Zypern

Disclaimer: The regulatory information provided below is for general informational purposes only and may not reflect the most current legal developments. Cryptocurrency regulations are rapidly evolving and can change frequently. This information should not be considered legal or tax advice. Before making any business or investment decisions, please consult with qualified legal, tax, or financial professionals familiar with your specific jurisdiction and circumstances. Always verify current regulations with official government sources and regulatory bodies.

Legal Classification & Regulatory Framework

Cryptocurrency Status

Cryptocurrency is legal in Cyprus, although it is not recognized as legal tender. The country has established itself as a relatively welcoming jurisdiction for cryptocurrency activities within the European Union, combining a moderate regulatory approach with alignment to EU-wide frameworks. The Prevention and Suppression of Money Laundering and Terrorist Financing Law (the „AML Law“) serves as the primary legislation that recognizes and defines crypto-assets in Cyprus.

Under Cypriot law, crypto-assets are defined as a digital representation of value that is not issued or guaranteed by a central bank or public authority, is not necessarily attached to a legally established currency, does not possess the legal status of currency or money, but is accepted by persons as a means of exchange or investment and can be transferred, stored, or traded electronically. This definition explicitly excludes financial instruments as defined under MiFID II and electronic money under existing e-money regulations.

The Central Bank of Cyprus (CBC) has repeatedly clarified that cryptocurrencies are not legal tender and are not backed by any government. The CBC considers crypto-assets unsuitable as reserve assets and has issued multiple warnings about the risks associated with cryptocurrency transactions, including price volatility, security vulnerabilities, and potential for fraud. However, these warnings do not constitute a prohibition on cryptocurrency ownership or trading by individuals or legal entities.

Tax Treatment

Cyprus does not currently have crypto-specific tax legislation. Instead, the taxation of cryptocurrency transactions follows general principles of income and capital taxation, with the key determining factor being whether the activity constitutes a capital holding or a trading activity.

For individuals, the tax treatment depends on the nature of their cryptocurrency activities. Passive, long-term holding of crypto-assets as a store of value may fall outside the scope of income tax, as Cyprus does not tax capital gains except on immovable property situated in Cyprus. However, if an individual is actively trading cryptocurrencies with frequency and sophistication, profits are likely to be classified as income in nature and subject to progressive income tax rates ranging from zero to thirty-five percent.

For companies, cryptocurrency profits from trading activities are subject to the standard corporate income tax rate. Companies holding cryptocurrencies for investment purposes may benefit from exemption from capital gains tax on sales. Additionally, Cyprus does not impose withholding tax on dividends paid to non-domiciled Cyprus residents or foreign shareholders, making corporate structuring attractive for cryptocurrency businesses.

Regarding VAT treatment, Cyprus follows the European Court of Justice precedent which treats crypto-to-fiat exchanges as VAT-exempt financial services. This applies to exchanges between fiat and cryptocurrency and to platform fees charged by registered providers.

The Cyprus Tax Department allows taxpayers to request tax ruling decisions to clarify the tax treatment of specific cryptocurrency transactions, providing certainty and protection from future disputes. These rulings can be obtained through either a standard process or a fast-track procedure.

A significant tax reform package has been proposed that would introduce a flat eight percent tax on profits from the disposal of crypto-assets, applicable to both individuals and companies. This reform would also increase the corporate income tax rate from the current rate to fifteen percent, aligning with OECD global minimum tax standards. However, these changes remain subject to parliamentary approval and are not yet enacted into law.

Regulatory Oversight

Several authorities share responsibility for overseeing the cryptocurrency landscape in Cyprus:

The Cyprus Securities and Exchange Commission (CySEC) serves as the primary supervisory authority responsible for registering, licensing, and regulating Crypto-Asset Service Providers (CASPs). CySEC enforces compliance with AML/CFT laws and issues directives on risk management, capital adequacy, and conduct of business for crypto-related activities. CySEC has also been designated as the competent authority for the implementation of the EU’s Markets in Crypto-Assets Regulation (MiCA).

