Cyprus is currently in the process of building a robust regulatory framework for cryptocurrencies, or, as defined by the Cypriot authorities, for crypto asset service providers (CASPs). However, at this stage, no crypto-specific tax is introduced. Instead, crypto companies are obligated to pay the same general taxes as other types of businesses 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 obligated 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 is dependent on the type of economic activities and the residency status of a company. A company is tax resident in Cyprus if it’s managed and controlled from Cyprus or if it’s incorporated or registered in Cyprus but is managed and controlled from abroad.
Cyprus has over 65 international agreements on the elimination of double taxation, which promotes cross-border investments and thus can positively affect the structure of corporate taxes. Only tax resident companies are able to avail of this network.
Corporate Income Tax
Gains realised from such crypto activities as trading cryptocurrencies are taxed at a standard Corporate Income Tax rate, but qualifying crypto companies might be eligible for certain exemptions and deductions.
If a crypto company is a tax resident in Cyprus, it’s liable for paying the tax on the income sourced in Cyprus and abroad. Non-resident companies are taxed on their income sourced through their permanent establishment in Cyprus.
All companies are required to pay provisional tax on the current year’s income in two equal instalments on the 31st of July and on the 31st of December of the tax year. Final balancing payments have to be settled before or on the 1st of August of the following year on a self-assessment basis which adjusts the total payments according to the actual tax return.
The following income is exempt from the Corporate Income Tax, either entirely or partially:
- Dividends received from other Cyprus tax resident companies
- Interest, except for interest arising from the ordinary activities of the company or from the activities closely related to the ordinary activities of the company
- Profit from foreign exchange, except for profit from foreign exchange arising from trading in foreign currencies and related derivatives
- Profit arising from the sale of securities
- Profit arising from a specific loan restructuring
- Profit of a permanent establishment maintained outside of Cyprus
- Profit from the sale of intellectual property rights under the IP regime
The following expenses incurred to generate income might be entirely or partially deductible:
- Interest incurred for the acquisition of an asset used in the business
- Expenses for scientific research and development
- Employer’s contributions to verified funds on employees’ salaries
- Benefits provided to an employee and/or their family members which the employee has already been taxed on
- Donations to verified charities
- Donations to political parties
Capital Gains Tax
The Capital Gains Tax is generally levied only on gains related to immovable property located in Cyprus when the disposal isn’t subject to the Corporate Income Tax. It covers such taxable activities as sale, exchange, lease, gifting, giving up use of right, granting of right to purchase and any amount of money received during cancellation of disposals. The tax might be relevant to any crypto company operating in Cyprus, since one of the crypto licence prerequisites is having a fully operational office in Cyprus.
Usually it’s imposed on the following gains:
- Gains received from the disposal of immovable property located in Cyprus
- Gains received from the disposal of shares in companies that own immovable property located in Cyprus
- Gains received from the disposal of shares in companies that indirectly own immovable property located in Cyprus when at least 50% of the market value of these shares arises from immovable property located in Cyprus
Shares listed on any authorised stock exchange are excluded from the Capital Gains Tax.
Special Defence Contribution
Special Defence Contributions are levied on income earned by tax residents in Cyprus (companies and shareholders). In all cases it’s paid by the company and is imposed on dividends, passive interest and rental income. Non-tax residents are exempt from the tax.
The rates, including exemptions, vary significantly:
- 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%
The Special Contribution for Defence due on interest and dividends received gross is payable at the end of the month following the month in which they were received. The 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 law, the provision of services involving the exchange of cryptocurrencies into fiat currencies and vice versa isn’t subject to VAT. However, since Cypriot VAT is imposed on the sale of products and most services in Cyprus, certain crypto-related activities might be subject to VAT.
Registering for VAT payments is mandatory for companies meeting one of the following conditions:
- Companies whose turnover exceeds 15,600 EUR during the 12 preceding months
- Companies whose turnover is expected to exceed 15,600 EUR within the next month
- Companies who acquire products from other EU countries for more than 10,251.61 EUR in a calendar year
- Companies engaging in intra-community provision of products or services or provision of products for which the recipient must account for VAT under the reverse-charge rules
Companies with turnover of less than 15,600 EUR or whose products or services are outside the scope of VAT but for which the right to claim the amount of the related input VAT is granted, have the option to register voluntarily.
Social Security Contributions
Crypto companies as employers have such responsibilities as paying Social Security Contributions, which are applied to the employee’s gross salary and calculated in proportion with an employee’s earnings. The contributions, like other Cypriot taxes, must be paid in euros as cryptocurrencies aren’t accepted as a legal tender.
Funds that a company has to contribute to:
- Social insurance fund – 8,3%
- General healthcare system – 2,9%
- Redundancy fund – 1,2%
- Professional training fund – 0,5%
- Social Cohesion Fund – 2%
- Holiday fund – 8%
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 and financial accounting services. Contact us now to book a personalised consultation.