Cyprus Crypto Tax

Currently, Cyprus is developing a solid regulatory framework for cryptocurrencies—or rather, according to the definition of Cypriot authorities—for crypto-asset service providers, or CASPs. No crypto-specific tax is introduced at this stage. Instead, crypto companies have to pay the same kind of general taxes as other types of business operating in or from Cyprus.

Cypriot taxes are administered by the Tax Department and the tax year coincides with the calendar year. Annual tax returns have to be submitted electronically. Just like any other company, crypto companies are obliged to follow general auditing standards and prepare audited accounts which tax returns are based on.

Cypriot standard tax rates which crypto companies might be liable for paying:

• Corporate Income Tax (CIT) – 12.5%
• Capital Gains Tax (CGT) – 20%
• Special Defence Contribution (SDC) – 3%
• Value Added Tax (VAT) – 19%
• Social Security Contributions (SSC) – 8.3%
• Stamp Duty (SD) – 0%-0.2%

In most of the cases, tax treatment depends on the type of economic activity to be carried out and on the residency status of the company. A company is regarded as tax resident in Cyprus if it is managed and controlled from Cyprus or is incorporated or registered in Cyprus but managed and controlled from abroad.

Cyprus has more than 65 international agreements on the avoidance of double taxation, which encourages cross-border investments and, therefore, may have a positive impact on the corporate tax structure. Only tax resident companies can utilize this network.

Corporate Income Tax

Profits derived from trading in cryptocurrencies are taxable at the standard corporate income tax rate; however, the qualifying crypto companies are entitled to certain exemptions and deductions available.

If a crypto company is a tax resident in Cyprus, it is liable to pay tax for an income acquired or derived from sources in Cyprus and abroad. Non-resident companies will be taxed on income from their permanent establishment in Cyprus.

All companies are required to make a provisional tax payment which is calculated on the income of the current year, by two equal installments on July 31 and December 31 of the tax year. Final balancing payments must be paid before or at 1 August of the following year based on a self-assessment which corrects the overall amount of the payments according to the real tax return.

CAPITAL GAINS TAX

This tax is usually imposed, connected with real estate situating within Cyprus, only on gains where the alienation is outside the scope of corporate income tax. It covers the following taxable activities: sale, exchange, lease, gift, waiver, right to purchase and any amount of money received in cancelling the disposal. The tax may relate to any crypto company operating in Cyprus, as one of the preconditions of a crypto license is the presence of a fully operational office in Cyprus.

This is usually superimposed on:

• Benefits derived from the disposal of real estate in Cyprus
• Profits from the sale of shares of real estate companies in Cyprus
• Profits from the sale of shares of companies that indirectly own immovable property located in Cyprus, of which at least 50 per cent of the market value of the shares represents real estate located in Cyprus
• Shares listed on any approved stock exchange are also exempt from capital gains tax.

SPECIAL DEFENCE CONTRIBUTION

Special Defence Contributions are levied on income derived by tax residents in Cyprus, whether companies or shareholders. In all cases, it is paid by the company and is imposed on dividends, passive interest, and rental income. Non-tax residents are exempt from the tax.

Rates vary considerably in the case of exemptions:

• Dividends received by a resident shareholder from Cyprus resident and tax non-resident companies: 17%
• Dividends received by Cyprus tax resident company is usually 0%, unless they don’t meet certain conditions.
• Interest income sourced from the ordinary activities of the business, received either by a resident shareholder or a tax resident company – 0%
• Other interest income received either by a resident shareholder or a tax resident company – 30%
• Rental income received either by a resident shareholder or a tax resident company – 3%

Special Contribution for Defence payable on interest and dividends received gross, is payable at the end of the month following the month in which they are received. Tax on rental income is payable every year in six monthly instalments on the 30th of June and on the 31st of December.

VALUE ADDED TAX

According to EU legislation, the provision of services related to the exchange of cryptocurrencies in fiat currencies and vice versa is not subject to VAT. However, as the sale of goods and most services in Cyprus is subject to Cypriot VAT, certain cryptography-related activities are subject to VAT.

Below are outlined the entities which must declare and register VAT payments in cases when all of their activities meet the following criteria:

• Companies whose turnover exceeds the amount of EUR 15,600 for a period of 12 months
• Companies which are expected to exceed this amount in the coming month
• Companies purchasing products from other EU countries for more than EUR 10,251.61 per calendar year
• Companies that are involved in the supply of goods or services within the community, or those in the supply of goods that the recipient is required to account for the VAT by virtue of the reverse charge rules

The companies whose turnover is below 15,600 euros or whose products or services are not liable to VAT but for which the right to deduct the amount of the relevant VAT is given are allowed to register on an optional basis in their turn.

SOCIAL SECURITY CONTRIBUTIONS

The companies of the crypto industry, as employers, have duties including paying social security contributions, which apply to the employee’s gross salary and are accounted for in proportion to the employee’s income. Payments, just like other Cypriot taxes, need to be made in euros, since cryptocurrencies are not considered legal means of payment.

Funds that a company has to contribute to:

Ready to grow your crypto company in Cyprus? Our team of dedicated and quality-focused lawyers here at Regulated United Europe (RUE) will be delighted to provide you with tailored, value-added support in structuring your taxes in accordance with local legislation. We also offer crypto company formation, crypto licensing in Cyprus and financial accounting services. Our team is more than happy to introduce you to all the cyber money regulations of Cyprus. Contact us now to make an appointment for a personal consultation.

