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

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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.
 
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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

Regarding crypto-to-crypto taxation and the linked article from CYAUSE, I found that CYAUSE also has a channel on youtube and a while ago they published this video:

They don't discuss crypto-to-crypto taxation in the video itself, but in the comment section they responded to one of the question that only "transactions from crypto to crypto are not considered realised gains AND only transactions from crypto to eur are taxed"

Can anyone confirm or challange that?

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Can anyone confirm or challange that?
I didn't see any clear legislation or directive for the taxation of crypto trading profits in CY. However, there was an amendment from 2015 which clarifies the treatment of forex gains as following:
As guidance to the amendments, we hereby present the following: Amendments made to the Income Tax Law A. Tax neutrality of foreign exchange gains and losses
As per the amended Income Tax Law (ITL), realised as well as unrealised foreign exchange (FX) differences whether resulting to gains or losses, and irrespective of whether their nature might be revenue or capital, will be neither taxable nor deductible for Cyprus tax purposes.

This tax neutrality, however, does not apply to gains and losses arising from FX trading, trading in foreign currencies, as well as trading in foreign currency derivatives, and therefore these FOREX gains / losses will be taxable / deductible respectively for Cyprus tax purposes. In such cases of entities trading in foreign currencies, the amended tax law introduces an option for an irrevocable election to be made, according to which such entities will be taxed only on realised FX differences. If such an election is made, the relevant entity will have to submit a form (approved by the Registrar) indicating this election together with the immediate next annual tax return to be submitted. Further, if this option is elected, any unrealised FX differences being a result of trading in currencies or currency derivatives will be treated as taxable or tax deductible within the year that they are realised. Overall, this recent development makes the tax treatment of FX differences a simpler task, and an entity, which is not dealing in FX trading, will be able to make profit and other economic performance projections more precisely, as the currency rates fluctuations factor is now eliminated as a tax-element. Moreover, it provides taxpayers with clearance and certainty that any FX differences resulting either from trading or capital nature, can be ignored for tax purposes. Date applicable: This law is amended with a retroactive effect as of January 1st, 2015.
Important amendments to the Cyprus tax laws - Eurofast

This amendment doesn't mention any conversion from one currency to EUR but "realisation" of FX differences resulting from a transaction. I guess this will also apply to crypto trading and it doesn't matter whether the trade has been crypto-to-fiat, crypto-to-EUR or crypto-to-crypto.
 
I didn't see any clear legislation or directive for the taxation of crypto trading profits in CY. However, there was an amendment from 2015 which clarifies the treatment of forex gains as following:


This amendment doesn't mention any conversion from one currency to EUR but "realisation" of FX differences resulting from a transaction. I guess this will also apply to crypto trading and it doesn't matter whether the trade has been crypto-to-fiat, crypto-to-EUR or crypto-to-crypto.
I would argue it does. Because if Crypto isnt considered a currency, it's a very different pair of shoes than forex trading and possibly wouldn't count as realized profits as you only get another crypto (non-currency) for your crypto sell..? @CyprusLaw or @CyprusLawyer101 might have a better idea?
 
I would argue it does. Because if Crypto isnt considered a currency, it's a very different pair of shoes than forex trading and possibly wouldn't count as realized profits as you only get another crypto (non-currency) for your crypto sell..? @CyprusLaw or @CyprusLawyer101 might have a better idea?
There has been no guidance so far, but from the moment that there is no explicit exemption in the law the realisation of profit (crypto to fiat) is taxable. With respect to crypto to crypto there are differing opinions, however, you cannot tax something that you have not recognised under the relevant laws explicitly, also the UK has exempted this and we usually follow the UK so I would expect the same treatment to continue.
 
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
How can anybody check that whatever you declared is correct?
If the tax office don't even care about non-doms running offshore companies, how can they check or know if you made PnL on your trading accounts?
 
How can anybody check that whatever you declared is correct?
If the tax office don't even care about non-doms running offshore companies, how can they check or know if you made PnL on your trading accounts?

You can check the guidance here as published by the Ministry of Finance: https://www.mof.gov.cy/mof/TAX/taxd...4/$file/Guidance for GHS 2023.pdf?OpenElement

All financial institutions need to report under CRS and FATCA and as such the tax office would be aware that you have an active brokerage account. In case of a challenge they have all the tools to detect this. Of course you can weigh your own risk and determine whether to declare or not. It is our suggestion to get advice prior embarking on a risky approach
 
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You can check the guidance here as published by the Ministry of Finance: https://www.mof.gov.cy/mof/TAX/taxdep.nsf/All/C858F987BBC522B1C2258997003F3864/$file/Guidance for GHS 2023.pdf?OpenElement

All financial institutions need to report under CRS and FATCA and as such the tax office would be aware that you have an active brokerage account. In case of a challenge they have all the tools to detect this. Of course you can weigh your own risk and determine whether to declare or not. It is our suggestion to get advice prior embarking on a risky approach
in your reference there is a table and a direct referral to art.5 of income tax. Interestingly capital gain (when not obtained in a self-employed/professional trading activity) seems excluded from GHS (cannot find it in the table and cannot find capital gain in art.5 definition).

Does it mean that if an individual sells a participation or liquidate it GHS is not applicable?

