Cryptocurrency Taxation in Cyprus

Due to the lack of crypto specific laws in Cyprus and the EU, there is uncertainty regarding the taxation of cryptocurrency investments and trading in Cyprus, and how such activities are taxed, if at all.

Is Crypto Taxed?

It depends on your activity. Generally, cryptocurrency activities in Cyprus fall into two main categories for tax purposes. Investments are typically not taxed, whereas trading is usually subject to taxation. This approach reflects feedback from the Tax Department and general principles of taxation.

Investment vs. Trading: Cryptocurrency Tax Implications

Tax Treatment for Long-Term Investments

If you purchase cryptocurrencies with the intention of holding them as a long term investment (one-off transaction) then you will not be subject to income tax for any gains you make from this investment. However, this is something you should be able to prove and the tax department will assess whether or not your purchase qualifies as a one-off transaction based on several factors.

Active Trading and Income Taxation in Cyprus

If you're actively trading cryptos, any profits you make will be considered part of your income and subject to income tax. For a more detailed breakdown of income taxes in Cyprus, check out our comprehensive guide on income taxes in Cyprus.

Whether or not the Tax Department considers your activity as trading depends on several factors such as profit seeking motive, number of transactions, interval between purchase and sale and others. So to be considered as actively trading cryptos does not necessarily solely include buying and selling everyday to make a profit off of short-term market fluctuations (day-trading).

It is enough that you make more than one purchase or exchange one coin for another and generally position yourself so that your portfolio grows over time. Since there are no specific laws or guidelines from the tax department in Cyprus that explicitly exempt cryptocurrency trading from income tax, general principles of taxation appear to be applicable.

Tax Rates for Individual Crypto Traders in Cyprus

If you are trading cryptocurrencies as an individual in Cyprus, any profits you gain will be added to your taxable income. These profits will be taxed based on the personal tax rates applicable in Cyprus.

As such, you must declare your annual crypto profits in your tax returns and pay

the applicable tax if you're over the threshold. Make sure to follow our step-by-step guide on how to register, submit your tax returns, and pay the tax to stay compliant.

Social Insurance and GHS Contributions for Crypto Traders

And since profits resulting from crypto trading are to be calculated as part of your income, they'll also be subject to Social Insurance and General Healthcare System (GHS) contributions.

Since trading will be regarded as self-employment income, you will have to pay

16.6% of your income for Social Insurance and 4% for GHS. You can read more on self-employed contributions on our Social Insurance and GHS guide.

Trading as a Company: Tax Benefits and Obligations

Corporate Tax on Profits

If you're not trading as an individual and have incorporated a company under which you perform all your cryptocurrency trading activities then the company will be taxed on 12.5% of the profits. You can read more on our comprehensive corporate tax guide.

Dividend Taxation for Shareholders in Cyprus

As a shareholder, you can receive company profits through dividends, which are exempt from income tax in Cyprus. However, if you are a Cypriot domiciled individual, these dividends are subject to Special Defence Contribution (SDC) at a rate of 17%. You can read more about it on our SCD guide.

If you are a non-domiciled individual, you will not be required to pay any SDC on your dividends. Make sure to read our non-domiciled status blog to check if you're eligible for non-dom status.

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Understanding FOREX Taxation in Cyprus

Tax-Free Gains from Exchange Rate Fluctuations

The law is more clear on the taxation of foreign exchange. Any profit resulting from exchange rate differences due to currency fluctuations is tax-neutral in Cyprus. This means that gains or losses from changes in exchange rates are not subject to income tax.

Distinction Between Passive Holding and Active Trading

This exemption does not apply to profits made from trading currencies. Many people reading information online are confused by this and think that Forex trading is not taxed. This is incorrect.

If you're an active trader and you primarily buy and sell currencies with the aim of making a profit from short-term fluctuations in currency values then your profits will be taxed normally under income tax. The tax rates will be the same as those discussed above, depending on whether you are an individual or a company.

Common Misconception: Capital Gains Tax on Trading

Why Capital Gains Tax Does Not Apply to Crypto or FOREX

A common misconception is that trading profits are subject to capital gains tax. However, this is not the case.

Capital gains tax is only applicable to profits from the sale of property in Cyprus and the sale of shares of Companies who own property in Cyprus, as you can see in our guide on capital gains taxes in Cyprus.