Crypto Taxes in Cyprus in 2023

In 2023, Cyprus shall stay one of the most attractive crypto jurisdictions since, after a number of changes, the taxation framework is still considered beneficial and friendly.

Briefly, crypto assets are subject to taxation for the purpose of their use. In general, crypto trading activities give rise to the obligation of Corporate Income Tax and Special Defence Contributions. In this regard, natural persons pay Personal Income Tax. The profit from isolated one-off deals entered into by companies or individuals is usually subject to Capital Gains Tax.

Corporate Income Tax

In this respect, the Cyprus Government, taking into consideration the Inclusive Framework on BEPS of the OECD and G20, decided to increase the Corporate Income Tax rate from 12.5% to 15%. Of course, this would apply to tax residents whose income derived within Cyprus and abroad is subject to taxation. On the contrary, Cypriot tax residents will continue to enjoy tax exemptions on dividends received from other Cyprus tax resident companies, certain profits from foreign exchange, sales of securities and other sorts of income.

In most cases, the provisions of CFC continue to apply, meaning that non-distributed profits of a CFC directly or indirectly controlled by a Cyprus tax resident company may be taxed by the Cypriot tax authority.

Capital Gains Tax

For the year 2023, Capital Gains Tax is imposed at a flat rate of 20% payable on gains derived from the sale of an immovable property situated in Cyprus. Also, it is payable on gains derived from shares of companies that are not listed on a recognized stock exchange that derive their value or the greater part of their value directly or indirectly from immovable property situated in Cyprus. Gains derived from the sale of shares listed on authorized stock exchanges, company shareholdings, or other assets situated abroad are exempt from this tax.

Value Added Tax (VAT)

The standard VAT rate remains at 19%. Generally speaking, financial and investment services are out of the scope of VAT. Again, cryptocurrency transactions are considered alternative means of payment and, therefore, are out of the scope of VAT. However, should there be crypto-related transactions between two parties executed for the provision of crypto-related services in Cyprus, they are generally subject to VAT. The threshold for the obligation to register as a VAT payer for taxpayers whose monthly receipts for taxable supplies is 15,600 EUR.

Personal Income Tax

As is usually the case, tax residents of Cyprus are liable to pay Personal Income Tax on worldwide income accrued. Non-residents are liable to pay this tax only in respect of certain types of income derived in Cyprus. Personal Income Tax rates range from 0% up to 35%, depending on the level of income. If the annual income does not exceed 19,500 EUR, the employee isn’t obliged to pay any taxes.

The following annual income is taxable at the following rates:

Social Security Contributions

As usual, any crypto company has to declare its employment in Cyprus to the Employers’ Register of the Social Insurance Services. It can be made by submitting the form headed “Application for Registration of Employer” to any Social Insurance District Office or Citizen Service Centre.

Both employees and employers will continue to pay 8.3% of the gross salaries to the social insurance fund. Nevertheless, for 2023, the maximum insurable earnings will increase from 1,117 EUR to 1,155 EUR per week and from 4,840 EUR to 5,005 EUR per month. It is also important to note that even though salaries were paid in cryptocurrencies, they are still not legal tender, and all contributions must be paid in local currency.

Special Defence Contribution

By Cyprus tax resident, the Special Defence Contribution is payable, in some cases up to 30%, on income sourced by individuals and companies from specific types of dividends, passive interest, and rental income. The exemption refers to interest income sourced from the ordinary activities of the business and dividends received by tax-resident companies provided a set of conditions are met.

How much and how will I pay for crypto taxes in Cyprus in 2024? Taxation of cryptocurrency gains in Cyprus attracts the focus of both investors and the government in 2024, with cryptocurrencies starting to play an evermore important role in the global economic landscape. Cyprus, with its investment-friendly laws and preferential tax system, will clearly outline a framework regarding how to tax cryptocurrency gains. The following represents detailed information on the process of paying taxes on revenues from cryptocurrencies in Cyprus in 2024.

Basics of Cryptocurrency Taxation in Cyprus

The Cyprus tax authorities classify income from cryptocurrencies, depending on the type of activity to which it relates, and which can be trading, investing, mining, etc. Each one of these activities will qualify differently for taxation.

Capital Gains and Income Tax

As a matter of fact, capital gains accrued in Cyprus upon the sale of securities, including a variety of cryptocurrencies that could be characterized as “securities,” are exempt from taxation. However, it is best to consult a tax professional to determine which type of cryptocurrency applies to this category.

In turn, any income from cryptocurrency transactions, which was not regarded as a sale of securities, would be subject to personal income tax, with rates ranging from 0 to 35 percent, based on the total annual income.

Taxation of companies

Profits derived from activities involving cryptocurrencies are taxed as corporate income at the standard corporate tax rate of 12.5%. Because Cyprus enjoys one of the lowest corporate tax rates within the European Union, it is an attractive jurisdiction for companies issuing cryptocurrencies.

VAT and cryptocurrencies

The European Court of Justice guidelines exempt cryptocurrency transactions from VAT. Therefore, there is no VAT on exchanging cryptocurrency for traditional currencies and vice versa, nor on intermediary services concerning such transactions.

Practical steps for paying the tax

Important aspects

Conclusion

Correct tax payment for cryptocurrency income in Cyprus is to be done with serious documentation and understanding of the local tax law. Because tax legislation is changing all the time, it is recommended to update one’s knowledge and seek help from tax professionals in order to be fully compliant with the laws.

Table with the main tax rates in Cyprus

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.