Cyprus Crypto Tax

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.

CAPITAL GAINS TAX

Capital gains tax is generally only levied on profits related to real estate located in Cyprus when the alienation is not subject to corporate income tax. It covers taxable activities such as sale, exchange, lease, gift, waiver, right to purchase and any amount of money received in cancelling the disposal. The tax may relate to any cryptographic company operating in Cyprus, as one of the preconditions of a cryptographic 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, where at least 50 per cent of the market value of these shares is in real estate located in Cyprus

Shares listed on any authorized stock exchange are not subject to 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.

Crypto Taxes in Cyprus in 2023

In 2023, Cyprus should retain its status as one of the most attractive crypto jurisdictions as the taxation framework is still considered advantageous and welcoming in spite of several changes to it.

In essence, crypto assets are taxed based on their usage. Crypto trading activities are generally subject to Corporate Income Tax and Special Defence Contributions. Natural persons, in this case, have to pay Personal Income Tax. Any profit sourced from isolated one-off transactions made by companies or individuals is usually subject to Capital Gains Tax.

Corporate Income Tax

In accordance with the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) introduced by the Organization for Economic Cooperation and Development (OECD) and G20, Cyprus is set to increase the Corporate Income Tax rate from 12.5% to 15%. This will, of course, apply to tax residents whose income derived within Cyprus and abroad is subject to taxation. On the other hand, 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 rules of Controlled Foreign Company (CFC) will continue to apply, which means that non-distributed profits of a CFC that’s directly or indirectly controlled by a Cyprus tax resident company may be taxed by the Cypriot tax authority.

Capital Gains Tax

In 2023, the rate of Capital Gains Tax remains at 20% and is imposed on gains from the sale of real estate situated in Cyprus. It’s also applied to shares of companies that aren’t listed on an authorised stock exchange that own real estate in Cyprus. Gains made from the sale of shares listed on authorised stock exchanges, company shareholdings, overseas property, or other assets aren’t taxable.

Value Added Tax (VAT)

The standard VAT rate remains at 19%. In general, financial and investment services are exempt from VAT. Cryptocurrency transactions are again treated as alternative means of payment and are therefore VAT-exempt. However, if other crypto-related transactions between two parties are carried out for the provision of crypto-related services in Cyprus, they’re generally subject to VAT. The monthly threshold for registering as a VAT payer remains 15,600 EUR received for taxable supplies.