Question Tax-free day trading with a Cyprus company. How does that work?

[Ads911]

Hello Guys,
If I become a non-dom tax resident in Cyprus and I open a company there for day trading, I read that stocks, equities, and securities trading are tax-free (that's not the case for Forex).

My question is if I trade futures (Not CFD'S) like S&P 500, The German Dax, Nasdaq, or Government Bonds will the profits be tax-free?

Do you guys have any experience with this? For what I read I think they can be considered tax-free.

 

[CyprusBusiness]

Any derivatives that derive their price from an underlying title again is tax free. Hence options, futures, futures on futures etc are tax free if the underlying asset is a 'title'.

A circular was issued by the Income Tax Authorities listing the financial instruments that fall within the definition of "titles" as mentioned in the Income Tax Law N118(I)/2002. The legislation provides that any gain on the disposal of titles is exempt from income tax.

The full list of financial instruments that fall within the definition is as follows:

• Ordinary shares
• Founder's shares
• Preference shares
• Options on titles
• Debentures
• Bonds
• Short positions on titles
• Futures/forwards on titles
• Swaps on titles
• Depositary receipts on titles (ADRs and GDRs)
• Rights of claims on bonds and debentures (rights on interest of these instruments are not included)
• Index participations only if they result in titles
• Repurchase agreements or Repos on titles
• Participations in companies; Russian OOO and ZAO, US LLC provided that their profits are subject to taxes, Romanian SA and SRL and Bulgarian AD and OOD.
• Units in open-end or closed-end collective investment schemes that have been incorporated, registered and operate in accordance with the provisions of the relevant legislation of the incorporated country

Examples of such units are:

• Investment trusts, investment funds, mutual funds, unit trusts, real estate investment trusts
• International collective investment schemes - ICIS
• Undertakings for collective investments in transferable securities or UCITS
• Other similar financial institutions

Please let me know if you need any assistance. Happy to PM you

 

[AndyAresa]

Any derivatives that derive their price from an underlying title again is tax free. Hence options, futures, futures on futures etc are tax free if the underlying asset is a 'title'.

A circular was issued by the Income Tax Authorities listing the financial instruments that fall within the definition of "titles" as mentioned in the Income Tax Law N118(I)/2002. The legislation provides that any gain on the disposal of titles is exempt from income tax.

The full list of financial instruments that fall within the definition is as follows:

• Ordinary shares
• Founder's shares
• Preference shares
• Options on titles
• Debentures
• Bonds
• Short positions on titles
• Futures/forwards on titles
• Swaps on titles
• Depositary receipts on titles (ADRs and GDRs)
• Rights of claims on bonds and debentures (rights on interest of these instruments are not included)
• Index participations only if they result in titles
• Repurchase agreements or Repos on titles
• Participations in companies; Russian OOO and ZAO, US LLC provided that their profits are subject to taxes, Romanian SA and SRL and Bulgarian AD and OOD.
• Units in open-end or closed-end collective investment schemes that have been incorporated, registered and operate in accordance with the provisions of the relevant legislation of the incorporated country

Examples of such units are:

• Investment trusts, investment funds, mutual funds, unit trusts, real estate investment trusts
• International collective investment schemes - ICIS
• Undertakings for collective investments in transferable securities or UCITS
• Other similar financial institutions

Please let me know if you need any assistance. Happy to PM you

Thank you for a detailed explanation. Would a gain in the below scenario be exempt from tax in Cyprus? E.g. a resident of Cyprus starts working in a non-Cyprus startup company. The company pays only a minor salary, but allows to acquire its shares. After 1 year the employee leaves the company and the company buys back the shares at a higher price (market value of the company has grown). Will the gain realized by the employee on the sale of the shares back to the company be exempt in Cyprus?

 

[Ads911]

Any derivatives that derive their price from an underlying title again is tax free. Hence options, futures, futures on futures etc are tax free if the underlying asset is a 'title'.

A circular was issued by the Income Tax Authorities listing the financial instruments that fall within the definition of "titles" as mentioned in the Income Tax Law N118(I)/2002. The legislation provides that any gain on the disposal of titles is exempt from income tax.

The full list of financial instruments that fall within the definition is as follows:

• Ordinary shares
• Founder's shares
• Preference shares
• Options on titles
• Debentures
• Bonds
• Short positions on titles
• Futures/forwards on titles
• Swaps on titles
• Depositary receipts on titles (ADRs and GDRs)
• Rights of claims on bonds and debentures (rights on interest of these instruments are not included)
• Index participations only if they result in titles
• Repurchase agreements or Repos on titles
• Participations in companies; Russian OOO and ZAO, US LLC provided that their profits are subject to taxes, Romanian SA and SRL and Bulgarian AD and OOD.
• Units in open-end or closed-end collective investment schemes that have been incorporated, registered and operate in accordance with the provisions of the relevant legislation of the incorporated country

Examples of such units are:

• Investment trusts, investment funds, mutual funds, unit trusts, real estate investment trusts
• International collective investment schemes - ICIS
• Undertakings for collective investments in transferable securities or UCITS
• Other similar financial institutions

Please let me know if you need any assistance. Happy to PM you

Thank you so much. So by definition, day trading (speculation) of the instruments I posted above will be tax-free, will they? The underlying asset of the German Dax and the S&P 500 are basically titles.

