Crypto Trading Taxation in Cyprus: Corporate vs. Personal Trading

Cyprus has emerged as a favourable destination for cryptocurrency enthusiasts and businesses due to its strategic location, advantageous tax regime, and business-friendly environment. With the increasing adoption of cryptocurrencies in both personal and corporate transactions, it is essential to understand the tax implications of crypto trading in Cyprus. In this article, we will explore the tax treatment of cryptocurrency trading for both companies and individuals, providing clarity on how profits from crypto activities are taxed.

Corporate Crypto Tax in Cyprus

For companies, the tax treatment of cryptocurrency trading in Cyprus is relatively straightforward and follows the same principles as any other form of taxable income. Here’s a detailed breakdown:

  1. Corporation Tax (12.5%)
    Crypto trading profits made by Cyprus-registered companies are subject to Corporation Tax at the rate of 12.5%. Whether the company is trading in cryptocurrencies directly or using financial instruments with cryptocurrencies as their underlying assets, the profits will be taxed like any other form of business income.
  2. Treatment of Exchange Gains and Losses
    Any exchange gains or losses resulting from cryptocurrency transactions are considered tax neutral. This means that gains are not subject to taxation, and losses cannot be used to offset other forms of income. However, cryptocurrency trading losses can be carried forward for up to five years, allowing companies to offset these losses against future profits.
  3. Deemed Dividend Distribution
    Cyprus tax law stipulates that undistributed profits retained in the company (including those from cryptocurrency trading) are subject to Deemed Dividend Distribution (DDD) rules. Cyprus resident shareholders are required to pay 17% Special Contribution for Defence (SDC) on such profits. However, non-domiciled shareholders and non-Cyprus tax residents are exempt from DDD.
  4. Realised vs. Unrealised Gains
    Only realised gains from cryptocurrency transactions are taxed in Cyprus. If the company holds cryptocurrency whose value increases but has not yet sold or converted it into fiat currency, these unrealised gains are not taxed. Once the crypto assets are sold or converted into fiat, the profits are considered realised and subject to taxation.

Personal Crypto Taxation in Cyprus

Taxation for individuals trading cryptocurrencies in Cyprus is slightly more complex, largely depending on whether the activity is classified as trading or investment. Below is a breakdown of the tax treatment for individuals.

  • Trading vs. Investment: Determining the Nature of the Activity
    The Cyprus Income Tax Office (ITO) uses a “badges of trade” test to assess whether an individual’s cryptocurrency activities constitute trading (and therefore taxable) or investment (potentially non-taxable). The main factors in determining this are:

    • Profit-seeking motive
    • Frequency of transactions
    • Nature of the assets involved
    • Changes made to the asset (e.g., conversions to other tokens or coins)
    • The way the sale was carried out and the time interval between purchase and sale

    If the activity is determined to be a trading activity, the individual’s profits will be subject to Personal Income Tax (PAYE).

  • PAYE Tax for Crypto Trading
    For individuals classified as engaging in trading activities, their cryptocurrency profits are added to their other income (e.g., salary) and taxed at the following progressive rates:

    • 20% for income over €19,500
    • 25% for income over €28,000
    • 30% for income over €36,300
    • 35% for income over €60,000

    The tax office will look at the number of transactions, the nature of the asset, and other factors when deciding if the individual is conducting a business-like trading activity.

  • Capital Gains and One-Off Transactions

    If an individual can argue that their cryptocurrency transactions are capital in nature—i.e., a one-off sale rather than regular trading—then any profits may be tax-free. This would apply in scenarios where the individual made a single acquisition of crypto assets and later disposed of them without conducting regular buying and selling.This interpretation is supported by the absence of a specific capital gains tax on cryptocurrencies in Cyprus.

  • Realised vs. Unrealised Gains

    Similar to companies, unrealised gains (i.e., increases in the value of cryptocurrency without conversion to fiat) are not taxed. For example, if an individual holds Bitcoin that has appreciated in value but has not yet sold it, the gain is not taxed. Once the individual sells or converts the cryptocurrency into fiat, the profit becomes a realised gain and is subject to taxation as income if classified as trading.

  • Tax Advantages for Non-Domiciled Persons

    Individuals who are Cyprus tax residents but classified as non-domiciled (non-dom) can enjoy significant tax benefits. Non-doms are exempt from the Special Contribution for Defence (SDC) tax on dividends, rental income, and interest. Therefore, non-domiciled individuals engaging in cryptocurrency trading through a Cyprus company will not be taxed on dividends received from the company’s profits.

Optimising Crypto Taxation

While crypto trading is taxable in Cyprus, there are ways to optimise the tax structure to reduce the tax burden:

  • Incorporation of a Cyprus Company
    Many individuals engaging in regular crypto trading may find it beneficial to register a Cyprus company to conduct their trading activities. As mentioned earlier, corporate tax rates (12.5%, with effective rates of 8%-10%) are much lower than personal income tax rates (up to 35%).
  • Offshore Structures
    Alternatively, some individuals consider incorporating offshore companies in jurisdictions such as Belize, which offer low corporate tax on trading profits. However, any income repatriated to Cyprus may still be subject to local taxes, depending on the individual’s tax residency.
  • Obtaining a Tax Ruling
    Due to the complexities surrounding crypto taxation, individuals and companies involved in cryptocurrency activities in Cyprus may benefit from obtaining a tax ruling from the Cyprus Income Tax Office. A tax ruling provides certainty on how specific transactions or activities will be taxed and can help avoid any future disputes with the tax authorities.

Conclusion

Cryptocurrency trading in Cyprus is treated like any other form of taxable income, whether conducted by individuals or companies. While companies benefit from a low corporate tax rate of 12.5%, individuals engaging in regular crypto trading may face high personal income tax rates unless their activities can be classified as capital gains, which are currently not taxed. For optimal tax planning, both companies and individuals should consider the possibility of obtaining a tax ruling from the Cyprus tax authorities or structuring their activities through a Cyprus company to take advantage of lower corporate tax rates.

In any case, careful tax planning and compliance with the guidelines provided by the Cyprus Income Tax Office are essential for minimising tax liabilities while engaging in cryptocurrency trading.