Crypto Regulations In Cyprus
August 12, 2022 (Investorideas.com Newswire) Cryptocurrencies have seen a massive surge in many places worldwide, with Cyprus not being any different. For the most part, governments have awoken to the potential of cryptocurrency and begun to implement laws to regulate its activities within their borders. For most nations, these laws are constantly refined due to the relative novelty of cryptocurrencies and the inherent difficulty in their regulation.
As such, cryptocurrency laws might differ from country to country and might be lenient or strict, depending on how cryptocurrencies are viewed. Until recently, Cyprus has had little to no guidance for crypto activities, constituting the nation to be widely regarded as a crypto-friendly nation. Consequently, the number of active traders in Cyprus is increasing daily as more and more people join in to take advantage of the lenient cryptocurrency laws.
This massive surge towards crypto trading in the country has forced the Cyprus government to enforce more regulation on crypto activities—at least at the corporate level—ranging from requirements for the operation to taxes levied on profits gained from the venture. Though the laws are still in a state of flux, it is recommended that active crypto traders within Cyprus should keep abreast of the new regulations in order not to be penalized by the law.
Cryptocurrency in Cyprus
Cryptocurrencies are fast reaching the point of mass adoption. In Cyprus, especially since the country mostly welcomes using cryptocurrencies and digital assets. The lenient laws on its activities are widely regarded as a boon to those involved. Cryptocurrencies are yet to be accepted as legal tender, so it is impossible for a trader to "buy" digital assets from a bank or investment firm. Individuals looking to day trade cryptocurrencies are constrained to using crypto exchanges, which are becoming increasingly popular in Cyprus.
For example, crypto exchanges, like CoinBase and Binance, are platforms used to buy cryptocurrencies or otherwise trade digital currency for goods and services or fiat currency. While these crypto exchanges are increasingly becoming the norm, regulatory bodies like the Central Bank of Cyprus have constantly warned against their use of trades due to the erratic nature of crypto prices, which might make trading in them unpredictable at best, shaky security on crypto trades, and the lack of guarantee of reimbursement for stolen cryptocurrencies. Despite this, cryptocurrencies still maintain a foothold in Cyprus.
Is Crypto Legal Tender in Cyprus?
While cryptocurrency is technically legal in Cyprus, it has not yet been accepted as a legal tender. Government businesses are not required to accept it as payment for goods or services. That being said, cryptocurrency derivatives can be regarded as legal, financial instruments in very specific conditions. They are:
- As "contracts relating to securities which may be settled physically or in cash."
- As "financial contracts for differences."
- As "any other derivative contracts relating to assets…which have the characteristics of other derivative financial instruments."
A key point to note is that while cryptocurrencies aren't recognized as legal tender because of the difficulty in defining them, they don't fit into any other financial category either. Some bodies regard digital currencies as intangible assets, investments, or commodities. This varied view makes it problematic to develop a specific framework on how cryptocurrencies should be recognized, treated, and taxed.
Notably, this problem only affects the individual handling of cryptocurrencies. For large-scale activities such as those seen in crypto-invested companies, several bodies have been created to supervise their actions.
Crypto Regulations in Cyprus
Because of its widespread nature across the globe, cryptocurrency is an inherent risk of being used in criminal activities. This risk is compounded when taking the relatively anonymous nature of cryptocurrencies and the fact that cryptocurrency transactions regularly reach across countries, bypassing most jurisdictions, making surveillance of trades difficult. Additionally, the decentralized nature of digital assets makes them a hassle to regulate effectively.
All of these add up to cause no little concern amongst government bodies looking to prevent the use of cryptocurrency for criminal activities like money laundering. To combat this, EU member states have enacted the Anti-Money Laundering (AML) legislation. These are rules and procedures designed to prevent the use of cryptocurrencies for money laundering activities.
As Cyprus is a member of the European Union, companies within its borders that are heavily invested in cryptocurrency dealings and transactions are tasked to register with the FCA (a supervisory board of the AML) to comply with these set guidelines to run efficiently.
Unsurprisingly, due to the relative invasiveness of these laws, there has been significant pushback from organizations subject to them, with some closing down entirely.
Crypto Tax Regulations
As a regulatory measure against the massive surge of cryptocurrency activities around the globe, several countries developed and implemented a taxation system on profits from trading in cryptocurrencies.
Cyprus is widely regarded as a crypto-friendly nation primarily because of its lenient crypto tax regulations. Since no specific frameworks have been put in place for it, the country doesn't enforce the tax on personal trading. However, corporations offering crypto services are taxed on their profit. Still, at 12.5%, the taxation rate is lenient when compared to other EU member states.
As cryptocurrencies become more widespread in Cyprus, there is an additional need for more stringent rules and regulations to govern the trade of digital currencies. Specific frameworks have already been developed for companies invested in crypto trading. And more are being drafted for smaller-scale crypto activities. It is vital, then, for individual traders to keep abreast of the developing regulations and ensure they comply with the laws.
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