 

[CyprusBusiness]

Thank you so much. So by definition, day trading (speculation) of the instruments I posted above will be tax-free, will they? The underlying asset of the German Dax and the S&P 500 are basically titles.

Yes that is correct

Thank you for a detailed explanation. Would a gain in the below scenario be exempt from tax in Cyprus? E.g. a resident of Cyprus starts working in a non-Cyprus startup company. The company pays only a minor salary, but allows to acquire its shares. After 1 year the employee leaves the company and the company buys back the shares at a higher price (market value of the company has grown). Will the gain realized by the employee on the sale of the shares back to the company be exempt in Cyprus?

Share buy back on stock options (either cash settled or equity settled) offered by an employer are considered derivatives with the underlying being shares in a Company (i.e. titles). Thus the tax exemption would also apply in this case

 

[gordon1748]

Any derivatives that derive their price from an underlying title again is tax free. Hence options, futures, futures on futures etc are tax free if the underlying asset is a 'title'.

What about crypto derivatives?

Can one day trade crypto derivatives in Cyprus tax free through a Cyprus company?

Is it any different if the derivative contract is priced and settled in fiat (USD, EUR, etc) or cryptocurrency (USDT, BTC, etc)?

I think I saw a circular from the Cyprus government regarding the treatment of digital assets in this forum. Unfortunately, I can't find it.

 

[CyprusBusiness]

What about crypto derivatives?

Can one day trade crypto derivatives in Cyprus tax free through a Cyprus company?

Is it any different if the derivative contract is priced and settled in fiat (USD, EUR, etc) or cryptocurrency (USDT, BTC, etc)?

I think I saw a circular from the Cyprus government regarding the treatment of digital assets in this forum. Unfortunately, I can't find it.

As of today, no tax guidance has been issued on Cyprus level to clarify the tax treatment of crypto assets, but we are waiting one to be issued soon. We expect tax incentives to be granted as well as Cyprus attempts to market itself as a crypto friendly hub.

Currently and in the absence of legislation the practice follows the accounting convention.

The accounting principles consider that different categories of assets fall into different standards. For instance, cryptocurrencies, asset backed tokens and utility tokens are treated as inventory or as intangible assets. Hence, the taxation of these crypto assets would be considered as normal trading activity and subject to taxation on normal terms. Thus a corporation tax rate of 12.5% would apply. With proper structuring this can be significantly reduced.

Security tokens on the other hand that envisage an ownership interest in an underlying entity fall into derivatives and hence 'titles'. For this, a tax exemption is assumed to be granted. Security tokens also fall into MiFID II and EMIR and may have reporting obligations on that aspect as well in case the type of entity trading in those is considered a financial institutions (FI) and CRS consequentially.

Please note that this is not a formal advise and just my opinion as a professional. Happy to PM you in case further info is required

 

[gordon1748]

Thanks for sharing your knowledge.

> As of today, no tax guidance has been issued on Cyprus level to clarify the tax treatment of crypto assets

My question wasn't really about crypto assets, but about crypto derivatives. For example, buying and selling contracts on on Binance Futures or FTX, where the underlying asset is a cryptocurrency (BTC, ETH, etc), and the settlement currency is either fiat (USD, EUR, etc) or stablecoin cryptocurrency (USDT, USDC, etc) in the case of linear contracts, or some other cryptocurrency (BTC, ETH, etc) in the case of inverse contracts.

> I think I saw a circular from the Cyprus government regarding the treatment of digital assets in this forum.

I found it. It seems like it is currently on public consultation. It's called the Bill on the Distributed Ledger Technology Law of 2021. Does it clarify anything?

If at some point crypto derivatives are treated the same way as forex derivatives, will day-trading crypto derivatives be tax free in Cyprus?

> Thus a corporation tax rate of 12.5% would apply. With proper structuring this can be significantly reduced.

What would this structuring look like?

 

[CyprusLaw]

Thanks for sharing your knowledge.

> As of today, no tax guidance has been issued on Cyprus level to clarify the tax treatment of crypto assets

My question wasn't really about crypto assets, but about crypto derivatives. For example, buying and selling contracts on on Binance Futures or FTX, where the underlying asset is a cryptocurrency (BTC, ETH, etc), and the settlement currency is either fiat (USD, EUR, etc) or stablecoin cryptocurrency (USDT, USDC, etc) in the case of linear contracts, or some other cryptocurrency (BTC, ETH, etc) in the case of inverse contracts.

> I think I saw a circular from the Cyprus government regarding the treatment of digital assets in this forum.

I found it. It seems like it is currently on public consultation. It's called the Bill on the Distributed Ledger Technology Law of 2021. Does it clarify anything?

If at some point crypto derivatives are treated the same way as forex derivatives, will day-trading crypto derivatives be tax free in Cyprus?

