Tag: tax

crypto assets taxation

Taxation of profits from crypto asset transactions

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Article 20E of The Income Tax Law of 2002 (118(I)/2002) – Taxation of profits from crypto asset transactions

The recent Cyprus tax reform effective since the 1st of January 2026 has introduced a special mode of taxation for crypto assets. Profits of any person (physical or legal) arising from the disposal of crypto currencies are subject to taxation at a rate of 8%.

Crypto Asset

The term “crypto asset” is defined according to the Regulation (EU) 2023/1114 (“MiCAR”) as a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology.

The three main categories of crypto assets that fall within MiCAR’s scope based on their characteristics are:

  1. E-Money Tokens (“EMT”) which are regulated under Title IV of MICAR and demonstrate similarities in terms of economic function and regulation, with electronic money. An EMT is a crypto asset that purports to maintain a stable value by referencing the value of one official currency such as the USD and the Euro. Examples of these are USDC (Circle) and USDT (Tether).
  2. Asset Referenced Tokens (“ART”), which is a regulatory category corresponding to the so-called ‘stablecoins’ and that are regulated under Title III of MiCAR. An ART is a crypto asset that purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies such as currencies and commodities or another crypto currency. Examples of these are Pax Gold (PAXG) and Tether Gold (XAUT).
  3. Crypto assets other than ARTs and EMTs which are regulated under Title II of MiCAR, hence forming a residual category i.e. a “catch-all” category. Examples of these are Bitcoin and Ethereum.

Disposal

The term “disposal of crypto currencies” means:

  1. The sale of crypto currencies
  2. The donation of crypto currencies
  3. The exchange of one crypto currency for another crypto currency; and
  4. The use of crypto currency as a means of payment.

The term “disposal” does not apply in the case of disposal of crypto currencies, which were acquired through the conduct of mining activity and any profits that do not fall within Article 20E are taxed under the general provisions of the Income Tax Law.

Losses

Losses arising from the disposal of crypto currencies may be offset against profits from crypto currencies disposals within the same tax year. Such losses cannot be carried forward to future years, nor can they be surrendered to other group companies for group relief.

Pillar Two - Amended legislation in the Cyprus tax system

Pillar Two: EU Directive rules on 15% Minimum tax on MNE & Large Scale Domestic Groups applicable in Cyprus law

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Pillar Two: Global Minimum Tax on MNE and Large-Scale Domestic Groups – Cyprus officially transposes the EU Directive in the local law  

On 12 December 2024, the Cyprus House of Representatives approved the transposition of the EU Directive 2022/2523 in the Cyprus national law, regarding the legislation on the Global Minimum Level of Taxation for Multinational Enterprise Groups and Large-Scale Domestic Groups.

This legislation ensures the application of a minimum tax rate of 15% for these groups with annual consolidated revenues of at least €750 million. The new provisions introduce a “top-up tax” which will be imposed on the applicable parties, whenever the effective tax rate in a specific jurisdiction falls below 15%.

Below is a summary of the law’s provisions, its applicable parties, and the effective application date:

Provisions introduced Application Effective Application Date 
Qualified Income Inclusion Rule (QIIR) Applies to the results of the local Parent and its local subsidiaries Fiscal years beginning on or after January 2024  
Qualified Undertaxed Profits Rule (QUTPR)Imposes an additional top-up tax, not charged under CIT Fiscal years beginning on or after 1 January 2025 
Domestic Minimum Top-Up Tax (DMTT) Applies to constituent entities and joint venture entities located in Cyprus. It takes priority over QIIR and QUTPR. Fiscal years beginning on or after 1 January 2025 

Given the immediate implementation of the new provisions and the penalties for non-compliance, we recognize the urgency of taking swift action. Our team of experts is here to guide you through the complexities of Pillar Two regulations.

Contact us for more information. 

Author’s comment: The long-awaited increase in the minimum tax rate to 15% across the EU has eventually been implemented in the Cyprus’ local law. However, its applicability is restricted to large international groups with significant size, activity, and revenue. 

Income tax law amendments, Cyprus, June 2023

Income Tax Law Amendments

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On 22 June 2023, the House of Representatives passed additional amendments to the Income Tax Law with regards to Article 8(23A).

The Article provides a 50% exemption from income tax on the remuneration of individuals employed in Cyprus, subject to certain criteria. The recent amendments are as follows:

• The exemption will be granted if the individual was not a resident of Cyprus for 15 consecutive years prior to any employment in the Republic. Previously, the exemption was applicable if the individual was not a Cyprus resident for 10 consecutive years.
• The exemption will be granted for a period of 17 years from the date of employment regardless of whether the individual changed employer during this period. Previously, the exemption was only granted for the first employment of the individual in Cyprus.

It is important to note that these amendments also apply to the transitional provisions that were formerly introduced in Article 8(23A) in 2022 and that the individuals that were entitled to the 50% income tax exemption based on the old provisions of Article 8(23A), will continue to claim the exemption, provided that they meet all the requirements.