Cyprus tax optimization for stock, crypto traders?

[gaz0001]

I think you are all missing the point.
It's almost impossible to generate this money making algo.

 

[daniels27]

I think you are all missing the point.
It's almost impossible to generate this money making algo.

How do you know?

 

[gaz0001]

How do you know?

The lack of these algos, individuals who possess these algos, and the constant failure of millions of people online who are attempting to create these algos.


Cool idea though

 

[Thomas67]

When we say that capital gains from stocks are tax free, is there a distinction between
- investing and short term trading
- occasional trading and business like trading (organized, ongoing, frequent)?

For cryptos, trading through a company is an option (I assume income tax as natural person would otherwise apply for both investing and trading), but is it legal/does it require a license and is it now better accepted by banks? Are there strong compliance (aml, mifid, any other laws) constraints even for small companies?

 

[CyprusLaw]

When we say that capital gains from stocks are tax free, is there a distinction between
- investing and short term trading
- occasional trading and business like trading (organized, ongoing, frequent)?

For cryptos, trading through a company is an option (I assume income tax as natural person would otherwise apply for both investing and trading), but is it legal/does it require a license and is it now better accepted by banks? Are there strong compliance (aml, mifid, any other laws) constraints even for small companies?

To begin with, in Cyprus capital gain taxes apply only on the gain from the sale of immovable property or from the sale of shares connected to the ownership of immovable property.

With respect to stock trading/investing, holding and selling, or occasional trading falls under the ambit of capital gains and therefore exempt. Active trading would potentially be considered as income and therefore be deemed as personal income (for the purposes of social insurance) if trading on a physical person capacity, or corporate tax if trading through a company.

Whether or not the frequency of trading would lead to the income being deemed as taxable the badges of trade would be sued to determine this.

With respect to crypto, my position from the beginning was that income from crypto when actively trading is taxable, a lot of other lawyers or accountants had differing opinions, however, during the presentation of the tax reform, even though the precise manner was not presented, crypto taxation was briefly addressed mentioning that if it is active trading then it would be taxed as income, otherwise it would be deemed as a capital gain and therefore non taxable. As Cyprus will not re-invent the wheel, most probably they will implement similar concepts as in other jurisdictions, for example, holding over 1 year would make it non-taxable, while selling before that it would make it taxable.

Additionally, it was implied that due to the difficulties in monitoring conversion to FIAT will be the trigger.

 

[AndyAresa]

To begin with, in Cyprus capital gain taxes apply only on the gain from the sale of immovable property or from the sale of shares connected to the ownership of immovable property.

With respect to stock trading/investing, holding and selling, or occasional trading falls under the ambit of capital gains and therefore exempt. Active trading would potentially be considered as income and therefore be taxed as personal income if trading on aa physical person capacity, or corporate tax if trading through a company.

Whether or not the frequency of trading would lead to the income being deemed as taxable the badges of trade would be sued to determine this.

With respect to crypto, my position from the beginning was that income from crypto when actively trading is taxable, a lot of other lawyers or accountants had differing opinions, however, during the presentation of the tax reform, even though the precise manner was not presented, crypto taxation was briefly addressed mentioning that if it is active trading then it would be taxed as income, otherwise it would be deemed as a capital gain and therefore non taxable. As Cyprus will not re-invent the wheel, most probably they will implement similar concepts as in other jurisdictions, for example, holding over 1 year would make it non-taxable, while selling before that it would make it taxable.

Additionally, it was implied that due to the difficulties in monitoring conversion to FIAT will be the trigger.

Thank you for this insight, really helpful. In your opinion - if an individual trades stocks/ETFs frequently throughout the year, say makes 2-3 trades each week, however he only sells stocks/ETFs after holding for at least a year, would this be considered exempt from individual income tax? it is active trading on one hand, but a one year holding period on the other hand.

 

[Thomas67]

To begin with, in Cyprus capital gain taxes apply only on the gain from the sale of immovable property or from the sale of shares connected to the ownership of immovable property.

With respect to stock trading/investing, holding and selling, or occasional trading falls under the ambit of capital gains and therefore exempt. Active trading would potentially be considered as income and therefore be taxed as personal income if trading on aa physical person capacity, or corporate tax if trading through a company.

Whether or not the frequency of trading would lead to the income being deemed as taxable the badges of trade would be sued to determine this.

With respect to crypto, my position from the beginning was that income from crypto when actively trading is taxable, a lot of other lawyers or accountants had differing opinions, however, during the presentation of the tax reform, even though the precise manner was not presented, crypto taxation was briefly addressed mentioning that if it is active trading then it would be taxed as income, otherwise it would be deemed as a capital gain and therefore non taxable. As Cyprus will not re-invent the wheel, most probably they will implement similar concepts as in other jurisdictions, for example, holding over 1 year would make it non-taxable, while selling before that it would make it taxable.