Is my interpretation correct?
 
in your reference there is a table and a direct referral to art.5 of income tax. Interestingly capital gain (when not obtained in a self-employed/professional trading activity) seems excluded from GHS (cannot find it in the table and cannot find capital gain in art.5 definition).

Does it mean that if an individual sells a participation or liquidate it GHS is not applicable?

Is my interpretation correct?
You are correct on the fact that gains from trading financial instruments is not explicitly mentioned on the circular and also not nentioned in the income tax law. However, this income is captured under income tax law art. 5(a) and then exempted from tax under article 8 (22).

In the GHS liability is referred under section 19(1)(g) of the GHS law.

The above can be substantiated once you attempt to fill your personal return (IR1). You will include the income from trading financial instruments under part 4(H) as exempt income and the GHS calculation will automatically appear in GHS liability working under ‘other income’ category.
 
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There has been no guidance so far, but from the moment that there is no explicit exemption in the law the realisation of profit (crypto to fiat) is taxable. With respect to crypto to crypto there are differing opinions, however, you cannot tax something that you have not recognised under the relevant laws explicitly, also the UK has exempted this and we usually follow the UK so I would expect the same treatment to continue.
Let's say I want to have a perfectly legal new home for my day trading activity. And I follow that interpretation... I would register LTD for Crypto Trading and my Accounting would just include the 1-2x Withdrawals per Month and maybe 6-7 Deposists per year, but no crypto-2-crypto trading history? I will take care of a seamless Trading history anways - that's not the point. I ask, because most Accountants I saw have a specified number of "Transactions per Month" in their Packages, and they're very expensive. If I do 1000 Trades per Month (which is rare but possible), and they would consider each Trade a "transaction" I would have to pay like 3000-5000$ solely for the transactions...
 
Let's say I want to have a perfectly legal new home for my day trading activity. And I follow that interpretation... I would register LTD for Crypto Trading and my Accounting would just include the 1-2x Withdrawals per Month and maybe 6-7 Deposists per year, but no crypto-2-crypto trading history? I will take care of a seamless Trading history anways - that's not the point. I ask, because most Accountants I saw have a specified number of "Transactions per Month" in their Packages, and they're very expensive. If I do 1000 Trades per Month (which is rare but possible), and they would consider each Trade a "transaction" I would have to pay like 3000-5000$ solely for the transactions...
Shouldn't an accountant just provide a spreadsheet template for you to fill it in yourself with your trades?
It's ridicolous they ask that money for accountancy that can be automated by clients themselves.
 
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There has been no guidance so far, but from the moment that there is no explicit exemption in the law the realisation of profit (crypto to fiat) is taxable. With respect to crypto to crypto there are differing opinions, however, you cannot tax something that you have not recognised under the relevant laws explicitly, also the UK has exempted this and we usually follow the UK so I would expect the same treatment to continue.
Based on all that has been discussed, I can identify two options for non-domiciled individuals in Cyprus to invest in cryptocurrency without having their gains taxed as regular income:

  1. Invest directly in Bitcoin, and in the event of gains, convert BTC to stablecoins instead of fiat currency.
    • BENEFIT: By only converting between crypto and fiat being taxable, you can "lock" your gains without triggering a tax event. If your gains are substantial, you could consider moving to a crypto-tax-friendly country to convert to fiat or wait for clearer tax guidelines from Cyprus

    • RISK: There is no official confirmation that crypto-to-crypto (stablecoin) conversions are not subject to taxation.
  2. Instead of directly investing in bitcoin, consider purchasing securities that have a price correlation with bitcoin.
  • BENEFIT: Profits from the sale of these securities are exempt from taxation for non-domiciled individuals.

  • RISK(?): In a different video, the same accountant from CYAUSE mentioned that trading securities "tied to crypto" might be taxed as regular income, similar to trading crypto. However, there was no clear explanation of what constitutes being "tied to crypto".

    It’s pretty obvious that crypto-securities like ETFs, futures, and options, which are derivatives would likely be taxed as regular income. But what about stocks of actual businesses whose prices correlate with crypto? Examples:

    MicroStrategy – it’s a publicly listed enterprise software company, with offices, employees, and cash flow. They’re using cash flow from producing the software to buy and hold Bitcoin on their balance sheet. They became the biggest corporate holder of BTC, hence the price of their stock is highly correlated to the price of BTC.

    Marathon – publicly listed Bitcoin mining company. It’s also a business with employees, cash flow, tons of hardware, etc. but their profit depends on the price of BTC that they mine, hence their stock is also highly correlated to the price of BTC (the same as gold mining company profit depends on the price of the gold).
@CyprusLaw @CyprusLawyer101 - Can any of these options (1 or 2) be considered rock-solid i.e. 100% tax exempted? If both of them are arbitrary and unless official guidance is issued, is one option safer than the other?
 
There has been no guidance so far, but from the moment that there is no explicit exemption in the law the realisation of profit (crypto to fiat) is taxable. With respect to crypto to crypto there are differing opinions, however, you cannot tax something that you have not recognised under the relevant laws explicitly, also the UK has exempted this and we usually follow the UK so I would expect the same treatment to continue.
regadring UK,
Crypto to Crypto: Generally treated as a taxable disposal.
 

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