, Portuguese authorities have stated that cryptocurrency payments are free of VAT, and crypto mining and trading earnings are not subject to income tax, making Portugal an ideal country for crypto users.”

The future of crypto in Portugal

Despite progressive legislation when it comes to taxes, Portugal has yet to establish a specific regulatory framework for cryptocurrencies. The activity of issuing and trading digital currencies is still unregulated and unsupervised by the country’s central bank or any other national or European financial authority. 

The central bank also encourages all credit, payment and electronic currency institutions to refrain from buying, holding or selling cryptocurrencies due to the numerous risks involved. 

Nevertheless, the progressive attitude of the Portuguese government toward retail cryptocurrency trading and miners is making it very attractive for traders and investors. When asked about how the government benefits from these crypto tax breaks, Wimmer said:

“Obviously, they benefit from not having to deal with this complexity themselves too when demanding taxes and controlling people and of course getting people and businesses to relocate to their country and then profit from that in other ways.”

All of the above factors create fertile soil for cryptocurrency infrastructure to blossom, possibly rivaling other pro-crypto countries like Malta. However, the implementation of an appropriate legal framework may still be years away and will depend on how the industry and technology progress in the country.

Guido Santos, the founder and chief technology officer of Genesis Studio — a Portugal-based provider of blockchain-focused consulting, development and integration services — told Cointelegraph: “We're in a country where regulation only moves forward when the technology does.”

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Will China Bail Out Evergrande?

Will China Bail Out Evergrande?

Submitted by Quoth the Raven at QTR’s Fringe Finance,

Markets took a shellacking on Monday as the world sits idly by and waits to see whether Chinese property developer Evergrande’s insolvency and leverage…

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Will China Bail Out Evergrande?

Submitted by Quoth the Raven at QTR's Fringe Finance,

Markets took a shellacking on Monday as the world sits idly by and waits to see whether Chinese property developer Evergrande’s insolvency and leverage come back to haunt the rest of the global financial markets.

The question that is going to drive the markets is whether or not the People’s Bank of China will eventually step in to provide some liquidity.

And while investors are worried that they may not, given the Chinese government’s new hawkish posturing with domestic companies, it is difficult for me to believe that they won’t help ring-fence the potential contagion from a credit event.

US investors are also on edge heading into what is believed to be a hawkish Fed statement on Wednesday, and few investors are considering what the Evergrande situation may actually mean: yet another excuse for US central banks and global central banks to delay or outright cancel a potential taper.

A complete scorched Earth default for Evergrande would be somewhere in the neighborhood of over $300 billion worth of unpaid bills and liabilities. While it’s certainly a sizable tranche of cash, and contagion from a major credit event would definitely ripple through markets, it isn’t going to be an unbearable shock that is going to seize up the entire global financial system. I know this sounds batshit crazy, but $300 billion simply isn’t what it used to be.

For example, the outstanding amount of money in all crypto markets right now is trillions of dollars being shuffled around trading assets that don’t even tangibly exist. I’m one of the few people that have noted that this may be cause for an eventual seizing up of global markets, but I don’t think $300 billion is a death blow.

The market isn’t seeing things my way Monday, but that’s fine: it’s the PBOC’s reaction this week that matters.

Sadly, part of my reasoning for thinking a bailout and/or ring-fencing is coming is simply the new climate (no pun intended) of central banking that we’re in. The pandemic has given central banks carte blanche to implement full-on MMT and saddle their respective nations with significant inflation as standard operating procedure.

The United States, for example, literally just papered over its entire economy for the entire year of 2020 by stacking $4 trillion onto the Fed’s balance sheet. What the hell is $300 billion?

Even if China wants to posture up and make a statement by not bailing out Evergrande, there’s no doubt in my mind it will help contain the contagion. And while China has been notoriously more careful with its Central Bank’s balance sheet and issuance of new money, something like $100 billion or $200 billion in liquidity - an amount that the Fed injects into the bond market in less than a week - isn’t off the table.

Putting aside what will be an obvious moral hazard disaster and one more step in the long-haul to the complete implosion of the entire financial system down the road, Evergrande right now seems like it may just be a blip on the radar and a quick problem that the Chinese central bank can “solve” to bring stability back to market in short order.

I would love your take on the situation.

