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]

This will need to be examined by taking into consideration all sources of income and evaluate the extend that trading activity will fall under the badges of trade.

Happy to PM if more details are needed

 

[gsb]

This will need to be examined by taking into consideration all sources of income and evaluate the extend that trading activity will fall under the badges of trade.

Happy to PM if more details are needed

Thank you! I cannot find how to initiate a PM, maybe my account does not allow to do that. Could you please PM me, so we could continue this discussion?

 

[CyprusLawyer101]

I dont see how batches of trade become relevant here. This is an explicit exemption provided in the law concerning the listed instruments.

 

[CyprusBusiness]

I dont see how batches of trade become relevant here. This is an explicit exemption provided in the law concerning the listed instruments.

The question related to potential social insurance registration in relation to the activity of trading in financial instruments on a personal capacity. In relation to the tax exemption, this is clear and has already been discussed above in detail.

 

[CyprusLawyer101]

The question related to potential social insurance registration in relation to the activity of trading in financial instruments on a personal capacity. In relation to the tax exemption, this is clear and has already been discussed above in detail.

Ok!

 

[gsb]

The question related to potential social insurance registration in relation to the activity of trading in financial instruments on a personal capacity. In relation to the tax exemption, this is clear and has already been discussed above in detail.

Thank you for this clarification! So I understand that while there may be a requirement to register and pay social insurance, there is no practice that profits from frequent futures trading on a daily basis are taxed as regular income at a progressive scale. Is this correct?

What are the criteria for requiring registration as a self-employed or registering a company? Certain percentage of one’s yearly income from futures trading? Frequency of operations?

 

[CyprusBusiness]

Thank you for this clarification! So I understand that while there may be a requirement to register and pay social insurance, there is no practice that profits from frequent futures trading on a daily basis are taxed as regular income at a progressive scale. Is this correct?

What are the criteria for requiring registration as a self-employed or registering a company? Certain percentage of one’s yearly income from futures trading? Frequency of operations?

Yes, your understanding about taxes is correct. From an income tax prespective these are tax exempt.

There is no predefined thresholds that create a requirement to register either as a self-employed or registering a company. This decision is part of the tax planning exercise by weighing costs and benefits.

 

[Bill D]

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.

Is it harder to get a brokarage account for a Cyprus LTD compared to any other european onshore company ?
These traders who get the non dom and then trade with their private accout risk to have to pay 19% in social contribution?

 

[CyprusLawyer101]

Is it harder to get a brokarage account for a Cyprus LTD compared to any other european onshore company ?
These traders who get the non dom and then trade with their private accout risk to have to pay 19% in social contribution?

Not necesarily. Most brokers would on board a Cyprus company. Are you having trouble finding a brokerage to onnboard you with a CY co? Maybe I can help.

Yes, there is a Social insurance contribution risk when trading in a personal capacity.

 

[dziter]

Hi,

What is the most tax efficient between investing/trading as an individual OR a company? What about GESY in both cases?

Context:
Personal - Non-dom CY tax resident
Corporate - CY company
Investments - Simple securities like US Gov Bonds or S&P500 index
(Trading is not the main activity / source of income of the company/individual)

I am wondering if it is not possible to reduce the corporate tax liabilities (saving 12.5%) by investing with the company compared as an individual (with the withdrawal of CY company dividends)

cc @CyprusBusiness @CyprusLawyer101

 

[CyprusBusiness]

Hi,

What is the most tax efficient between investing/trading as an individual OR a company? What about GESY in both cases?

Context:
Personal - Non-dom CY tax resident
Corporate - CY company
Investments - Simple securities like US Gov Bonds or S&P500 index
(Trading is not the main activity / source of income of the company/individual)

I am wondering if it is not possible to reduce the corporate tax liabilities (saving 12.5%) by investing with the company compared as an individual (with the withdrawal of CY company dividends)

cc @CyprusBusiness @CyprusLawyer101

Hello

Both for personal and corporate income tax, trading in financial instruments or 'Titles' (see list below) is a tax exempt activity:

'Titles' are defined as shares, bonds, debentures, founders’ shares, and other titles of companies or other legal persons incorporated in Cyprus or abroad and options thereon. According to a circular issued by the Cyprus tax authorities, the term includes, inter alia, futures/forwards on titles, short positions on titles, swaps on titles, depositary receipts on titles, repos on titles, units in stock exchange indices on titles, and units in open-ended or closed-ended collective investment schemes (including, inter alia, undertakings for collective investment in transferable securities [UCITS], investment trusts and funds, mutual funds, and real estate investment trusts [REITs]

Interest income from Bonds at the corproate level will be subject to a 30% special defence contribution. Interest income can sometimes be subject under corproation tax at 12.5% instead of SDC at 30% if the company is considered a financing vehicle. You can acquire ETFs or Bond funds that own underlying trasury bills and bonds to avoid SDC.

