Cyprus as a full member of the EU is indeed a favorable jurisdiction to set up a Company for the purpose of such trading activities including crypto currencies due to its low corporate tax, being 12,5% on gross income annually. Companies can further take advantage of key features of the Income Tax Department if they choose to invest institutionally in cryptos and hold their investments for a period of at least 5 years whilst the company’s main activities are not related to investments. In this case no corporate tax is applied for income stemming out of crypto trading.
The immigration and migration department can offer an interested applicant a tax residence certificate should he chooses to relocate in Cyprus and spend at least 183 days per year on the island. In such an event (and provided that the client does not maintain a dual tax residence) can declare its worldwide assets and income in Cyprus and avoid heavy taxation on his personal tax returns applicable in his country of origin (comparatively to other EU member States as an example or Australia). Foreigners who decide to move their personal tax residency to Cyprus, will automatically be considered as non-domiciled in Cyprus for a maximum of 17 years. For tax purposes, non-domicile persons who become Cypriot tax residents will now be completely exempt from Special Defence Contribution tax (SDC).
SDC generally applies on dividends, interest and rents. As SDC tax does not apply in the case of Cypriot tax resident individuals who are non-domiciled in Cyprus, dividend and interest earned by such persons will now be completely tax exempt in Cyprus. It is noted that the main income of high net worth individuals is generally dividends and interest. Furthermore, irrespective of domicility, foreigners becoming Cypriot tax residents enjoy an array of other significant tax advantages;
It is important to note that all income deriving from crypto trading does not bear Capital Gains Tax and currently it is not taxed while trading between cryptos (crypto to crypto, as it is the case now in the USA which considers crypto as property, hence the point of sale is formulated on a different method). In Cyprus, crypto currencies are tax exempt from deemed dividend tax (on a corporate level) and do not bear any withholding tax or SDC as it is the case with shares and titles and other sources of income generated abroad.
Based on the latest amendment of the 5th AML Directive, Cyprus has also amended Legislation, Law of 2007 (188(I)/2007) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing to inter alia categorize crypto assets as a virtual representation of value not regulated nor guaranteed from a Central Bank or Public Authority and it is not to be considered a fiat currency, e-money or a financial instrument (regulated under CySEC).
While there is no specific legal framework currently in Cyprus for Cryptos, it is not forbidden nor banned. It may not be used to obtain citizenship status or tax residence directly as all payments must be effected in fiat currencies. However companies can freely use cryptos to form a contract with an employee provided there is full acceptance on such volatile payments, however all contributions to the Social Insurances will be made in fiat currency (EUR) on the given salary stated in an employee’s contract.
Crypto holders may choose to open a personal bank account or a corporate bank account to effectuate wire transfers from their e-wallets, however the banking sector (respective guidelines to banking institutions have been issued by the CBC – Cyprus Central Bank) is very skeptical and conservative to accept money related to crypto due to the difficulty to identify the source of funds, therefore one must be aware that a very high level of due diligence and compliance will be implemented in order to be in a positon to wire transfer cryptos in a USD/ EUR savings account in Cyprus.
Last but not least it is worth mentioning that CySEC (Cyprus Secruties and Exchange Commission) has issued a Directive on the 25/06/2021 which allows Service Providers to acquire a CASP license (Crypto assets Service Providers) which will allow them to run a crypto trading exchange platform to deal specifically with crypto currencies and utility tokens (including but not limited to services such as exchange, management, transfer, offering and/or sale of cryptos). Provided that the SP will not be dealing with Straight Through Processing (STP) transactions, then no CIF (Cyprus Investment Firm) license will be additionally required. The Directivce can be accessed here, currently only in Greek.
My personal take on whether cryptos can help the global investment immigration industry is that it could, provided that the stringiest due diligence is upheld to ensure that no corrupted persons or money coming out of illicit activities including money laundering or terrorism financing is used to facilitate the grant of a visa. As cryptocurrencies are getting more and more institutionalized with many big players in the industry such as Paypal, Visa, Tesla etc, accepting cryptos as an alternative tool of payment which can also save additional banking costs due to its decentralized finance philosophy, the regulators should embrace the digitization of payments and become crypto friendly to attract foreign capital, investments with multiple collateral benefits in other industrial sectors.
This article is for informative purpose only and it is not to be taken as a legal advice. For more info, please contact its author, Mr. Paris Hadjipanayis.