Cyprus Crypto Tax - Increases in wallet gains. Are they taxed? How?

(this article covers years up to and including 2025 tax treatment of crypto profits)

The most common question asked by our clients with regards crypto tax is offcourse whether or not increases in the value of their coins are taxed in Cyprus. Initially I thought this was a bizarre question but over the last few weeks it has become apparent that some European Countries do tax the unrealised gains. So what about Cyprus?

Cyprus Crypto Tax: Increases in Wallet Gains - How Are Taxed?

The most common question asked by our clients with regards crypto tax is offcourse whether or not increases in the value of their coins are taxed in Cyprus. Initially I thought this was a bizarre question but over the last few weeks it has become apparent that some European Countries do tax the unrealised gains. So what about Cyprus?

Realised and unrealised gains

Before we go there we must firstly understand what we mean by realised and unrealised gains.

When the price of your bitcoin or other coins increase in value at a specific time in time this is called an unrealised gain; it is a gain but only on paper as it has not been realised which means it has not been converted into something tangible; a real value.

Similarly if your wallet's value decreases on a specific point in time the difference from the purchase price and the price at that point in time is an unrealised loss; a paper loss which would be a real loss if it was converted that day at the lower price.

So realised means converted into something real which, when we are talking about cryptos, means converted to fiat or local currency, let's say USD. 

The only profits that Cyprus taxes are the realised profits. Similarly realised losses can offset future realised gains. To be able to take advantage of this you must keep proper accounting records either as an individual trader (which is not recommended due to the high tax rate, or a Company (which is recommended due to the low tax rate).

The only profits that Cyprus taxes are the realised profits

Example

John bought bitcoin at USD400 and a year later this Bitcoin is worth USD 10,000. John has not sold this Bitcoin. Today this Bitcoin is worth 5,000 and John has decided to converted it to local currency to buy a used car.

How is this transaction taxed?

The fact that John did not sell its bitcoin or convert it to fiat or local currency after a year means that the gain of 9,600 was an unrealised gain which is not taxed in Cyprus. Today however, John has decided to convert the gain of 4,600 (i.e realised gain) and this 4,600 must be included in his personal tax return.

Optimum Tax for Crypto Taxes

How do we get charged minimum taxes?

With the incorporation of a UAE Company (which we can assist you with) or if you feel more comfortab;e with the creation of a Cyprus Company. The difference between the two is the corporation tax as for UAE Companies (at the time of this article & this will change) the tax is zero whilst for Cyprus Companies 12.5%; but with an effective rate of 8%- 10% and no banking issues.

Why 8%-10% effective corporation tax rate?

With the incorporation of a Cyprus company currency profits will be subject to Cyprus Corporation Tax at 12.5%. However after deducting associated company and other coin related expenses the effective rate is usually between 8% – 10%.  The Cyprus income tax office has a "relaxed approach" when it comes to allowing business expenses.

Non Cyprus tax resident persons and Cyprus Tax Resident persons but Non Domiciled (Non Dom) are excluded from any dividend tax which means that the only tax payable for the realised gains on cryptos would be the effective 8% - 10% Cyprus Corporation Tax.

Still not certain

Let us get this in writing for you via a Tax Ruling (an Official Response to your specific enquiries by the Cyprus Income Tax Office).

Our tax team obtains tax rulings for our clients on a frequent basis as this is part of our routine work especially in areas of recent tax changes or ambiguous tax treatment. The tax ruling will be drafted and tailored to your specific circumstances and the income tax office will respond to our application and specific enquiries providing thus clarity on how your trade will be taxed.

Summary

We will summarise below the main conclusions we can derive from this article:

• In Cyprus, Crypto Currency Trading is taxed like any other income stream; whether trading takes place by a person or by a company. 
• Unrealised gains are not taxed; unreleased means the gains have not been converted to a local currency or fiat. 
• The most tax advantageous way to enjoy these profits are:
  • By incorporating a UAE Company which is totally tax free (at present - this will change in coming months) but higher expenses; or 
  • By incorporating a Cyprus company with shareholders that are not Cyprus tax residents or who are Cyprus Tax Residents but non-dom.

Still not clear? Let us get you a tax ruling from the Cyprus Income Tax Office

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.

CYAUSE Audit Services

CYAUSE Audit Services is an Audit & Assurance firm with offices in Nicosia and Limassol in Cyprus, regulated by the UK ICAEW, International ACCA and the Cyprus ICPAC assisting individuals and corporations with their crypto positions. Our firm has extensive knowledge and experience in the taxation of crypto currencies and their statutory audit in our  capacity as tax experts and business advisers. 

Our Partnership with  BKR International  (a USA association ranked number 10 in the world), ACCACE Circle (European Network) and 3E Accounting International, a Hong Kong Network, ensures that we are wired and closely connected in all jurisdictions, getting the latest corporate and tax news ensuring our tax planning is accurate and validated before finalisation. Being part of international networks ensures seamless collaboration with overseas experts and access to fast and accurate information on overseas tax and corporate legislations.

Feel free to contact us at enquiries@cyprusaccountants.com.cy or call us at +357 99 428 543.

Learn More about Cyprus Corporate Environment

Information about CYAUSE Audit Services and the Cyprus Corporate & Tax System can be obtained from our Website and our YouTube channel which provides valuable information about the Corporate & Tax Environment of Cyprus.