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30 May, 2024

K. Treppides & Co Ltd: Cryptocurrency: Trading in cryptocurrency for own benefit. Cyprus tax treatment.

Forex, cryptocurrencies and regulation

By Andreas Vladimirou
K. Treppides & Co Ltd

From Bitcoin and Ethereum to Dogecoin and USDT, there are thousands of different cryptocurrencies, which can make it extremely tempting when you are first getting started trading in crypto world (as of March 2022, exist over 18K cryptocurrencies). Seems that we cannot stop hearing stories about cryptos in our workplace and media or via web searching how many people have become millionaires trading in cryptocurrencies.

During that period of time up until today we have all familiarize ourselves with what a cryptocurrency is and what a trading in cryptocurrency consider to be.

As per current terminology a cryptocurrency is a medium of exchange that is digital, encrypted and decentralized. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet.

You can use crypto to buy regular goods and services, although most people invest and trade in cryptocurrencies as they would in any other type of assets, such as stocks or precious metals. While cryptocurrency can be considered as a quite new and exciting asset class, purchasing it can be extremely risky as you must take on a fair amount of research to fully understand how markets works.

While on a simple terms, trading in cryptocurrencies is the act of buying and selling of cryptocurrencies with the intention of making a profit.

Naturally any of us, will become excited having a wallet account buying some or even many of those thousands of cryptocurrencies that exist out there and we will become even more excited when those cryptos are appreciated in value.However what happens when we will need to realize and convert those crypto into fiat currenciessuch as the pound sterling, the euro and the US dollar?

Without entering into further details, is crucial to understand the substance of cryptocurrencies to be able to determine their correct accounting and tax treatment.

Without entering into further details, it is crucial to understand the substance of cryptocurrencies to be able to determine their correct accounting and tax treatment

Currently under financial reporting they do not fit into any financial category perfectly; they are similar to account receivables, currencies or investment, but do not meet all criteria of each class of asset entirely.

While under Cyprus Income Tax law, the Tax Department has not provided any guidance as to whether they consider the cryptocurrencies as currencies or as commodities or as intangible assets. It should be noted although that for Income tax purposes cryptocurrencies are treated as taxable assets.  This means that any gains / losses made from the trading in cryptocurrencies should be taxable / tax deductible.  The gain / loss that should be taxable / tax deductible is the difference between the selling price of the cryptocurrency and the initial acquisition price.  Any unrealized fair value revaluations of the cryptocurrency should be tax neutral, and the realized gain / loss (i.e. selling price minus acquisition price) will be taxable / tax deductible upon disposal of the cryptocurrency.

On the other hand, on the understanding that cryptocurrency is not considered as currency for tax purposes, any FX differences which might be recorded in the books of a company on these instruments should also be treated as tax neutral.

Well mentioning that under certain circumstances it can be argued that the gain from cryptocurrencies are of a capital nature and hence non-taxable. This of course will depend based on the badges of trade of the specific case such as the:

  • Profit motive/subject matter of the transaction;
  • The frequency or number of similar transactions;
  • Length of ownership;
  • Method of acquisition / financing;
  • Experience and knowledge of the party involved;

On such limited cases a tax ruling is strongly advisable to secure and bulletproof individuals / Companiestax treatment.

Living in the new era of accelerated trading of cryptocurrencies, many argue that the traditional accounting treatments and taxation rules are not the most appropriate to be used and need to be revised to be able to accommodate these technological developments. Over the years we ‘ve seen that future favors those who can adopt and treat these developments as an opportunities. Professionals in the field must aim and contribute eliminating any gap between financial and technology industry, thus aiming for the most appropriate and fairer uniformity of Accounting and Tax treatments. 

K. Treppides & Co Ltd is the largest independent consulting company in Cyprus with an established international presence and offices in Great Britain and Malta. Today the company employs approximately 200 professionals. It offers a full range of consulting, tax, accounting services to groups, companies and investors operating internationally in a variety of financial and business sectors. The Company, which started its operations in 1985, has 36 years of expertise and an elite team of experienced executives who can guide and assist investors and businesses during the establishment process and subsequent investment activity in Cyprus and internationally. 

Contact Details:

Nicosia: Treppides Tower, Kafkasou 9, Aglantzia, CY 2112, Nicosia, Cyprus
Limassol: Andrea Kariolou 38, Ayios Athanasios, CY 4102, Limassol Cyprus
London:7 Milner Street, London SW3 2QA
Malta: Level 1, Somnium, Tower Road, Swatar, Birkirkara BKR 4012

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