While on individual basis there is tax exemption (as non-dom)

There is a potential exposure for actively trading as individual and you may be required to be registered as self-employed and contribute to social insurance at 15.6% and NHS at 4% (total 19.6%).

Happy to PM if you need more info on this

 

[dziter]

Hi,

Thanks for your detailed answer.

Interest income can sometimes be subject under corproation tax at 12.5% instead of SDC at 30% if the company is considered a financing vehicle

What is the rule to be considered as a financing vehicle?
Not having any other activity with the company? Having a certain value/number of assets?

There is a potential exposure for actively trading as individual and you may be required to be registered as self-employed and contribute to social insurance at 15.6% and NHS at 4% (total 19.6%).

Does a rule exists to know when an individual is falling in this category?

In the past, when I asked about stock trading to a local accountant (as an individual non-dom), I got this information:

"Stock profits – This will be considered as a capital gain and you would have to pay GESY on it of 2.65%.
There is no income tax on the gain from the sale of shares. All the trades will be taken into account, any losses will offset profits and if profits are higher then you will need to pay 2.65% on the overall gain after deducting the losses. The gain from the sale of shares is not taken into account when considering the tax free limit of €19.500."

Do you confirm?

At the end, I am just trying to be sure that trading as an individual is the most efficient way rather than as a company for a "small player/small volume".

 

[AndyAresa]

Hello

Both for personal and corporate income tax, trading in financial instruments or 'Titles' (see list below) is a tax exempt activity:

'Titles' are defined as shares, bonds, debentures, founders’ shares, and other titles of companies or other legal persons incorporated in Cyprus or abroad and options thereon. According to a circular issued by the Cyprus tax authorities, the term includes, inter alia, futures/forwards on titles, short positions on titles, swaps on titles, depositary receipts on titles, repos on titles, units in stock exchange indices on titles, and units in open-ended or closed-ended collective investment schemes (including, inter alia, undertakings for collective investment in transferable securities [UCITS], investment trusts and funds, mutual funds, and real estate investment trusts [REITs]

Interest income from Bonds at the corproate level will be subject to a 30% special defence contribution. Interest income can sometimes be subject under corproation tax at 12.5% instead of SDC at 30% if the company is considered a financing vehicle. You can acquire ETFs or Bond funds that own underlying trasury bills and bonds to avoid SDC.

While on individual basis there is tax exemption (as non-dom)

There is a potential exposure for actively trading as individual and you may be required to be registered as self-employed and contribute to social insurance at 15.6% and NHS at 4% (total 19.6%).

Happy to PM if you need more info on this

Thanks for a detailed answer. What is the base for soc ins and NHS calculation? E.g. a person has started investing via a broker by allocating part of his salary, e.g. 5k Eur each month, to purchase shares. So in one year he has a portfolio with acquisition price of 60k Euro. Is there any obligation to pay soc ins and NHS yet? He has not made any gains yet. Then he decides to liquidate 100% of his portfolio and receives funds of 85k EUR to his account. What amount in Eur is subject to soc ins / NHS in this case?

 

[Bill D]

Interest income from Bonds at the corproate level will be subject to a 30% special defence contribution. Interest income can sometimes be subject under corproation tax at 12.5% instead of SDC at 30% if the company is considered a financing vehicle. You can acquire ETFs or Bond funds that own underlying trasury bills and bonds to avoid SDC.

The companies are liable to pay 30% on interest income ? for example if you are trading throught your company and lending,(for example on defi, or on tradfi, or a loan) you could be liable of 30% ?

I thçought this 30%sdc was for individuals only (and only the 'not non doms')

I thought every sort of income at the corporate level was 12.5%

 

[CyprusBusiness]

Hi,

Thanks for your detailed answer.

What is the rule to be considered as a financing vehicle?
Not having any other activity with the company? Having a certain value/number of assets?