The Central Bank of Cyprus (CBC) plays an active role in discussions related to blockchain’s application in banking services and issues public warnings about the risks associated with cryptocurrency transactions. Under MiCA, the CBC is the competent authority for Electronic Money Tokens (EMTs).

The Unit for Combating Money Laundering (MOKAS) is Cyprus’s financial intelligence unit, which plays a crucial role in AML enforcement. All CASPs are required to report suspicious transactions directly to MOKAS to help combat financial crime.

The Deputy Ministry of Research, Innovation and Digital Strategy is responsible for developing and implementing the national blockchain strategy and coordinating government initiatives in the digital finance space.

Business Environment

Banking Relationships

One of the most significant challenges facing cryptocurrency businesses in Cyprus is securing banking relationships. The banking sector has generally taken a cautious approach regarding proceeds generated from cryptocurrency trading, as the sources and destinations of funds in crypto transactions are often perceived as lacking the transparency required to meet AML criteria. As a result, many banking institutions in Cyprus have been reluctant to open accounts for cryptocurrency businesses or process transfers to and from cryptocurrency exchange platforms.

Under current regulations, Authorized Credit Institutions (banks) in Cyprus cannot be registered as CASPs and therefore cannot directly deal with crypto-assets or provide custody services for cryptocurrencies. This creates a structural separation between the traditional banking sector and the crypto industry.

However, the regulatory landscape is evolving. Traditional banks now conduct enhanced due diligence on crypto-related payments, including KYC checks on corporate clients and verification of CASP license status with CySEC. For crypto-related transfers above certain thresholds, the EU Travel Rule requires that identity data travels with the payment, meaning both sender and receiver must provide full identity information.

Despite these challenges, licensed CASPs are generally more likely to secure banking services compared to unregulated entities. The implementation of MiCA across the EU is expected to gradually improve banking relationships for compliant crypto businesses as the regulatory framework becomes more established and banks develop greater comfort with the sector.

Licensing Requirements

All Crypto-Asset Service Providers intending to operate in or from Cyprus must register with CySEC before commencing activities. The registration process typically takes approximately six months and requires applicants to meet stringent requirements.

Types of regulated activities include: exchange of crypto-assets for fiat currency, exchange of crypto-assets for other crypto-assets, custody and administration of crypto-assets on behalf of clients, operation of trading platforms for crypto-assets, receiving and transmitting orders for crypto-assets, execution of orders on behalf of clients, placing of crypto-assets, portfolio management, and providing advice on crypto-assets.

Key registration requirements include: incorporation as a Cyprus company, appointment of directors and shareholders with proven integrity, expertise and skills (typically a minimum of four directors, including two independent directors), establishment of a physical office in Cyprus, development of comprehensive AML/CFT policies and procedures, implementation of robust cybersecurity measures and data protection systems, maintenance of adequate capital based on the classification of crypto activities, and opening of a corporate bank account.

Initial capital requirements depend on the classification of crypto activities and range from fifty thousand euros to one hundred fifty thousand euros. CASPs must also maintain own funds at the higher of their required initial capital or twenty-five percent of fixed expenses during the previous year.

CASPs established in other EEA countries that are already registered with their national competent authorities for AML/CFT purposes must notify CySEC of their intention to offer services in Cyprus before doing so.

With the full implementation of MiCA, the licensing regime has transitioned from the national framework to the harmonized EU system. CASPs already registered under national rules can continue operating during a transitional period while seeking MiCA authorization. The MiCA framework provides EU-wide passporting rights, allowing licensed entities to offer services throughout the Union.

Innovation Support

Cyprus has demonstrated strong commitment to fostering innovation in the financial technology and cryptocurrency sectors. Several government initiatives support the development of blockchain and crypto businesses.

CySEC established an Innovation Hub which acts as a platform for both supervised and non-supervised entities to share knowledge and accelerate business development while maintaining investor protection. The Innovation Hub provides support to market participants introducing innovative financial products or services and facilitates engagement between fintech innovators and the regulator.

