Cryptocurrency Regulation in Cyprus

The regulatory framework of the Cypriot crypto ecosystem is considered to be harmonized with the crypto legislation in the European Union and has, therefore, focused so far mostly on consumer protection, anti-money laundering, and counter-terrorist financing. These rules go from the registration of cryptocurrency companies up to monitoring activities.

The basic legislation distinguishing cryptocurrencies, and their operations in Cyprus is the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007, the AML/CFT Law), controlled by the Cyprus Securities and Exchange Commission, CySEC. It is responsible for supervising the compliances with the regulations of anti-money laundering and counter-terrorist financing, AML/CFT amongst crypto asset service providers, CASPs, operating in or from Cyprus.

The CySEC also hosts the Innovation Hub, created for the purpose of contributing to the development of the financial ecosystem in Cyprus, providing guidance with regard to regulatory and compliance matters, and providing a channel for the initiation of a dialogue that helps the authorities obtain a better understanding of the concerns and ideas expressed by market participants.

HOW TO OPEN A CRYPTOCURRENCY COMPANY IN CYPRUS

By planning to conduct crypto activity in Cyprus or from Cyprus, it is required to start with the establishment of a company in Cyprus which would provide the opportunity for CASP to apply for the registration of CASP.

The most popular business structure in Cyprus is the Private Limited Liability Company, LLC, which can be established by foreigners.

Every Cypriot company is obliged to pay to the Registrar of Companies an annual fee of 350 euros, which falls due on 30 June of each calendar year.

CASPS REGISTRATION REQUIREMENTS

All CASP wishing to provide services in Cyprus or from Cyprus must be registered with CEEC, prior to the start of operation. An application normally takes six months to be processed.

It shall be required to file a notification with CEEC only to the extent that CASP is established in the EEA or a third country and is registered with one or more relevant national authorities for AML/CFT purposes for all services or activities implemented or planned in Cyprus (i.e. with the participation of residents of Cyprus, including incorporated or unincorporated companies based in Cyprus), providing proof of the successful registration of each service or activity. Where those services or activities are not covered by the framework governing registration for AML/CFT purposes, the application for registration as CASP shall be submitted with SIC.

Requirements for applicant:

• Company incorporated in Cyprus
• Good repute, knowledge, experience and competence of company directors (shareholders)
• At least 4 directors – two to perform the management of business and the remaining two to be independent
• Develop domestic policies and procedures appropriate to the regulatory framework
• Seed capital provision
• The applicant shall provide for a web site owned and operated by it in respect of electronic transactions
• Conflict of interest between the employees and its customers nil evidence
• Management and operation transparent and functional
• Development of systems and procedures for processing data in a secure way and protection against loss and any unauthorized access to information concerning clients in crypto assets
• Development of administrative and accounting procedures along with effective risk assessment procedures

Capital requirements from applicants:

• The initial capital requirement is based on the classification as described above, and the amount ranges from EUR 50,000 to EUR 150,000
• The own funds shall be maintained at the level of the large amount:
  • The required initial capital according to the classification of crypto activities;
  • 25% of the CASP’s fixed expenses during the previous year. This condition will be imposed gradually:
    • 1 January 2022 – 30% of the above-mentioned amount;
    • 1 January 2023 – 60% of the above-mentioned amount;
    • 1 January 2024 – 100% of the above-mentioned amount;

How to Register with the CySEC

First of all, CASPs planning to provide services in or from Cyprus need to submit an application form, covering a range of questionnaires and requirements to attach all relevant documents.

To this effect, the application in hard copy format shall be submitted, along with a USB flash drive, which shall contain one unlocked PDF file with all documents attached to the application, together with a relevant certificate confirming that the content of the USB flash drive is a true copy of the original documents submitted to the CySEC.