The only official guidance from the tax office was a circular issued in 2008 and stipulated that the method to determine whether the company is a financing vehicle, was if the interest income of the year in comparison with the total income exceeded 60% and also if total interest bearing assets exceeded 60% of the total assets of the company. However, in practice this is more of a subjective judgment. For formal opinion we suggest requesting a tax ruling from the Tax office.

Does a rule exists to know when an individual is falling in this category?

There are no clear guidelines and each case must be determined on its own facts. Having purely an active day trading activity as source of income and be tax resident of Cyprus would evidently be considered as a budge of trade.

In the past, when I asked about stock trading to a local accountant (as an individual non-dom), I got this information:

Do you confirm?

Yes this is correct. You need to declare in the IR1 (personal tax return) any income/gains from trading in financial instruments. Although tax exempt, they are subject to a 2.65% NHS deduction with a cap on 180k income per annum

At the end, I am just trying to be sure that trading as an individual is the most efficient way rather than as a company for a "small player/small volume".

Thanks for a detailed answer. What is the base for soc ins and NHS calculation? E.g. a person has started investing via a broker by allocating part of his salary, e.g. 5k Eur each month, to purchase shares. So in one year he has a portfolio with acquisition price of 60k Euro. Is there any obligation to pay soc ins and NHS yet? He has not made any gains yet. Then he decides to liquidate 100% of his portfolio and receives funds of 85k EUR to his account. What amount in Eur is subject to soc ins / NHS in this case?

In this case as the person in the example above, is a salaried person, he/she is already registered for tax and social insurance as an employee. As I assume, the remuneration from his/her salary exceeds 5k Euro per month this means that for social insurance purposes he/she already contributes the maximum amount (there is a CAP at €5.005 salary per month). Thus no additional social insurance contributions will be imposed.

Hence following the example above the person will need to pay NHS on the realized gains on sale of financial instruments at 2.65% (Capped at 180k Euro income per annum)

The companies are liable to pay 30% on interest income ? for example if you are trading throught your company and lending,(for example on defi, or on tradfi, or a loan) you could be liable of 30% ?

Yes, 30% special contribution for defence applies on the company level on any interest income. DeFi is not considered a lending activity per se, as there is no formal position on the categorization of cryptos, and as such are not considered either legal tender or financial instruments. The tax position in Cyprus at the moment, relating to crypto is that they are considered barter transaction and both crypto to crypto and crypto to fiat trasnsactions are taxed on normal trading route (that is 12.5% corporation tax on company level and progressive tax bands on personal level)

I thçought this 30%sdc was for individuals only (and only the 'not non doms')

No this is not true. Remember we are talking about passive interest income which in comparison with the rest of the company's activities is considered modest.
See below PWCs breakdown:

I thought every sort of income at the corporate level was 12.5%

 

[zaybxc]

The tax position in Cyprus at the moment, relating to crypto is that they are considered barter transaction and both crypto to crypto and crypto to fiat trasnsactions are taxed on normal trading route (that is 12.5% corporation tax on company level and progressive tax bands on personal level)

I've read several posts on this forum that crypto-to-crypto swaps don't generate tax events in Cyprus: when did that change?

 

[algotrader]

I've read several posts on this forum that crypto-to-crypto swaps don't generate tax events in Cyprus: when did that change?

The problem is that there is no clear law on whether it is taxable or not. Some accountants/lawyers in Cyprus argue that Cryptos should be treated like securities (which are exempt from tax), but the majority now argue that it is taxable like forex trading. It mainly depends on a list of criteria to determine whether you trade actively or not but not on whether the transaction is crypto-to-crypto vs crypto-to-fiat:

Cyprus Crypto Tax for Companies and Individuals

One of the biggest advantages of Cryptocurrencies is that they are decentralised which is important for tax purposes as it implies that the tax treatment of the profit earner from Crypto transactions is determined by the country of Tax Residency of the Legal (Company) or Physical Person.

www.cyprusaccountants.com.cy

I wonder whether crypto ETNs (exchange traded notes), crypto ETFs or crypto Futures would be seen as a security, but it seems that what matters here is rather the underlying than the instrument.

