In a bid to drive innovation forward and to stimulate the economy, Portugal has recently approved a nation-wide plan to encourage digitalization in several fields. Published on April 21, the “Digital Transitional Action Plan” puts forward multiple ways, in which the Portuguese government will provide infrastructure and incentives for innovation, entrepreneurship and competition, as well as internationalization for enterprises in the country.

Although digitalization is a recurring topic when discussing economic strategies, the COVID-19 pandemic has put the subject in the spotlight as private and public entities alike try to mitigate the economic downfall brought about by the mandated lockdowns. The plan focuses on three main strategies highlighted in a summary by a Portuguese law firm VdA Legal Partners: “Capacity-building and digital inclusion of people, digital transformation of businesses and digitalization of the State.”

Although the plan covers a broad range of strategies for digitalization, the creation of Technological Free Zones (ZLT) has sparked interest within the cryptosphere as Portugal continues to make provisions that incentivize cryptocurrency industry activities in the nation. 

According to Rémy André Ozcan — the CEO of Tozex, a tokenization platform, and the co-founder of the French Blockchain Federation — these initiatives put Portugal on the right track toward being one of the most attractive crypto capitals in the world. In a phone conversation, he told Cointelegraph:

“This initiative is great, and coupled with the tax breaks introduced a few years ago, it makes Portugal a very attractive place to start and manage a cryptocurrency-related business. This is an area where other countries like France can learn from Portugal. The creation of economical areas dedicated to encourage blockchain-based business is a major milestone for Portugal.” 

Indeed, following the tax breaks for cryptocurrency trading and issuance, the Portuguese government is now doubling down on its crypto-friendly position by facilitating research activity for companies using or testing blockchain, among other technologies. Helena Mendonca, a principal consultant at VdA Legal Partners, told Cointelegraph how important these ZLTs can be:

“ZLTs will allow, where possible, the flexibilization of legal and regulatory provisions for purposes of tests (such as experimentation or exemption laws that are test-friendly) or, at least, a mechanism where tests will be assisted and supervised by regulatory authorities (like regulatory sandboxes or innovation hubs). The creation of a framework for tests brings several benefits, as it will facilitate the performance of tests, which in turn, allows a better assessment of the technical and commercial viability of technical solutions.”

What do ZLTs mean for crypto business?

The creation of Technological Free Zones sets a positive tone for companies at the technological forefront of their respective fields, giving clear and practical advantages for companies experimenting with technologies, such as blockchain. These ZLTs create flexible regulatory provisions for testing purposes, include on-site testing in real-life environments, and assistance from regulatory entities with or without special legal and regulatory regimes.

Although these benefits apply to testing, they translate into advantages for companies once they go into financing and production stages. Given the regulatory and financial viability certified by the oversight of regulatory entities during the testing periods in ZLTs, acquiring investment or other forms of positive engagement is made easier. Sanja Kon, the CEO of Portuguese crypto start-up Utrust, told Cointelegraph:

“This type of government-led initiative will certainly incentive companies to ponder the use of blockchain tech. A sandbox and special economic zone will be especially beneficial to blockchain start-ups working in innovative fields involving finance and digital money.”

It’s important to note that the approach taken by the Portuguese government is a cross-sector one, which means that solutions that leverage several technologies do not suffer constraints observed in countries where sector-specific “regulatory sandboxes” were created. According to Mendonca, that’s a very important distinction that shows the level of commitment put on these technologies and on regulation to back it: 

“What is more, the creation of a legal instrument – the backbone law – (instead of only initiatives by regulators, as most countries have done) shows, in clearer terms, the commitment of the Portuguese Government with relation to testing activities, while at the same time is a more stable approach that gives more visibility to the investment made by Portugal in promoting an experimentation environment and culture.”

Initiatives like these help companies and can stimulate the creation of new ventures within the country while placing Portugal on the map for companies that may be facing challenges in other jurisdictions due to a lack of an aligned cross-sector approach for testing when experimenting with novel technologies. 

However, not only can these benefits help guide companies through their testing stages they also present a learning opportunity for ventures that want to stay compliant, even when working with experimental technology. According to Mendonca, the learning process goes both ways, as regulatory entities can also observe these technologies at play first-hand and draw insights from the experience:

“Tests also give essential information for future laws applicable to novel technologies — this is all the more relevant for the fintech sector where the regulation of cryptocurrencies (and an aligned EU approach for crowdfunding) is being discussed: Hence, tests play a central role in the design of risk and outcome-based laws anchored in objective data and society needs.”

Crypto in Portugal

Cointelegraph previously reported on how the Portuguese government had introduced tax breaks for those trading and/or mining cryptocurrencies within the country. 

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

Although further tax breaks are not the focus of the Digital Transition Action Plan, they have an important role to play when it comes to promoting the creation of innovative products or services leveraging these technologies. Mendonca told Cointelegraph:

“Portugal’s tax breaks already available for cryptocurrency traders and miners (prior to the Digital Transition Action Plan and ZLTs) are reliable and credible as they fit into the normal functioning of the European VAT system.”

Although the cryptocurrency scene in Portugal is not as lively as other countries like Malta, where regulation has also been known to be on the friendly side, the government is surely walking in that direction, lifting regulatory and legal constraints that can make or break new ventures, especially when working with such experimental technologies. Nevertheless, there are still some challenges ahead for the small European country. Ozcan told Cointelegraph:

“This initiative will work if those economic zones create a real ecosystem where you can find major SMEs, universities, research centers and public desks. [...] I believe that the development of this industry needs direct communication between entrepreneurs, lawyers, regulators, investors.”