The payment of the relevant fees at the accounting department of CySEC at “AIAS” Building, Diagorou Str. 19, 1097 Nicosia, 1st Floor, and submitting the relevant receipt is a prerequisite for the acceptance of the application. This means that all applicants are first expected to go to the accounting department for the purpose of paying the fee and obtaining the receipt. The latter shall be issued to them only when either the application for granting authorisation or a copy of its first page has been presented. This receipt shall entitle them to submit relevant documents to the department located on the ground floor of the same building.

Fees

• 10,000 EUR – application consideration, non-refundable
• 5,000 EUR – annual registration renewal

The annual renewal fee will be exempted for applicants whose license is granted during the first year of registration.

The fees can also be paid by bank transfer; however, the accounting department needs to be notified via email to [email protected] quoting a relevant request of service and attaching along with the first page of the application form together with the proof of the bank transfer. Upon payment, the accounting department will send an email with the receipt.

Applicants should be prepared to provide the following in the application:

• Information about the company, from the denomination to the address of the registered office, up to a clear description of the services the company will provide.
• The capital information, amount, source, and relevant contracts, proving that the CASP legally owned funds.
• The information about beneficiaries should be of good repute and capable of maintaining for the CASP a sound financial structure.
• Information about the company’s board of directors, which must be of impeccable repute and knowledgeable, competent, experienced, and capable of carrying out their mandate-relevant questionnaire, proof of suitability to hold a management position; information on induction and training of the management.
• Organisational and operational information: Initial three-year operations plan, organisational structure and internal procedures proving that the company will act in the best interests of its customers as well as minimise risks of loss or imprudent operations.

A CASP Register application should be accompanied by an extensive list of documents proving that the company complies with the local regulations. The following documents should be attached to the application form:

• Whim, then all corporate documents of the crypto company must be provided, as well as an incorporation certificate, a Certificate of Directors, Shareholders, HQ address, internal operation manual, etc.
• The business plan should be provided, including the marketing strategy and financial or accounting workflows.
• The documentation of internal AML/KYC procedures shall provide customer onboarding workflows.
• Addresses of all crypto asset wallets and public keys managed by the CASP.
• Documentation of data management workflows and procedures.

By the time the authorization is obtained and the company’s name is posted on CySEC’s website, the company should contact, by sending an email to [email protected] referring to “TRS Credentials – company name – authorisation number”, the Information Technology Department in order to be supplied with its credentials for the CySEC Portal for the purpose of electronically submitting information and documents related to the company.

CySEC publishes on its website the open-to-the-public Register, which for every registered CASP includes the following information:

• Registration number, trading name, type of legal entity, and legal entity identifier
• Physical address
• Provided services and/or activities permissible that can be offered and performed by the CASP
• Address of the website of the business

Modification to be granted at a fee ranging between 1,000-5,000 EUR for a registered CASP includes the following:

• Services or activity linked to the provider
• Updates of crypto wallet address
• Details of updating of any board member or any manager
• Updates of beneficiaries
• Updates to the web page of the provider

Crypto regulation in Cyprus overview

Taxation of Companies with Cryptocurrency Activities in Cyprus

All the companies of cryptocurrency activities in Cyprus are obliged to pay taxes as other businesses. They can also claim appropriate tax relief and enjoy more than 65 double taxation agreements between Cyprus and other countries.

The standard corporate income tax rate in Cyprus is 12.5%, among the lowest within the EU. Where a company is a tax resident in Cyprus – either incorporated or registered – all of its local and foreign sourced income will be taxable. The tax is payable provisionally and is based on self-assessment, which may be revised by the taxpayer at any time before 31 December of the relevant tax year. Payments are made twice a year on 31 July and 31 December. The overpaid taxes are refunded, whereas the deficit gives a yearly interest rate of 3.5 per cent.

