Cyprus has made a reputation for itself in the world of crypto as a tax haven. Unlike other European countries that have begun to impose strict crypto regulations, Cyprus has maintained welcoming policies towards crypto exchanges and ICOs. At present, in Cyprus there are many avenues that exist for tax-free crypto transactions. 

That said, not all earnings made in crypto are exempt from taxation. As a result, it can be difficult to determine when a transaction qualifies as a taxable event. 

For organizations issuing crypto payroll and contractors receiving compensation in crypto, it is crucial to understand when taxes are owed on crypto and which tax bracket they fall under.

Cyprus’ History of Crypto Regulation 

In February of 2021 Cyprus put into effect its first law that recognized virtual assets and established a definition for them. 

The law is part of a larger regulatory framework that targets money laundering and counter-terrorist financing. Within it, virtual assets, or “Crypto Assets”, are defined as a type of digital value representation that lacks issuance or guarantee from any central bank or public authority.

Overseeing crypto-specific legislation is CySec, a supervising body ensuring that crypto operations within Cyprus comply with regulatory framework.  As was announced in CySec’s official statement in 2021: “If you are a Crypto Asset Services Provider (“CASP”), within the meaning of the Prevention and Suppression of Money Laundering and Terrorist Financing Law (“AML/CFT Law”), that provides services in or from Cyprus, you must formally register with the Cyprus Securities and Exchange Commission (“CySEC”).”

Is Crypto Tax Free in Cyprus 

Due to the ambiguity of crypto tax laws in Cyprus it is generally considered to be a crypto-friendly jurisdiction. 

One of the main features that sets Cyprus apart when it comes to the taxation of virtual assets is that Capital Gains Taxes only affect immovable property. This means that any earnings on crypto that would otherwise be considered capital gains are exempt from the Cyprus Capital Gains Tax. 

For individuals buying, selling and trading crypto as a side investment, on the whole gains from these transactions are not liable to taxation 

Additionally, crypto is VAT exempt due to its status as an alternative means of payment rather than a government issued or maintained currency.

How is Cryptocurrency Taxed in Cyprus

Taxation of an individual or organization’s crypto earnings will range depending on the nature of the transactions executed throughout the year. 

For an individual or company whose principal work and source of income is derived from crypto transactions, earnings are taxed at the standard corporate tax rate of 12.5%. These individuals and organizations who trade cryptocurrencies routinely are typically considered  professional investors by Cyprus tax authorities. 

Cyprus’ Corporate Tax is very favorable to anyone working in crypto trading as it is significantly lower than that of other countries. Determining whether your crypto operations will be classified as professional trading with earnings subject to Corporate Tax is crucial for avoiding costly noncompliance penalties. 

The other instance in which crypto is subject to taxation is in the case of goods or services paid for in crypto. Compensation in crypto is taxed as income at the same rates as wages paid in fiat currency. Income Taxes on crypto can be calculated by determining the fair market value of the cryptocurrency on the day of payment. 

How to Pay Taxes on Crypto in Cyprus

When it comes time to paying taxes on crypto in Cyprus the first step will be determining whether your earnings are liable for taxation. 

Once it is decided whether your earnings are considered tax exempt or whether you will need to pay Corporate Taxes or Income Tax, it is time to break down the tax rates. While Corporate Tax is a flat rate of 12.5%, Income Tax will vary depending on the total income made over the course of the year. 

Calculating Income Tax for Contractors in Cyprus 

Owing to the fact that goods or services paid for in crypto are subject to the same Income Tax rates as any other income received, determining what taxes are owed is relatively simple. 

Income Tax Rates:

  • Taxable Income €19.501 - €28.000: Rate 20%
  • Taxable Income €28.001 - €36.300: Rate 25%
  • Taxable Income €36.301 - €60.000: Rate 30%
  • Taxable Income €60.000 - €100.000: Rate 35%

Calculate the fair market value of wages received in crypto at the time of their receipt to determine total yearly income earned in Euros. 

Crypto Payroll and Compliance with Rise

While Cyprus is generally amiable towards crypto, noncompliance comes at a high cost. This becomes an issue when determining whether crypto is tax exempt, or subject to Income Tax or Corporate Tax. Due to the ambiguity in Cyprus’ crypto-asset policies, it is not always obvious whether transactions constitute professional trading or personal investments.  

Using a compliance solution is the best way to avoid the costly fallout of noncompliance. Rise is a  combined compliance and payroll solution that leverages Web3 technology to support both traditional and web3-native organizations. 

By using Rise for onboarding, companies can simplify their processes of hiring, managing, and paying contractors while ensuring full compliance. Rise offers a dual payment infrastructure that not only provides a compliance layer, but also facilitates payroll scaling. This allows for flexible payment schedules and automated payments, while efficiently routing between fiat and crypto.

Let Rise take care of ensuring total compliance for your crypto payroll. Schedule a demo to learn more today.