Individual Taxation
In Cyprus, cryptocurrencies are generally treated like any other form of income. However, there are exceptions based on the nature and frequency of your transactions:
Non-Trading Activity: If it can be proven that you are not a trader then the dispoal of cryptos will not be subject to tax. This has become very tricky in recent years as the Cyprus income tax office considers all persons keeping cryptos as traders, primarily due to the sophisticated knowledge required to buy them. However as explained below there are some exceptions.
Trading Activity: If you are actively trading cryptocurrencies, either as an individual or an investment company, your profits are taxed similarly to other salary income.
Corporate Taxation
For companies trading in cryptocurrencies, the profits are subject to corporation tax at a rate of 12.5%. Additionally, if you are a Cyprus tax resident, you are also subject to a 17% dividend tax, applicable even if dividends are not withdrawn after two years. However, this does not apply to foreigners or non-domiciled tax resident persons in Cyprus who are not subject to dividend tax.
Deductible Expenses
Companies can offset their cryptocurrency profits with various expenses incurred during trading. Acceptable deductions include office overheads, development costs, marketing, and other general business expenses. Losses from prior years can also be carried forward to offset future gains.
Strategic Tax Planning
Forming a Company
For individuals actively trading cryptocurrencies, forming a company can be the best tax-efficient strategy than trading as persons. Under Cyprus corporation tax, you may end up paying less than under the Pay As You Earn (PAYE) system, which applies to individual salary income. This is because a legal entity (your company) will have to pay corporation tax at 12.5% on its profits (not income) and 0% dividend tax if you are a Cyprus non domicled person or an overseas shareholder of the Cyprus company. If you are Cyprus Tax Resident and Cyprus Tax Domiciled person then you will be subject to dividend tax at 17%. On the other hand, physical persons trading crypto currencies will be subject to the PAYE tax commonly up to 35%.
Long-Term Holdings - Inheritance
To avoid being classified as a trader and thus subjected to higher taxes, individuals can adopt a strategy of long-term holdings. By buying and holding cryptocurrencies for a significant amount of time before selling them, you can potentially avoid trading classification and the associated taxes. This will be scrutinised by the Cyprus income tax office which recently has changed its view on the issue and would consider almost anyone a trader, thus taxing them at personal level up to 35%, unless a person has inherited a portfolio of such assets.
This disctinction requires a high level consultation and please contact us for a virtual meeting to advise you in detail. You can reach us at enquiries@cyprusaccountants.com.cy or book an online consultation by calling us at +357 22 336 321.
Legal Tax Avoidance
There are legal methods to minimize your tax liability. Our experts can guide you through various tax planning strategies to ensure you remain compliant while optimizing your tax obligations. We have developed comprehensive tools and calculators available on our website to help you estimate your tax liabilities based on your cryptocurrency profits.
Resources and Further Information
We have published numerous articles and videos on cryptocurrency taxation and related topics. For more detailed information and specific guidance, please refer to the dedicated page of our website which contains numerous articles and explanatory examples of how cryptos are taxed in Cyprus.
In addition, our tax calculators (click here) can help you understand your potential tax liabilities under different scenarios, whether you are trading as an individual or through a corporate entity.
Conclusion
Understanding the tax implications of cryptocurrency trading in Cyprus is essential for compliance and efficient tax planning. At CYAUSE Audit Services, we are committed to providing you with the clarity and support you need. Should you have any specific questions, feel free to reach out to us: E: enquiries@cyprusaccountants.com.cy T:+ 357 22 336 321
Stay informed, stay compliant, and optimize your tax strategy with our expert guidance. More tax articles can be obtained here.
Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal or tax advice. Please consult with a professional tax advisor for advice on your specific situation.
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