Resident shareholders and resident Cypriot tax companies also have to pay a special insurance premium. In all cases, it is paid by the company and is collected from dividends, passive interest, and rental income. The rates inclusive of exceptions are as under:

• Dividends received by resident shareholder from resident and non-resident Cypriot companies: 17%
• Dividends received by Cyprus Resident Tax Company is usually at 0% where conditions are not fulfilled
• Interest income from normal business of an enterprise received by either a resident shareholder or a resident tax company: 0%
• Other interest income received by resident shareholder or resident tax company: 30%
• Rental income-less than 25% received by either resident shareholder or tax resident company: 3%

The standard VAT rate in Cyprus amounts to 19% and is set with regard to the sale of products and most services in Cyprus. On the other hand, according to the EU law, the provision of services regarding exchange of cryptocurrencies for traditional currencies and vice-versa is not subject to VAT.

Reporting requirements in Cyprus

Crypto companies operating in or from Cyprus shall prepare their books of account in accordance with the International Financial Reporting Standards. The Managing Directors shall keep transparent and accurate accounting, which will ensure the preparation of financial statements as well as explain and clarify the transactions accordingly.

For example, one should keep the accounting records in the registered office of the company for 6 years from the end of the relevant year and have it prepared for submission to the Tax Office at their request or visit.

These financial statements shall be presented to the shareholders of a company during its annual general meeting, which may first be held within 18 months from the date of the incorporation of a company. In addition, it shall be ensured that such financial statements are audited by an authorized local auditor in compliance with IFRS rules. Auditing of all kinds of companies registered in Cyprus is obligatory, without any references to their size or activities.

Audited accounts are to be filed with the Registrar of Companies within 42 days from the expiration of a period of 42 days after the holding of its annual general meeting, together with an annual declaration.

Non-filing of reports and failure to audit the books amounts to a criminal offence and the managing directors are liable for the same.

The highly qualified lawyers will be more than happy to support you individually in the process of registering with CySEC and obtaining a crypto license in Cyprus. Not only are we well-prepared to guide you through the crypto application process, but we also want to support you in establishing a company in Cyprus, optimally preparing your taxes, and performing accounting services.

ESTABLISH A CRYPTO COMPANY IN CYPRUS

In Cyprus, business cryptocurrency is recognized as a separately regulated area that provides certainty for entrepreneurs and investors and allows for innovation in a favorable environment.

Strong points of the business environment in Cyprus:

• Stable and reliable legal system, correspondingly developed to international standards and trusted by an increasing number of international companies;
• Taxation-friendly environment – for instance, low corporate taxes and related benefits, such as full exemption from tax on dividends accrued abroad, enable optimization of taxes.
• The procedure for company formation is uncomplicated, easy, and not very expensive.
• There is no requirement to provide accommodation for the business owners.
• A secure environment that can offer high-quality professional services to businesses, such as a modern system of banking.
• The accession of Cyprus to the EU enables Cypriot companies to enter one of the largest and most developed markets in the world.
• A possibility to get the Cypriot citizenship and, hence, a status of the EU citizen via investing, for example, in a new company at least 2 million Euros.
• The Cypriot authorities are ready to cooperate with crypto market participants in further improvement of regulation.

Theoretically, all Cypriot companies are mainly ruled by the Companies Act, that is largely based on the English Companies Act 1948. Accordingly, those provisions include the formation and functioning of different company types, as well as their insolvency.

The public registry concerning the Cypriot companies is held by the Cyprus Registrar of Companies. More precisely, this body is in charge with the incorporation of companies, holding the responsibility with regard to access to information on patents, trademarks, and other business issues.

Cyprus crypto companies, or crypto asset service providers, are controlled by the Cyprus Securities and Exchange Commission – whose major mandate is to enforce the provisions against money laundering and terrorist financing – AML/CFT. Authority now treats crypto companies as financial service providers and obliges them to obtain a licence.

The following crypto-events rapidly gain popularity in Cyprus:

• Initial Coin Offers (ICOs)
• Cryptocurrency mining
• Crypto Exchange
• Management and administration of crypto wallets
• Crowdfunding for crypto startups
• Installation and administration of cryptocurrency ATMs

To conduct any of the above economic activities, you first have to select a type of legal business arrangement that suits your business model – volume and scope of activities, governance structure, etc.