CySEC also operates a Regulatory Sandbox, providing supervised, real-world testing environments for innovative business models. This sandbox allows fintech startups and other companies to test products in a controlled environment under CySEC supervision before full market launch.

The Cyprus government formed a dedicated working group through a Council of Ministers decision to develop and implement a national blockchain strategy. This initiative aims to identify public and private sector services that could be enhanced with Distributed Ledger Technology, develop guidelines for a National DLT Services Infrastructure, and establish parameters for an appropriate regulatory framework.

Cyprus has participated in broader EU blockchain initiatives, having signed the Declaration of the Southern Mediterranean Countries on Distributed Ledger Technologies and joined the European Blockchain Partnership to foster collaboration and blockchain infrastructure development across member states.

Market Characteristics

Adoption Patterns

Cyprus has become an attractive destination for cryptocurrency investments and businesses, driven by its favorable tax environment, EU membership, strategic location, and relatively business-friendly regulatory approach. The country has attracted major global fintech and crypto firms, establishing itself as a recognized hub for the industry within the European Union.

Consumer adoption of cryptocurrencies in Cyprus continues to grow, though cryptocurrencies are not widely accepted as a payment method by mainstream merchants. Interest in cryptocurrency is driven by investment potential rather than payment utility, with both retail and institutional investors participating in the market.

The non-domiciled tax resident status available in Cyprus has proven particularly attractive to cryptocurrency investors and entrepreneurs, as it offers exemption from Special Defence Contribution on dividend and interest income, making it possible to structure crypto holdings in tax-efficient ways.

Industry Focus

Cyprus has attracted a diverse range of cryptocurrency businesses. The country hosts cryptocurrency exchanges, trading platforms, wallet providers, and various fintech companies offering crypto-related services. The presence of an established financial services industry and experienced professional services sector (legal, accounting, and compliance) supports the operational needs of crypto businesses.

The investment firm and fund management sector has also shown interest in cryptocurrency-related activities, with some entities seeking to offer crypto services under their existing licenses through the simplified notification procedure available under MiCA for already-licensed financial entities.

Cyprus benefits from a stable and reliable legal system based on English common law principles, which provides familiar structures for international businesses. The availability of qualified professionals with expertise in financial services regulation, combined with competitive corporate tax rates and EU market access, makes Cyprus an appealing jurisdiction for crypto entrepreneurs and investment groups.

Regulatory Evolution

The regulatory framework for cryptocurrency in Cyprus is in active evolution, shaped primarily by EU-level developments. The full implementation of the Markets in Crypto-Assets Regulation (MiCA) represents the most significant regulatory change, establishing a comprehensive and harmonized framework across all EU member states.

MiCA introduces uniform requirements for the issuance of crypto-assets, admission to trading on trading platforms, and the provision of crypto-asset services. Key features include mandatory white paper publication for crypto-asset offerings, capital requirements and governance standards for CASPs, consumer protection measures, and prevention of market abuse. Cyprus has adopted the full eighteen-month transitional period allowed under MiCA for existing CASPs to obtain authorization under the new regime.

The regulatory approach in Cyprus balances the desire to attract innovative businesses with the need to protect consumers and maintain financial stability. As the EU continues to develop secondary legislation and technical standards under MiCA, Cyprus will continue adapting its national framework accordingly.

Looking ahead, the proposed tax reforms would bring greater clarity and predictability to the taxation of cryptocurrency transactions, while potential evolution in banking sector attitudes toward crypto businesses may ease one of the main operational challenges currently facing the industry.

For Current Information:

• Cyprus Securities and Exchange Commission (CySEC) – www.cysec.gov.cy
• CySEC CASP Registration Information – CySEC CASP Portal
• Central Bank of Cyprus – www.centralbank.cy
• Central Bank of Cyprus – MiCA Information – CBC MiCA Page
• European Securities and Markets Authority (ESMA) – MiCA – ESMA MiCA Information