 

[zaybxc]

The problem is that there is no clear law on whether it is taxable or not. Some accountants/lawyers in Cyprus argue that Cryptos should be treated like securities (which are exempt from tax), but the majority now argue that it is taxable like forex trading. It mainly depends on a list of criteria to determine whether you trade actively or not but not on whether the transaction is crypto-to-crypto vs crypto-to-fiat

Thanks for the article, it refers to the concept of Badges of Trade but it has no reference to crypto-to-crypto swaps.
In the other countries I've looked into the taxman clearly defines the tax treatment of such swaps and generally it's as, for example, a BTC -> ETH swap got split into 2 swaps:

1. BTC -> EUR (calculate profit for tax)
2. EUR (got from above sale of BTC) -> ETH (tax-free)

In other countries (like Poland or Austria) tax events trigger only on crypto-to-fiat swaps, but not on crypto-to-crypto; from this recent post of CyprusLaw it seems that also Cyprus applies taxes only on crypto-to-fiat swaps.

Trader deciding between Spain and Portugal

 

[Bill D]

Yes this is correct. You need to declare in the IR1 (personal tax return) any income/gains from trading in financial instruments. Although tax exempt, they are subject to a 2.65% NHS deduction with a cap on 180k income per annum


In this case as the person in the example above, is a salaried person, he/she is already registered for tax and social insurance as an employee. As I assume, the remuneration from his/her salary exceeds 5k Euro per month this means that for social insurance purposes he/she already contributes the maximum amount (there is a CAP at €5.005 salary per month). Thus no additional social insurance contributions will be imposed.

if you are requalified for trading under your own name and got to pay social insurance, it will also be 15.6% capped to 5005 per month ? So a max risk of 9369.36 euros whatever the amounts ?
The fact to pay already the max GESY does not reduce these 15.6% or cap?

Hence following the example above the person will need to pay NHS on the realized gains on sale of financial instruments at 2.65% (Capped at 180k Euro income per annum)


Yes, 30% special contribution for defence applies on the company level on any interest income. DeFi is not considered a lending activity per se, as there is no formal position on the categorization of cryptos, and as such are not considered either legal tender or financial instruments. The tax position in Cyprus at the moment, relating to crypto is that they are considered barter transaction and both crypto to crypto and crypto to fiat trasnsactions are taxed on normal trading route (that is 12.5% corporation tax on company level and progressive tax bands on personal level)

No this is not true. Remember we are talking about passive interest income which in comparison with the rest of the company's activities is considered modest.
See below PWCs breakdown:
View attachment 4711

So if the company is doing some lending (for example p2p lending on real estate project, ...) it would be liable 30% on these interests.
But can you reduce the interests that the company pays ? For example if the company pays you 200k Interests but earns 50k in interests : net interests = -150k, it means no taxes OR do you have to pay the 30% on the 50k ?

There are no clear guidelines and each case must be determined on its own facts. Having purely an active day trading activity as source of income and be tax resident of Cyprus would evidently be considered as a budge of trade.

Yes this is correct. You need to declare in the IR1 (personal tax return) any income/gains from trading in financial instruments. Although tax exempt, they are subject to a 2.65% NHS deduction with a cap on 180k income per annum

doing p2p lending is better as an individual? is it tax free as non dom or is there a risk it could be deemed as an professional activity ? (treated then like question 1)

No this is not true. Remember we are talking about passive interest income which in comparison with the rest of the company's activities is considered modest.

if the main activity of the company is the manage assets and lend it here and there, still the 30% could apply ? (if the interest is lower profit than the trading)

 

[dziter]

@Bill D : It is not a professional advice. Some information I have collected myself (for a non-dom individual).
Hope it helps you to understand it better.

P2P lending – This will be considered as interest and you will have to pay GESY of 2.65% if you will keep it personally. If your company is involved in this process you would have to pay defence tax at the rate of 30%.
Real estate crowdfunding – It will depend on how you will be receiving your return. If it will be in the form of dividends you will be paying 2.65% GESY on it. The same applies if it will be considered as a capital gain.
Stock profits – This will be considered as a capital gain and you would have to pay GESY on it of 2.65%
Crypto - ?
Short term rent – This will be considered as normal trading income and it will be taxed under the normal rates where you have a tax free limit of €19.500. You will also need to pay GESY of 2.65%.
Long term rent – This is normal operating income. Only 80% of long term rentals is taxed. It will be taxed under the normal rates where you have a tax free limit of €19.500. You will also need to pay GESY of 2.65%.

Please note that the first 4 items on top are not taxed under income tax and therefore do not count towards the tax free amount of €19.500. These 4 items you can keep personally on yourself.

As far as the rental, if the amount will exceed €19.500 per year, it would probably make sense to run it through the company but again it will depend on the amounts involved. For instance if the amount is €30.000 it still makes sense to keep it personally.