Types of Business Entities

There are several business structures from which you can choose depending on your business needs, among them: Private Limited Interest Company (Ltd) and Open Limited Liability Company (Plc). Regardless of the type of legal structure, each Cypriot company shall be obliged to pay the yearly fee of 350 euros to the Cyprus Registrar of Companies before 30 June of each calendar year.

The main advantages of Cyprus limited liability companies:

• No restrictions on nationality of founders (owners) of companies
• Shareholders shall be responsible for obligations of a company only within the limits of their investments
• The company may be partially exempted from corporate income tax if it is not a tax resident in Cyprus

Requirements for Crypto Companies

Legal requirements for any limited liability company planning to operate crypto-activities:

• A unique and compatible company name is a prerequisite and must be approved by the Cyprus Registrar of Companies; i.e., it cannot be offending or imply a connection with the Government
• Registered office in Cyprus [mailbox is not allowed], where authorities can send notifications and notices and where the company documents are stored; registered office address is visible in the public registry
• A fully operational field office, including the recruitment of local staff on a full-time basis
• With the purpose of following the local cryptography rules, every crypto company has to develop relevant internal procedures, mainly regarding AML/CFT before the commencement of economic activities.
• It is also worth developing an effective internal organizational structure that will ensure the transparent and smooth operation of the company.

Basic documents required for the establishment of a limited liability company in Cyprus:

• Memorandum of association
• Articles of association
• Application-HE1 form signed by the Authorized Attorney to the Registry of the District Court
• Declaration of the address of the registered office of the company-HE2 form
• Statement of Director and Secretary-HEZ form
• In the case of online registration – the witness signs
• If you wish to prepare a translation document in order to obtain certified copies of the Charter and Charter in a language other than Greek, a sworn translator’s certified translation is needed within Cyprus
• For a PLC, directors who have consented to act as directors – list – HE5 form

The memorandum of association shall include at least the following information:

• Name of the company
• Objectives of the company
• State that the liability of its members is limited
• The amount of equity with which the company shall be registered and its division into shares
• Information about the founders, their signatures, and the number of shares received
• Signature of witness confirming signatures of founders
• Signature of the lawyer who drafted the memorandum of association

It is also supposed to include, among other internal management principles, the rules controlling the number and method of appointment of directors, has legal responsibility for the management and representation of the company, as well as maintains accounting records and submits company tax returns. It may also contain rules defining the division of responsibilities between directors if there is more than one.

No matter what type of organization you choose to register, its directors may be legal or natural persons, residents or non-residents of Cyprus. You should appoint resident directors if you want to have effective management and control in Cyprus, making the company a tax resident in Cyprus.

Capital requirements vary depending on the specifics of the crypto activities which are classified as follows:

The own funds must be maintained at any time and be at least equal with the greater amount of the following:

• The required initial capital according to the classification of crypto activities
• 25% of the CASP’s fixed expenses during the previous year. This condition is imposed gradually:
  • From 1 January 2022 – 30% of the above-mentioned amount
  • From 1 January 2023 – 60% of the above-mentioned amount
  • From 1 January 2024 – 100% of the above-mentioned amount

All companies limited by shares need to hold a general meeting of the members of the company – a statutory meeting, within a period of 1-3 months starting from the date on which the company is permitted to commence its activities.

Any Cypriot company, regardless of its size and type of activities, has the obligation to submit its financial statements and the directors’ report to an auditor for auditing. The management is responsible for ensuring that all accounting documents are regularly updated and kept at the registered office where they can remain available for the review of the authorities. Such documents should be maintained for at least six years since the end of the relevant financial year.

What to be done

All in all, the formation may take up to a month, and the registration usually takes up to five working days provided that the constituent documents are well prepared. You can open a company by providing a power of attorney that will save your time and effort.