So, if you're trading in cryptocurrencies or in foreign exchange, you do not have to worry about capital gains tax.

How to Know for Sure How Your Crypto or FOREX Activities Will Be Taxed

If you're not sure about how your cryptocurrency or FOREX activity will be taxed in Cyprus, there's an easy way to clear things up. You can request a tax ruling from the Cyprus Tax Department.

What Is a Tax Ruling?

A tax ruling is an official written response from the Cyprus Tax Department that explains how tax laws apply to your specific situation. Essentially, it’s a way to ensure you understand your tax obligations before committing to a financial decision.

For example, if you're not sure whether your crypto transactions count as trading or investment income, a tax ruling can provide an answer that's specific to your situation.

What Does It Cost and How Long Does It Take?

Tax Department Fees:

• Standard tax ruling: Costs €1,000, with a response time of 3–5 months.
• Expedited tax ruling: Costs €2,000, with a guaranteed response within 21 business days.

It's usually a good idea to get professional help to make sure your application is complete and accurate. The fees will depend on how complex your case is.

Why Consider a Tax Ruling?

Tax rulings are especially helpful for things like crypto trading or FOREX transactions, where it’s important to know if your activities count as trading or passive holding. This distinction can make a big difference in your tax obligations. A tax ruling clears up any uncertainty and helps you avoid future disputes with tax authorities.

Need Help Applying?

Thinking about requesting a tax ruling but not sure where to begin? We’ve got you covered. Our team will handle the entire process for you, making sure everything is done right and on time. Contact Us Today to get started!

FAQ: Common Questions About This Topic

Is Cyprus crypto friendly?

Yes, Cyprus is considered crypto-friendly due to its supportive regulatory environment and low corporate tax rates, making it attractive for crypto businesses and investors.

Is non-dom crypto taxed in Cyprus?

No, non-domiciled individuals in Cyprus don’t pay taxes on crypto gains, provided they’re classified as investment income rather than business income.

Will MiCA affect crypto taxation in Cyprus?

No, MiCA focuses on compliance for crypto providers, not tax policy. It will, however, bring stricter rules like AML oversight.

What records do I need to keep for my crypto trading activities in Cyprus?

Keep detailed records of all transactions including purchase dates, sale dates, prices, and the exchanges used. Document the source of funds for purchases and maintain screenshots of significant trades. For tax purposes, you'll need to track both crypto-to-fiat and crypto-to-crypto transactions.

If I mine cryptocurrencies in Cyprus, how is this taxed?

Mining income is generally considered self-employment income and is subject to personal income tax rates, social insurance, and GHS contributions unless you're operating under a company where you pay the corporate tax rate. You can deduct related expenses such as electricity costs and equipment depreciation. Mining rewards are valued at the market price of the cryptocurrency on the day they're received.

What happens if I get paid in cryptocurrency for my work in Cyprus?

Receiving salary or freelance payments in cryptocurrency is treated as regular income. The income should be declared based on the crypto's market value in euros on the date of receipt. You'll need to pay regular income tax, social insurance, and GHS contributions on this income, just as you would with fiat currency payments.

How are NFT (Non-Fungible Token) transactions taxed in Cyprus?

NFT trading follows similar principles to cryptocurrency trading. Regular buying and selling of NFTs is likely to be considered trading income. However, if you're an artist selling your own NFT creations, this might be classified as professional income. One-off purchases of NFTs for personal use or collection may be treated as non-taxable investments.

Do I need to declare my crypto holdings if I'm just holding them without trading?

While holding crypto as a long-term investment isn't taxable, it's advisable to declare significant holdings in your annual tax return under the assets section. This creates transparency and helps establish your position as an investor rather than a trader if questioned by tax authorities.

If I'm a non-resident but trade through a Cyprus-based exchange, do I need to pay Cyprus taxes?

Tax liability depends on your tax residency status, not the location of your exchange. If you're not a Cyprus tax resident and don't manage your trading activities from Cyprus, you generally won't be liable for Cyprus taxes.

How does the tax department determine if I'm a trader rather than an investor?

The tax department considers multiple factors including: Frequency of transactions, Duration of holdings, Size of portfolio and transactions, Pattern of profits and losses and others.