> Thus a corporation tax rate of 12.5% would apply. With proper structuring this can be significantly reduced.

What would this structuring look like?

The DLT bill is simply a draft law that is being prepared, it has nothing to do with the tax treatment of crypto assets etc, but it is merely an initial enactment providing some certainty for dlt, nothing more.

 

[lacomaco]

Do not forget to ask for accounting and auditing cost, especially if transactions are done in several currencies. Also, check if you might have a place of business via controlling the activities in your home country

 

[Ads911]

Do not forget to ask for accounting and auditing cost, especially if transactions are done in several currencies. Also, check if you might have a place of business via controlling the activities in your home country

Since I am asking many people, do you also confirm what has been said above about tax-free futures trading for the products I mentioned?

 

[lacomaco]

Since I am asking many people, do you also confirm what has been said above about tax-free futures trading for the products I mentioned?

If I understand your question correctly then I need to respectfully decline commenting on what CyprusLaw wrote. What I referred to was the possibility of taxation of the Cyprus company’s profits in the country of your residence through the place of business rule

 

[Ads911]

If I understand your question correctly then I need to respectfully decline commenting on what CyprusLaw wrote. What I referred to was the possibility of taxation of the Cyprus company’s profits in the country of your residence through the place of business rule

OK, that wasn't the post's topic, and I said I eventually would relocate to Cyprus.

 

[lacomaco]

OK, that wasn't the post's topic, and I said I eventually would relocate to Cyprus.

When someone indicates “ will the profits be tax-free?” I always look both at the corporate and personal tax levels. If you start your trading after you physically move to Cyprus then the PE will not be a question. If not (and according to my experience ”eventually” usually means later) then my friendly warning stands.

 

[Ads911]

When someone indicates “ will the profits be tax-free?” I always look both at the corporate and personal tax levels. If you start your trading after you physically move to Cyprus then the PE will not be a question. If not (and according to my experience ”eventually” usually means later) then my friendly warning stands.

Yeah, but trading is an online activity, not a physical business

 

[lacomaco]

Yeah, but trading is an online activity, not a physical businesPE means permanent establishment, which can be the country whereb he company

The country where a foreign registered company is controlled and managed from may tax the profits of the company. Control and management can be a “permanent establishment” - the PE.

 

[algotrader]

Tax is only one aspect. Another question is whether you will be able to open/maintain foreign brokerage accounts with your Cyprus Ltd.. Many traders there create the company only to get the non-dom status and trade with their private account because it is much easier.

 

[fc70]

Tax is only one aspect. Another question is whether you will be able to open/maintain foreign brokerage accounts with your Cyprus Ltd.. Many traders there create the company only to get the non-dom status and trade with their private account because it is much easier.

Are these companies created for only receiving non-dom actually doing any business and have income? Can you get away with a company thus does nothing?

I read somewhere I think that it's also possible to get non-dom as a sole trader...is this correct?

 

[CyprusBusiness]

Are these companies created for only receiving non-dom actually doing any business and have income? Can you get away with a company thus does nothing?

I read somewhere I think that it's also possible to get non-dom as a sole trader...is this correct?

This is correctz. However, other liabilities may arise if your main activity is actively trading in financial instruments as a sole-trader, such as social insurance contributions at the level of 15.6% and 4% Gesy. Each case needs to be reviewed on its own merits though.

 

[gsb]

Any derivatives that derive their price from an underlying title again is tax free. Hence options, futures, futures on futures etc are tax free if the underlying asset is a 'title'.

A circular was issued by the Income Tax Authorities listing the financial instruments that fall within the definition of "titles" as mentioned in the Income Tax Law N118(I)/2002. The legislation provides that any gain on the disposal of titles is exempt from income tax.

The full list of financial instruments that fall within the definition is as follows:

• Ordinary shares
• Founder's shares
• Preference shares
• Options on titles
• Debentures
• Bonds
• Short positions on titles
• Futures/forwards on titles
• Swaps on titles
• Depositary receipts on titles (ADRs and GDRs)
• Rights of claims on bonds and debentures (rights on interest of these instruments are not included)
• Index participations only if they result in titles
• Repurchase agreements or Repos on titles
• Participations in companies; Russian OOO and ZAO, US LLC provided that their profits are subject to taxes, Romanian SA and SRL and Bulgarian AD and OOD.
• Units in open-end or closed-end collective investment schemes that have been incorporated, registered and operate in accordance with the provisions of the relevant legislation of the incorporated country

Examples of such units are:

• Investment trusts, investment funds, mutual funds, unit trusts, real estate investment trusts
• International collective investment schemes - ICIS
• Undertakings for collective investments in transferable securities or UCITS
• Other similar financial institutions

Please let me know if you need any assistance. Happy to PM you

Does this tax exemption apply for any frequency of trading operations? I wonder if there is a rule that day trading US futures with multiple transactions each day will be considered by the Cyprus' tax authorities as a "trade", require a person to register as self-employed or to create a company and be taxed accordingly?

Thanks!