Cyprus has become an attractive destination for cryptocurrency investments, offering a favorable tax environment and low tax rates, especially for companies. As cryptocurrency usage increases, understanding their tax treatment is essential for compliance with laws and maximizing available tax benefits.

Despite the absence of specialized legislation that directly regulates cryptocurrencies, Cypriot tax authorities provide clear guidance through general provisions and “tax ruling” decisions. This allows investors and businesses to utilize the current tax framework, ensuring compliance and maximizing available advantages.

In this article, we analyze the tax obligations and benefits associated with cryptocurrencies in Cyprus, based on the issued “tax ruling” decisions, offering a clear perspective for both individuals and companies active in this sector.

Cryptocurrency Taxation for Individuals

Cypriot legislation has yet to adopt specific provisions regarding the tax treatment of profits arising from cryptocurrency transactions. Therefore, individuals involved in cryptocurrency transactions are taxed according to general tax provisions, depending on the nature of their activity. Key parameters include:

• Long-Term Cryptocurrency Holding – Capital Activity:

If an individual purchases and holds cryptocurrencies for an extended period, selling them without frequent activity, the profits from these sales are considered capital in nature and are not subject to capital gains tax in Cyprus.

• Frequent Transactions – Trading Activity:

When an individual frequently transacts in cryptocurrencies, and this activity is deemed part of a business activity, the profits from these transactions may be taxed based on Cypriot income tax. Tax rates for income over €19,500 range from 20% to 35%. Note that income from cryptocurrency transactions is added to other income, potentially subjecting it to higher rates.

Cryptocurrency Taxation for Companies

Cypriot companies engaged in cryptocurrency-related business are subject to general corporate tax rules, but taxation varies depending on whether the company actively manages cryptocurrencies or holds them for investment purposes:

• Long-Term Cryptocurrency Holding – Capital Activity:

If a company holds cryptocurrencies as investment assets, profits from the sale of these cryptocurrencies are considered capital gains and are exempt from corporate tax. Additionally, Cyprus does not impose capital gains tax on the sale of movable securities (including cryptocurrencies), making it highly attractive for such investment activities.

• Frequent Transactions – Trading Activity:

Companies engaged in frequent cryptocurrency transactions, leading this activity to be considered trading, are subject to a 12.5% tax on their net profits.

“Tax Ruling” Decisions

Due to the lack of specialized legislation regarding the tax treatment of cryptocurrency transaction profits, taxpayers (individuals or companies) can request and obtain “tax ruling” decisions from the Tax Department to clarify the tax treatment of specific transactions. These decisions are crucial for clarifying the tax treatment of certain transactions, ensuring that taxpayers know their exact obligations and avoid uncertainties.

Tax rulings can be issued through a fast-track process within one month, costing €2,000, or through a slower process that takes two to three months, costing €1,000.

Benefits of Establishing a Company for Cryptocurrency Transactions in Cyprus

For those involved in frequent cryptocurrency transactions, establishing a company in Cyprus offers significant tax advantages:

• Low Corporate Tax:

The corporate tax in Cyprus is just 12.5%, making it one of the most competitive tax destinations for companies dealing in cryptocurrencies.

• Exemption from Capital Gains Tax:

Companies holding cryptocurrencies for investment purposes are exempt from capital gains tax on sales.

• Dividend Benefits:

Dividends paid to shareholders who are Cyprus tax residents and hold Non-Dom status are only subject to a General Healthcare System contribution of 2.65%, capped at €4,770 per year.

Dividends received by non-Cyprus tax resident shareholders are taxed in their tax residency country, with no withholding tax in Cyprus.

Conclusion

Cyprus presents a highly attractive tax environment for those engaged in cryptocurrency transactions, whether as individuals or businesses. The combination of low corporate tax rates, exemption from capital gains tax on investment assets, and favorable dividend taxation makes Cyprus an ideal jurisdiction for cryptocurrency-related activities. Moreover, the ability to secure “tax ruling” decisions provides a clear framework, allowing investors and companies to navigate this emerging sector with confidence.

At Polycarpos Philippou & Associates LLC, we offer tailored guidance and support for individuals and businesses in the cryptocurrency sector. Our team of experts can assist with all aspects of tax compliance and structuring, helping you optimize your tax strategy and maximize the benefits available under Cypriot law. Contact us today to explore how we can support your crypto-related endeavors in Cyprus and ensure your activities are both compliant and tax-efficient.