To open a crypto company in Cyprus, the following steps you have to do:

• Apply for reservation of the company name in the Cyprus Registration of Companies: up to three days for approval; effective on reservation for six months;
• Preparation of all the requisite foundation and licensing documents;
• Opening of a corporate bank account;
• Transfer of authorized equity;
• Payment of registration fees: 165 EUR on regular registration, with an additional 100 EUR for accelerated registration.
• Submit the application for registration along with all the required documents to the Registrar of Companies in Cyprus.
• Submit the application for registration as a CASP with CySEC.
• Registration with the Tax Department.

All the CASPs that are willing to offer their services either within Cyprus or from Cyprus have to be registered first with CEEC prior to offering services. The time for the whole application process usually takes six months.

Taxation of Cypriot Crypto Companies

The taxes are collected and administered by the Tax Department, and the tax year coincides with the calendar year. Tax treatment normally depends on the type and purpose of economic activities and on the residency status of a crypto company.

A company is considered a 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. Tax residents are obliged to pay taxes on the income sourced in Cyprus and abroad.

Cypriot companies are obliged to pay the following taxes:

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

If you are going to set up a crypto company in Cyprus, our reliable and energetic team of  Regulated United Europe (RUE) will be glad to advise you on all the details. We give wide consultations on issues of company registration, licensing, and taxation. Besides, we will be more than glad to intervene if you need financial accounting services. We can assure efficiency, confidentiality, and up-to-the-minute attention to all the details that contribute to the success of your business. Contact us to book your personal consultation now.

Crypto Regulation in Cyprus 2023

In 2023, Cyprus largely retains the same national regulatory framework; however, since it operates in step with the EU regulations, its development is directly connected with the EU-wide gradual regulatory changes which in due time will stabilize the cryptocurrency market, fill crypto businesses with more confidence, and, finally accelerate a wide-spread adoption of crypto products and services.

Enhanced EU-wide Crypto-Friendliness and Regulations

In 2022, ESMA released a report on the DLT Pilot regime, the distributed ledger technology pilot regime under the Digital Finance Package introduced by the European Commission in 2020 with the purpose of enhancing the potential of digital finance, thereby reducing the associated risks. The report provided guidance on a number of technical elements and made recommendations on compensatory measures regarding supervisory data. It will be launched as a pilot in March 2023 and is scheduled for review in 2026.

Similar to a regulatory sandbox, the DLT Pilot enables safe experimentation with crypto technologies. It also allows ESMA to assess whether the regulatory technical standards developed under the Markets in Financial Instruments Regulation (MiFIR) related to certain trading transparency and data reporting requirements require new amendments in order to be effectively applied to securities issued, traded, and recorded via distributed ledger technology.

Besides, the EU has been extending cryptocurrency regulations through the adoption of new and clarification of the existing rules applying to European CASPs. In 2022, the Economic and Monetary Affairs Committee adopted the Markets in Crypto-Assets regulation for a vote by the European Parliament and the members of the EU.

The MiCA regulatory framework, in order to prevent market abuse, focuses on avoiding market manipulation, disclosure of insider information, and insider trading. The improvements include better definitions of crypto-related inside information, its surveillance, and enforcement mechanisms. Along with assurance over market stability, MiCA also pays attention to the development and adoption of crypto-related products and services.

The main changes brought about by MiCA:

• Social-Environmental responsibilities: The important CASPs will be obliged to disclose in their business websites the level of their energy consumption and share such data with national authorities; this would mean a step toward the reduction of high levels of carbon footprint of cryptocurrencies.
• It would give EBA the powers to maintain a public register and conduct enhanced AML/CFT checks of non-compliant CASPs, meaning crypto businesses whose parent companies are registered in countries that are classified by the EU either as third countries posing high money laundering risks or as non-cooperative jurisdictions for tax purposes.
• It would be mandatory for stablecoin issuers based in the EU to accumulate a liquid reserve large enough at a ratio of 1:1, partly in the form of deposits that would allow all stablecoin holders to be granted claims anytime and free by the issuer; stablecoins are going to be supervised by the European Banking Authority – EBA.