Additionally, it was implied that due to the difficulties in monitoring conversion to FIAT will be the trigger.

Thank you for this very good overview.

As a complement to this for the interested reader, please find here below a good article on the topic just found right now, incl. a description of the badges of trades (assessment to be performed by the tax department or a judge)

https://www.chambersandco.com/crypt...s Income Tax Office,Frequency of transactions

 

[CyprusLaw]

Thank you for this insight, really helpful. In your opinion - if an individual trades stocks/ETFs frequently throughout the year, say makes 2-3 trades each week, however he only sells stocks/ETFs after holding for at least a year, would this be considered exempt from individual income tax? it is active trading on one hand, but a one year holding period on the other hand.

Just to clarify something which I believe maybe I was not clear above, in terms of taxation, trading any type of securities that falls under the exemption afforded by the income tax law would be non-taxable. However, actively trading could potentially make you liable to social security (if traded on a personal level).

On the other hand, with respect to trading cryptos it appears that it will be treated as explained above, i.e. either tax exempt if capital gain, or as taxable income if actively trading.

 

[PhantomOf ThePits]

Great clarifications, thank you @CyprusLaw.

Is it still common in CY to have a BVI Trading company in combo with CY NonDom?
Back then knew several people who traded like that through their offshore BVI company.
If I remember well, one guy even had CY HoldCo with BVI TradeCo below and paid out dividends from BVI to CY tax free. Thats at least what he told me back then.

Now I think with the PE Rules this wont work anymore in combo with CY NonDom tax resident UBO I assume.

 

[Thomas67]

Interested in the answer as well, though I believe that, more and more, economic/physical substance would be needed to prove the local operations (which requires some capital), even aside the possible use of nominee directors.

 

[Matade]

crypto taxation was briefly addressed mentioning that if it is active trading then it would be taxed as income, otherwise it would be deemed as a capital gain and therefore non taxable

Very interesting and important. Where could we read more on this?

 

[Thomas67]

I let CyprusLaw answer; as a complement: my source above (badges of trades); criteria aren't quantified though, overall case by case assessment I assume

 

[Koedam]

Member CyprusLawyer101 writes in another topic:

"If trading i.e. regularly transacting then only stcks should be exempted."​

Different from member: CyprusLaw above.

Interesting to see that experts from Cyprus have a different views.

 

[CyprusLaw]

Member CyprusLawyer101 writes in another topic:​

​

"If trading i.e. regularly transacting then only stcks should be exempted."​

Different from member: CyprusLaw above.

Interesting to see that experts from Cyprus have a different views.

I am not sure where is the difference that you refer to, stocks are tax exempt.

First of all, I mentioned that with respect to trading cryptos it appears that it will be treated as explained above, i.e. either tax exempt if capital gain, or as taxable income if actively trading. So again only stocks have a flat exemption from tax. Both myself and CyprusLawyer are saying the same thing.

Also, the post you are referring to is from August 2024, at which point Cyprus tax authorities had given no guidance as to taxation. During the tax reform presentation which took place a month ago the statement I have indicated above was made with respect to the taxation of crypto.

 

[Koedam]

I am not sure where is the difference that you refer to, stocks are tax exempt.

You wrote above the underlined:

"With respect to stock trading/investing, holding and selling, or occasional trading falls under the ambit of capital gains and therefore exempt. Active trading would potentially be considered as income and therefore be deemed as personal income"

 

[CyprusLaw]

You wrote above the underlined:

"With respect to stock trading/investing, holding and selling, or occasional trading falls under the ambit of capital gains and therefore exempt. Active trading would potentially be considered as income and therefore be deemed as personal income"

I had clarified in the following post that my reference related to the potential imposition of social insurance, not tax. Stocks are non taxable, whether actively trading or as capital gains. But if actively trading they could have social insurance implications. Crypto on the other hand will not be like this. My initial post was not very clear and it would not let me edit it for some reason so I made a new post clarifying this. I am setting out below again the post I had made previously clarifying the matter:

"Just to clarify something which I believe maybe I was not clear above, in terms of taxation, trading any type of securities that falls under the exemption afforded by the income tax law would be non-taxable. However, actively trading could potentially make you liable to social security (if traded on a personal level).

On the other hand, with respect to trading cryptos it appears that it will be treated as explained above, i.e. either tax exempt if capital gain, or as taxable income if actively trading."