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CySEC licensing, no CGT for individuals, and Cyprus’s fintech hub status
Cyprus is a warm, sunny, friendly country – not least where cryptocurrency is concerned, but it is something of a myth that gains from trading crypto are not taxed. VAT may be exempted and corporate income taxes are the lowest in the EU at 12.5%, but depending on just how much of a trader you are, some tax will apply to crypto trading gains. Against this background, considerable initiatives to regulate the crypto economy are being considered. These include EU Anti-money laundering requirements and the registration of all crypto asset service providers CASPs (more commonly known as VASPs – Virtual Asset Service Providers ) by the Cyprus Securities and Exchange Commissions (CySEC). Cyprus suffers in our ranking from low figures on so many criteria but it does have decent scores for Bitcoin Nodes and numbers of ICOs. Its drop in the ranking mostly reflects other countries rising above it, but more regulation might change this.
Talking of which, prior to the collapse of FTX, which has changed many countries’ opinions of crypto regulations, Cyprus was seeking to make its economy more open to crypto, forging strong links with the country’s financial technology community. Its stated aim was to further embrace crypto whilst also looking to balance any further EU guidance with its own regulatory guidelines.
As regards taxation, there is zero capital gains tax on profit from trading in cryptocurrency – putting it on par with trading in shares or other securities. Capital Gains Tax applies only to fixed assets such as property. Income tax deriving from regular – not casual – trading gets taxed at 12,5%. There are considerable benefits for crypto profits paid as dividends for those with non-domicile status.
Bitcoin trading and taxes in Cyprus
Cyprus has a number of local and overseas brand outlets to spend crypto on products and services.Crypto.com began shipping Visa Cards to Cyprus, making spending crypto seamless.
You won’t be able to reduce your tax by gifting your cryptocurrencies. Whatever gain you have made on it will be taxable up to the point at which you gift it.
Bitcoin trading & crypto law in Cyprus
The Cypriot government pays special attention to the regulation of crypto-assets and has formed an ad hoc working group to develop and implement blockchain technology. The Cyprus Securities and Exchange Commission (“CySec”) has been appointed as the supervising authority over the compliance of Crypto Asset Service Providers with the AML Law. CySec issues directions with its obligations and imposes sanctions in case of a breach. Bitcoin and other cryptocurrencies are not deemed to be foreign currency and achieving a framework that governs crypto and also the adoption of blockchain technology in some form or other is high up the agenda for the Cyprus government. The Cyprus Securities and Exchange Commission looks to act as a platform for crypto entities – regulated and unregulated – to share ideas and business service models between crypto companies with the goal of creating standardized consumer protection.
Positive moves are underway to achieve a comprehensive legal strategy. Currently, there are no prohibitions on crypto trading except for the strong guidance from the Central Bank of Cyprus and The Cyprus Securities and Exchange Commission about the potential high risks of trading – this advice applies to individual investors and to professional investment bodies.
Bitcoin tax in Cyprus
Cryptocurrency tax for Country residents
Income tax can be as high as 35% on earnings and this applies to crypto gains through trading and lending. Forming a company to trade however brings tax down to around 12.5% and expenses are deductible which is why Cyprus has an attraction for such companies from overseas setting up a tax residency.
Tax Relief
Cyprus has a middling income tax rate of 35% on gains from crypto but this reduces greatly for registered companies trading crypto.
Tax when moving residency
Tax breaks are very good for a company located in Cyprus. As an individual, however, moving abroad and relocating your tax affairs abroad means you’ll be eligible to pay the tax of that country.
Tax for Mining
Mining is outside of the scope of most individuals – requiring considerable investment in time and money. A tax of 35% on mining gains will apply but is reduced for a registered company.
Crypto financial services in Cyprus
Fin services/retirement account
No moves to allow or encourage retirement planning in crypto and digital assets are on the horizon.
Fin services/Banking interest
The treatment of cryptocurrency although not prohibited, still faces barriers from commercial banks, under the scrutiny of the Central Bank of Cyprus.
Decentralized Finance is not on the agenda although the blockchain technology behind the rapid interest and growth of crypto is coming within Cyprus’s forthcoming attempts to regulate the industry.
The Crypto Asset Service Providers that offer services either to exchange, sell crypto assets/fiat currencies or act as participants, managers, provisioners of financial services related to the distribution, offering, or selling of crypto assets from or in Cyprus – must be registered in a registry to be kept by CySec. As yet, however, when you deal with a crypto exchange, the responsibility is very much on you to check the exchange and satisfy yourself that it offers some comeback in the form of insurance against hacking or fraud. Many of the established exchanges do have some form of cover. However, as a rule, in Cyprus, the position from the authorities is that you need to be aware that there are no legal obligations for reimbursement of lost or stolen cryptocurrencies.
Transparency
You’ll have to declare your ID when dealing with any recognized or reputable exchange. As regards to tax, you’ll be up for 35% on your gains so record keeping is paramount.
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