  1. Do you think Evergrande will be bailed out?

  2. Do you think that if the Chinese government doesn’t build them out, it will still wind up bailing out the industry?

You can join the discussion on my blog "Fringe Finance", for free, by clicking here and scrolling down to the comments. 

Additionally, Zerohedge readers get 10% off an annual subscription to my blog by using this special link here.

Tyler Durden Mon, 09/20/2021 - 17:40

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Zoom Stock: Pandemic-Era Gains Likely to Fade

The post-Covid recovery has been anything but positive for Zoom Video Communications (ZM) stock.  In 2020, investors excited about the enterprise communications platform’s unexpected tailwind aggressively bid up its shares.
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The post Zoom…

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The post-Covid recovery has been anything but positive for Zoom Video Communications (ZM) stock. 

In 2020, investors excited about the enterprise communications platform’s unexpected tailwind aggressively bid up its shares. Trading for around $115 per share pre-outbreak, it peaked at $588.84 per share shortly before COVID-19 vaccines began to obtain Emergency Use Authorization (EUA). Since the start of the vaccine rollout, shares have fallen by more than 52%.

After this decline in price, some may see this as an opportunity to “buy the dip,” ahead of this growth stock making a rebound.

The problem? After seeing mass adoption of its service, revenue growth is slowing down. Even worse, earnings growth is expected to be non-existent in the next fiscal year.

A slowdown in growth could in turn mean a continued move to lower prices. Its forward price-to-earnings, or P/E, ratio of around 57.6x may not be sustainable.

With the high chances it gets knocked down again due to valuation compression, I am bearish on the stock at today’s prices. (See ZM stock charts on TipRanks)

ZM Stock: Growth Story Slowing

As seen from its most recent quarterly results, Zoom Video may be continuing to grow on a year-over-year basis. For its fiscal second quarter (ending July 31, 2021), sales and earnings were up 54% and 65%, respectively, compared to the prior year’s quarter.

Sequentially though, the increase was not as substantial. Compared to the prior quarter (ending April 30, 2021), sales were up just 6.8%. Diluted earnings per share growth (from $0.74 cents to $1.04, or a 40.5% increase) may not have been anything to sneeze at.

Don’t expect this high level of earnings growth to carry on. The sell-side’s average estimate for ZM stock earnings in the current quarter is $1.09 per share. 

Looking further ahead, consensus calls for essentially zero earnings growth in the upcoming fiscal year (ending January 2023). Average estimates for earnings in FY23 come in at $4.85 per share, just a penny above the $4.84 projections for FY22.

Valuation

Admittedly, it could be shortsighted to write off ZM stock based on the analyst estimates mentioned above. Given that the company has consistently beat projections, it may continue to do so, even as its boom times have come and gone.

Then again, better-than-expected results in the quarters ahead may not save the day. Its current multiple of 57.6x could be sustainable if it was still able to grow earnings by 40%-50%, as it’s on track to do this fiscal year compared to last.

However, if earnings growth is falling to a still-solid but less exciting 10%-20% per year? That could mean a drop to a price that gives it a earnings multiple of 30x to 40x, on par with more mature tech companies like Microsoft (MSFT). In other words, a share price between $145.20 and $193.60 per share.

Worse yet, this potential fall in price is assuming that factors like the tapering of the U.S. Federal Reserve’s bond purchase program, and rising bond yields, don’t push overall markets lower.

What Analysts are Saying About ZM Stock

According to TipRanks, ZM stock has a analyst rating consensus of Moderate Buy. Out of 18 analyst ratings, 10 rate it a Buy, eight rate it a Hold, and none rate it a Sell.

The average ZM price target is $375.85 per share, implying around 33.9% upside from today’s prices. Analyst price targets range from a low of $304 per share, to a high of $460 per share.

Something Else

There may be something in the near-term that gives ZM a temporary boost: a termination of its proposed deal to acquire rival Five9 (FIVN) in a $14.7-billion all-stock transaction. 

News of this deal has also contributed to this stock heading lower. Why? Zoom was expected to see earnings dilution following the transaction close. Yet, with shareholder advisor Institutional Shareholder Services recommending that Five9 shareholders vote against the takeover, it may be soon off the table.

Even so, with a larger issue (earnings deceleration) still on the table, investors may find it best to wait for ZM stock to give up more of its pandemic-related gains.