Cryptocurrency License in Cyprus in 2023

In 2023, the same type of crypto licenses will be issued by the CySEC, as an AML/CFT supervisor of cryptoasset operations to businesses operating in Cyprus:

The license is usually issued within six months from the date of submission of the application. For application, the CASP shall submit such forms as the Application for CASP Registration and for Amendment of CASP Registration and a number of questionnaires related to the company’s management and beneficiaries.

Licensing fees paid to the CySEC include the following:

10,000 EUR – application review (non-refundable)

5,000 EUR – annual renewal of registration, which includes the contribution to the Investor Compensation Fund. Successful applicants are exempt from paying a renewal fee for the first year of their registration.

Key requirements for the applicants remain unchanged:

• A company must be incorporated in Cyprus
• The company’s directors must be fit and proper – experienced, knowledgeable, and with a good reputation
• At least 4 directors, of which two will be responsible for managing the business activities and the rest two independent
• Initial capital: 50,000-150,000 EUR, depending on the class of the license
• Internal AML/CFT policies and procedures that make the business smooth and transparent
• Secure data processing system and procedures in place that will not allow any loss or unauthorized access to the clients’ crypto assets data
• Administrative and accounting workflows, depending on the size and complexities of the business

In order to set up a licensable company in Cyprus as a cryptocurrency in 2023, first identify what form of a legal structure will suit your crypto project best. Still, the most popular type of business structure in Cyprus is an LLC, and foreign nationals can also set it up.

You need to consider that the LLC needs to have a fully operating office in Cyprus, where local personnel would work full-time. This encompasses a secretary and at least one director – the director and secretary can be the same person because this company can be a single-member company. Needless to say, all crypto-related regulatory requirements mentioned above apply in full.

Cryptocurrency Taxes in Cyprus 2023

For the time being, the basic Corporate Income Tax rate is 12.5%, but it will rise to 15%. That’s 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.

The following types of income remain exempt from Corporate Income Tax in 2023:

• All kinds of dividends
• Interest, including interest income derived from the ordinary course of business (in full)
• FX gains, excluding FX gains derived from trading in foreign currencies and related derivatives (in full)
• Capital gain from the disposal of IP rights under the IP regime (in full)
• Profits of a permanent establishment maintained outside Cyprus (in full)
• Gains accrued in the sale of securities (fully)

Key dates for Corporate Income Tax in 2023:

• 1 August 2023 – submission of the temporary tax return – TD.6 form, which is a declaration of a company’s 2023 foreseen chargeable income and a calculated tax liability, and payment of 50% of the payable tax – does not apply to companies who do not anticipate any profits during the year of assessment.
• 31 December 2023 – second and last temporary tax instalment
• 31 December 2023 – revision of the amount without the 10% surcharge for the current year is possible. In such a case, if the advance profit declared is less than 75% of the actual profit earned, interest and surcharge at the rate of 10% will also be payable in addition to the standard rate of the Corporate Income Tax on the amount of tax shortfall.

Personal Income Tax Exemptions

In a bid to attract and retain foreign talent, new Personal Income Tax exemptions for employment income were made available from July 2022. Firstly, 20% of the employee’s remuneration is exempted from income tax for a seven-year period, provided the first employment in Cyprus started on or after the 26th of July 2022, and the employees were not residents of Cyprus for at least three consecutive tax years prior to their employment to which this exemption applies, and were employed outside Cyprus by a non-resident employer. The new law does not require these persons to become Cyprus tax residents to enjoy this benefit of the new 20% exemption. Neither are the employers required to be Cyprus tax residents.

50% of the employee’s remuneration is exempt from the Personal Income Tax for 17 years, provided his first employment in Cyprus started on or after the 1st of January 2022 and his annual remuneration exceeds 55,000 EUR and its employees weren’t residents of Cyprus for at least 10 consecutive years immediately before the commencement of their employment.

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