Generally, Cyprus is a country that embraces technology and innovation – this is visible in the country’s lenient and optimistic crypto regulations. According to the European Innovation Scoreboard, the country scores second in the technological & innovation progress in 2021.

Cyprus is generally referred to as “crypto tax haven,” because the country incorporates regulations that essentially create a conducive environment for crypto growth.

Source: freemanlaw.com

For instance, Cyprus, alongside six other European states ( France, Greece, Italy, Malta, Portugal, and Spain), jointly signed a treaty titled “Declaration of the Southern Mediterranean Countries on Distributed Ledger Technologies” On the 4th of June, 2018. The treaty aims to turn the region into frontiers in innovative and emerging technologies and enhance cooperation.

Among other objectives, the treaty also aims to standardize and create an EBSI (European Blockchain Services Infrastructure), which will serve as a template for crypto regulation in Europe. Like many other European Union countries, Cyprus’s crypto regulations gear toward consumer protection, counter-terrorist financing, and anti-money laundering.

To further solidify Cyprus’ positive crypto stance, the Cyprus Security Exchange Commission ( CySEC) established an innovation hub to inquire into the nature of emerging innovative technology, like blockchain and others. The hub focuses on Regtech and Fintech, including the utilization and maximization of DLT (Distributed Ledger technology). 

They also aim to Identify problems with these emerging technologies and study how they function, simultaneously providing a legal framework to help them create products and services – which comply with existing & future rules and regulations in Cyprus.

Also, the hub helps protect investors’ investments, ensure innovation firms secure necessary licenses and follow due procedures under the country’s SEC regulations.

Currently, the hub is investigating the legal, technical, and managerial applications of Distributed Ledger Technologies (DLT).

Note!

Regtech, in this context, are cloud computing technology companies that function through software-as-a-service. – Fintech, in this context, refers to technologies that offer financial services like mobile payment apps, online banking, and cryptocurrency.

Crypto Regulations 

On the 15th of May, 2018, CySEC (Cyprus Securities and Exchange Commission) released a Circular (C.268) titled “Introduction of New Rules Governing Derivatives on Virtual Currencies.” The Circular’s primary purpose is to clarify the different aspects of cryptocurrency regulations in the country. 

CySEC claims that crypto is currently unregulated in the country, however, the Circular specified that, under Cyprus law, crypto derivatives could be financial instruments.

Proceeding in embracing innovative technology like blockchain, Cyprus Securities and Exchange Commission (CySEC), on the 25th of November 2020, passed another bill (Circular 417) titled “Prudential Treatment of Crypto Assets and Enhancement of Risk Management Procedures Associated With Crypto Assets.” 

The bill’s primary purpose is to ensure investment firms in Cyprus (CIF) adequately manage risks particular to crypto trading, and cover their crypto investment against other crypto risks. Also, the bill (Circular C417) ensures that Cyprus Investment Firms comply with SEC rules and regulations in the country. 

For instance, any crypto firm or CASP (Crypto Asset Service Provider) seeking to operate in Cyprus must establish its company in the country – before they become eligible to apply for CASP registration provided by CySEC. 

Also, the registration compulsory CASP to implement Cyprus Securities and Exchange Commission (CySEC) regulations obligates CASP to;

• Implement KYC and other customer verification procedures.

• Monitor their clients’ crypto asset transactions and wallet addresses.

• Identify customer funds sources. 

• Identify and report suspicious transaction activities.

Tax in Cyprus 

Crypto tax in Cyprus is low compared to most other countries worldwide. Besides the low tax, Cyprus doesn’t tax individual crypto investors on their trade earnings. Moreover, there is a 12.5 percent tax on corporate crypto earnings, making Cyprus one of the countries with the lowest tax on crypto worldwide.