Disclosure: At the time of publication, Thomas Niel did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Zoom Stock: Pandemic-Era Gains Likely to Fade appeared first on TipRanks Financial Blog.

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Chipotle Stock: Valuation Leaves Little Room for Error

Chipotle Mexican Grill (CMG) has seen a significant increase in share price over the past year due to its improving fundamentals. The company owns and operates 2,724 Chipotle restaurants in the United States, 40 international Chipotle restaurants,…

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Chipotle Mexican Grill (CMG) has seen a significant increase in share price over the past year due to its improving fundamentals.

The company owns and operates 2,724 Chipotle restaurants in the United States, 40 international Chipotle restaurants, and four non-Chipotle restaurants. 

In Q2, sales grew 31.2% and margins improved as well. Although the future of the company looks bright, we remain neutral on CMG. (See Chipotle stock charts on TipRanks) 

Industry Analysis, Growth Catalysts 

Pre-pandemic, the global fast food and quick service restaurant market size was valued at $257.19 billion, and was forecasted to grow at a compounded annual growth rate (CAGR) of 5.1% from 2020 to 2027. 

The expected market growth is due to an increasing global preference for fast food among Generations X, Y, and Z, an increase in the number of fast-food restaurants, and technology advancements.

Of course, the pandemic disrupted things in 2020, but the underlying trend remains intact. Advancements, and the increasing adaptation of technology, have made it easier for people to get the meals they want. 

Think of apps like Uber Eats or SkipTheDishes, or curbside pickup options. People value convenience, and will pay for it by eating at restaurants such as Chipotle. 

Speaking of convenience, Chipotle is investing in it through opening more “Chipotlanes,” which are essentially drive-thrus. The good thing about Chipotlanes is that their unit economics are better than regular restaurants. 

Here is what Chipotle’s CFO, Jack Hartung, had to say about Chipotlanes in the most recent earnings call: 

“New Chipotlanes are opening with about 20% higher sales compared to the non-Chipotlanes opened during the same time period. Over the trailing 12 months, Chipotlanes restaurant continues to drive about a 15% higher overall digital sales mix compared to non-Chipotlanes, and it's skewed heavily towards order ahead, our highest margin transaction.” 

Chipotle anticipates that adding Chipotlanes will improve the company’s returns on capital. This makes sense because as mentioned in the quote above, Chipotlanes generate higher margin revenue, which should give a boost to overall margins going forward. Management also expects margins to increase in the long-term. 

Besides Chipotlanes, Chipotle opened a digital kitchen location in 2020 that offers only pickup and delivery. If CMG finds that it is worth it to add more of these locations, then it can be another growth catalyst going forward. 

With the opening of new locations and an expected increase in average unit volume (from $2.41M to $3M), CMG’s revenue is forecasted by analysts to increase by 25.7% in 2021, and 13.9% in 2022. 

Main Risks 

CMG’s stock is currently near all-time highs. It's up 42.8% year-to-date and 58.2% in the past year, versus 17.8% year-to-date and 27.8% in the past year for the S&P 500.

A lot of optimism could currently be priced into the stock, as one might be able to tell from the stock’s runup, 71.4x EV/FCF multiple, and 8.2x EV/Sales multiple, which is the highest this multiple has ever been with data going back to 2006. 

The high optimism leaves little room for error, and makes the stock vulnerable to large price drops on any disappointing news. 

As well, particularly from 2015-18, CMG had been involved in many food illness outbreaks which hurt the company’s reputation and financial performance.

If you are a Chipotle investor, keep in mind that another outbreak can happen at any time, and if it gathers lots of media attention, then it will certainly hurt the stock price. Nonetheless, this doesn’t seem to be a problem for now.  

Wall Street’s Take 

Turning to Wall Street, 23 analysts offered 12-month price targets for Chipotle in the last three months. Chipotle has a Moderate Buy consensus rating, based on 16 Buys and seven Holds. 

The average CMG price target is $1,913.45, with a high forecast of $2,600 and a low forecast of $1,600. The average price target represents 1% upside from current levels.

Final Thoughts 

Chipotle can continue to execute going forward, but the risk/reward is not great, as the stock is near all-time highs, and has an extended valuation.  

Disclosure: At the time of publication, Stock Bros Research did not have a position in any of the securities mentioned in this article.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Chipotle Stock: Valuation Leaves Little Room for Error appeared first on TipRanks Financial Blog.

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